GMAC's ResCap mortgage unit to cut 3,000 jobsby William Wilcoxen, Minnesota Public Radio
Bloomington-based mortgage lender Residential Capital announced it is cutting 3,000 jobs, including 460 in the Twin Cities area. The cuts were announced Wednesday by Residential Capital's parent company, GMAC Financial Services. The layoffs are part of the financial turmoil in the real estate and credit markets related to sub-prime mortgages
Minneapolis — The 3,000 job cuts at Residential Capital, or ResCap, as it's widely known, represent one-quarter of the company's workforce.
GMAC spokeswoman Gina Proia says the move is a response to conditions in the housing market that have changed dramatically.
"We're structuring our business to streamline operations, revise our cost structure, with the intent of enhancing our flexibility," said Proia.
This is the third round of job cuts at ResCap this year. In January the company had about 1,900 employees in the Twin Cities area. By Tuesday that number had dropped to less than 1,600. The new cuts will bring it to less than 1,100.
More than one investment agency has downgraded the company's credit rating in recent months. But for all of its struggles, analyst Pete Hastings of Morgan Keegan and Company says Residential Capital is not in a bad place within its industry.
"They are suffering, just as every other mortgage originator in the U.S. is suffering," said Hastings. "You've seen it from the very best -- and we would classify ResCap as among the very best -- all the way down to the smaller companies."
Hastings says a number of small mortgage lenders that were not very diversified have had to close up shop altogethe,r but he does not see Residential Capital taking that step.
Not everyone is as optimistic as Hastings. Other analysts have said the company is in worse shape than its peers and question its long-term survival.
It's no secret that the residential mortgage industry has been rocked by the collapse of many subprime loans -- mortgages issued to higher-risk homebuyers with blemishes on their credit histories.
Those loans typically are structured to feature lower mortgage payments for the first couple of years, after which the rates are reset to higher levels. Many buyers throughout the country have defaulted on the loans and seen their homes foreclosed.
State economist Tom Stinson says the wave of subprime problems struck Minnesota at a time when the state was already suffering from an oversupply of housing, and had cut back on construction.
"What's happened is that the subprime sector has kind of piled on problems for the residential housing industry, in that the subprime problems have led to delinquincies and foreclosures that are putting more houses on the market," Stinson said.
Stinson says Minnesota's subprime struggles are pretty typical of those around the U.S. He says the oversupply has pushed Minnesota home prices down a little more than the 3.5 percent national average, but nowhere near the 10 percent drop seen in parts of California and Florida.
Stinson says most forecasts predict it will be more than a year before the housing market recovers. But Stinson also cautions that the latest storm has more clouds looming on the horizon.
"There are a lot more of these subprime loans out there that have to reset. And it takes awhile after the reset for them to become delinquent and be foreclosed on," said Stinson. "So, there's at least a year of subprime news that's still out there, as well."
Stinson says Minnesota's housing troubles, while significant to the state's economy, should not inspire panic. He says overall, the state's $250 billion economy is still strong, and officials are not forecasting a recession in Minnesota.
- All Things Considered, 10/17/2007, 5:20 p.m.