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Oct. 18: ResCap to cut 460 jobs in Twin Cities
The cuts, coming as the broader mortgage industry struggles amid the housing downturn, are a "bitter reminder ... that Minnesota is affected by national trends," Minnesota's state economist said.
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In its third round of layoffs this year linked to a nationwide financial pounding in mortgage markets, Residential Capital Corp. on Wednesday announced plans to shed nearly 30 percent of its Twin Cities-area workforce.
The Bloomington-based real estate finance company will eliminate 460 jobs locally in a workforce reduction that will affect 3,000 of its 12,000 workers worldwide. Once the cuts are made, the company's Twin Cities payroll will stand at nearly half its peak during the height of the mortgage boom -- fewer than 1,100, compared with 1,900 in 2006, said Stephen Dupont, a ResCap spokesman.
Tom Stinson, the state's economist, said, "Today's news is a bitter reminder of the fact that Minnesota is affected by national trends."
The bloodletting among the nation's mortgage companies has been wide and deep.
Fifteen of the top 25 U.S. subprime lenders in 2006 have either filed for bankruptcy, shut down some or all of their mortgage business or sold their mortgage units to larger, financially stronger companies, according to UBS Investment Research.
Four of the major subprime lenders announced layoffs before the latest round of job cuts at ResCap. Giant Countrywide, plagued by financial reversals, topped the list. It recently started layoffs that are expected to total 12,000 in the months ahead. Wells Fargo's home mortgage unit over the summer closed its subprime wholesale lending unit.
As losses from subprime mortgages mount, lenders are curtailing marketing, merging, making layoffs or filing for bankruptcy protection.
"This is widespread and, obviously, there's more to come," Stinson said.
The financial sector that includes ResCap accounted for 12,500 Minnesota jobs at the end of September, down from 13,600 a year earlier. Taken alone, the 12,500 jobs account for less than half of 1 percent of all jobs in the state. But the cuts come at a time when Minnesota's job market trails the performance of the nation in nine of 12 industries.
Little more than a year ago, ResCap -- an arm of General Motors Acceptance Corp. -- boasted glittering financial statements. A giant in the home mortgage business in a boom era of residential real estate, ResCap generated profits approaching $750 million in the first half of 2006; that was part of the appeal when Cerberus Capital Management, a New York-based private equity firm, paid $14 billion for a controlling stake in GMAC in 2006.
The financial landscape soon shifted when the residential real estate market bubble burst.
ResCap reported nearly $1.2 billion in losses in the first half of this year and saw major bond-rating agencies downgrade its debt rating to junk status. ResCap reported a sharp rise in nonperforming mortgages compared with earlier years. A management shakeup occurred last spring.
ResCap's third-quarter results have not yet been reported, but the company said restructuring charges related to the layoffs will range from $90 million to $110 million in the fourth quarter -- costs linked to severance pay and office closings.
"ResCap will continue to modify its product offerings based on market conditions and has sharply reduced its exposure to non-prime and prime nonconforming loans," the company said.
In August, ResCap noted a number of trends pelting the company's business: high consumer debt and falling home prices, which were leading to increased loan delinquency rates even as mortgage origination rates were sliding from record levels.
"The reduction in ResCap's workforce was influenced by sharp downturns in the U.S. residential real estate markets and the global dislocation of the mortgage finance and credit markets," the company said Wednesday.
"The mortgage industry continues to experience lower overall origination volumes, illiquidity in the secondary market and adverse trends in home price appreciation."
Mike Meyers • 612-673-1746
Mike Meyers • meyers@startribune.com
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