ResCap's loss for all of 2007: $4.3 billion

Bloomington-based Residential Capital, struggling with the continuing fallout from subprime mortgage lending, on Tuesday reported its fifth consecutive quarter of red ink, posting a net loss of $921 million for the last three months of 2007.

ResCap's loss for the year was a stunning $4.3 billion -- a swing of more than $5 billion from its $705 million profit in 2006, before the housing boom ended and the company's mortgage-lending business went sour.

The company said its results were battered by write-downs on mortgage-backed securities, rising cost of capital, increasing loan-loss provisions, sagging real estate prices and restructuring costs.

In recent months, the company reduced its payroll by 3,000 people, including nearly 600 in the Twin Cities area. Third-quarter results included a $127 million charge tied to the cost of closing offices and of layoffs.

Are the layoffs over?

"We're watching that business in a dynamic funding environment," said Robert Hull, chief financial officer of GMAC, which owns 49 percent of ResCap. "So I would never go so far as to say they're over. Obviously, the largest number is over."

Said Jim Jones, ResCap's chief executive: "We all understand that the best benefit to us in terms of both job security and job opportunities is to make the business successful."

The rating service, explaining its decision to sink GMAC further into junk-bond territory, cited the financial risks involved in GMAC's support of ResCap. GMAC provided a $1 billion capital injection to ResCap in the third quarter.

In recent weeks, GMAC and Cerberus have been looking for buyers for lines of ResCap business but on Tuesday offered no details on the progress of that strategy. In a conference call, Hull said GMAC has no plans to provide more capital to ResCap.

ResCap's performance led to a $724 million fourth-quarter loss for GMAC, offsetting the parent company's profits from auto loans and international lending. Hull said GMAC should return to profitability, but stopped short of predicting that ResCap will produce earnings instead of losses in the year to come.

"We've taken aggressive steps to address our disappointing performance throughout 2007, knowing there may be more to face in 2008," Hull said.

ResCap, with money from GMAC, retired $740 million in debt, wrote mortgages only for the most-qualified buyers, increased loss reserves and marked down or wrote off hundreds of billions in troubled loans in the fourth quarter.

Loan production fell to $20.8 billion in 2007, down from $49.2 billion the year before.

"Non-prime production has been cut to virtually zero," Hull said. "We've tightened our credit criteria three times through 2007.

"The actions we've taken to reduce our cost base and risk profile have started to have an impact."