Residential Capital will cut 250 jobs now -- and more later

Financially battered Residential Capital, based in Bloomington, will be showing the door to another 250 employees this month, with more job cuts to follow by the end of the year, the company announced Wednesday.

The latest move will leave ResCap's Minnesota workforce at 555 -- down 70 percent from its 2006 peak of 1,900.

The company's financial fortunes have been in rapid decline in the wake of the subprime mortgage debacle that left ResCap and other once high-flying lenders with billions in loans unlikely to be repaid.

Nationwide, ResCap plans to purge 3,000 jobs this month, followed by 2,000 more by the end of the year. The 250 job cuts in Minnesota represent only the first round of layoffs, said Gina Proia, a company spokeswoman. She declined to say how many more Minnesota ResCap jobs may be at risk.

"We expect to have that resolved before the end of the year," Proia said. ResCap will offer departing employees severance packages and outplacement services, she said.

The shakeup includes closing all the 200 U.S. mortgage offices of GMAC, the credit arm of General Motors and the parent company of ResCap. It means halting wholesale mortgage brokerage operations, as well as shrinking business lending and international business.

The company said it will face charges of $90 million to $120 million for this month's workforce reduction. The third quarter charges will include severance and the cost of closing facilities. ResCap made no estimate of the cost of the next round of cuts.

Mikelic noted that more than 100 subprime lenders have gone under in the past two years.

"There's no trading going on in mortgage-backed securities," he said.

The troubles of ResCap and other subprime players are far from over, in his view. "Florida has a two- to four-year inventory of [unsold] homes on the market," he said.

GMAC has injected billions of dollars into ResCap, but its losses have accelerated as it wrote off bad mortgages and other loans. In the second quarter alone, ResCap lost $1.9 billion -- more than half of the $3.4 billion loss the company reported last year.

ResCap recently filed more than a dozen lawsuits in Minnesota seeking millions in damages from mortgage companies. ResCap claims they failed to properly review the credit quality of borrowers.

The sharp decline in ResCap employment is exceptional in a troubled Minnesota job market where mass layoffs have been in decline even as the ranks of the unemployed have increased.

In the first seven months of 2008, mass layoffs accounted for 7,910 lost jobs, down from 8,708 in the same period in 2007 and 11,401 in the same period of 2006, according to the Minnesota Department of Employment and Economic Development (DEED).

"We've certainly been seeing a drop-off in the number of these larger layoff events," said Steve Hine, DEED labor market information director.

ResCap job cuts also contrast with Minnesota employment trends in financial services.

"Our financial services area within the state has, overall, stood up quite well compared to the nation," Hine said. "It's been a relatively strong spot in our recent job numbers."