Mortgage meltdown: GMAC to fire 5,000, close all retail offices

Breaking this morning: "GMAC LLC and its Residential Capital LLC home lending unit plan to fire 5,000 employees, or 60 percent of the staff, and close all 200 GMAC Mortgage retail offices because of weak real estate markets."

Why the drastic measures? More, from Bloomberg: "'This gives you a full flavor of how terrible the mortgage market is,' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. 'The past year has been horrible and it doesn't look like there is any improvement on the horizon with continuing declines in home values and rising delinquencies.'"

More, from Reuters:  "The cutbacks suggest deepening problems for GMAC's owners. A group led by private equity firm Cerberus Capital Management LP [CBS.UL] bought a 51 percent stake from General Motors Corp in 2006. The automaker owns the remaining 49 percent."

Analysis/bloviation: Cutting 5,000 jobs, and closing every single one of your 200 retail lending offices -- these are not signs of a bottom in the mortgage industry; they are signs of a continuing decline.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles.

The GMC logo is seen on the grill of a sport utility vehicle (SUV) in a General Motors Corp. dealership showroom in San Francisco, California, U.S., on Wednesday, July 30, 2008. General Motors Corp. said it still plans to provide auto leases with incentives in the U.S. next month through lender GMAC LLC after the finance company said it will end the offers in Canada. Photographer: Kim White/Bloomberg News

Comments

[Doug in Toronto]

Didn't GMAC purchase Ditech a few years ago (1999?), from the same person who now runs CashCall? Not a great way to build a business, folks...

[anonymous]

When the jumbos reset in the spring, those foreclosures will only show the losses at a greater rate. One jumbo going down is like five of the fraud and ninjas.

Peter, you're right, the decline isn't over yet.

[Michael Snyder]

This is the real "proof" of the value of all of the government intervention we've seen over the past year. Once again "trickle down economics" have put the lie to the trickle down theory. When money is allowed to rise to the top it stays there.
I've called this a crisis of confidence from the start and the credit market as a whole has displayed its' paranoia for months as subprime "surprises" continue to bubble to the surface. It seems every dime the Fed has so generously "lent" against questionable collateral has only gone to fuel a commodities bubble and little if any has "trickled down" in the form of mortgages or consumer credit. American Express has reported record defaults and consumer credit providers from Target to Unocal are quietly restricting credit lines across the board.
There is capitol available to lend but the fundamental element of trust necessary for any relationship has been destroyed by the sub prime behavior of many if not most of "Wall Street's best". Even in this world of lawyers and litigants if you can't do business on a handshake, you can't do business. In my world, contracts are for keeping track of expectations, not for enforcement. Either a person's trustworthy or they are not. Having their signature on a document is not going to change that. The question now is how do you regain a trust you've destroyed?

[Empty Home]

I hope they fire the right 5,000 people, although I'm sure that will not be the case. I could be jaded because I ended up "giving back" my home to GMAC due to foreclosure. The company bought my loan from another company that originated the loan. Then the terms changed and over time it became impossible to work with this company to save the home from foreclosure. Yes times are hard, but companies like this try to squeeze every last dime out of their customers making the American Dream a nightmare. GMAC can keep the house. The house still sets unsold, and unoccupied. Perhaps if they would have worked with homeowners a little more before the dream was gone, they wouldn't be having a crisis today.

[Mike Kelley]

Oh, please...

Greenspan drops the rate to 1%, the lenders yell "Free Money!" and Americans everywhere belly up to the bar. What a shock!

We have only ourselves and our greed to blame. In my case, the lender didn't even have me put ink to paper until closing. I got approved for $200K in less than 60 minutes with an Internet application, and no income necessary because, well, the house was worth more, and they could take it if I didn't pay, right? They never dreamed they'd end up taking 4 million houses, did they? Risk never entered their greedy little minds.

Now, it took countless forms to fill out, weeks of discovery, and a stellar credit rating just to refinance because the lenders all said "California is a hotbed of fraud." I'd say the fraud was on the part of the lenders!

[LA]

Empty Home and Mike Kelley - perfect examples of why our country is in big trouble. You created your own problems and now you expect sympathy and a bail-out. Stand up and take responsibility for your own actions.

Why bother - they won't get it. It's like trying to reason with a drunk.

[E]

Empty home has hit the nail on the head with this comment...

"Yes times are hard, but companies like this try to squeeze every last dime out of their customers making the American Dream a nightmare."

I see that with the *nice* higher end homes that have had NOD's listed. The bank's know that the people in those homes have BMW's and Mercedes to sell, The wives have all the Balancia, Prada etc to ebay off and the Husbands have the Mark Levinson and Krell audio gear to put up for sale on Audiogon.

They are squeezing the wealthy more than the poor because they can.

[rob]

Hey LA... I don't see where Mike Kelly is asking for a hand out. He is asking for the lenders to take some responsibility on the mess they helped create.

[inaweofE]

E says that the Rich are getting the short end of the stick on this one! Ok, so lets organize and make sure that these folks get to keep all their stuff. We can call it SUV's across America or the rich helping the rich. How about "E is for everyone" Yeah, that has a nice ring to it. Ok, E, when's our first meeting?

[LA]

My apologies to Mike Kelley.

[Dougmc]

Michael Snyder

Your statement about trust and contracts, while true, is not apropos to the drying up of credit. The problem is not trust but the inability to value so-called assets. The owner of the assets has no more idea what they’re worth than a prospective buyer or lender. Trust would be involved only if the owner knew the value of the asset and the buyer did not. In the absence of accurate knowledge or at least an approximation thereof, the buyer or lender has to assume the worst case scenario for the asset being purchased or used as collateral. Trust is also not the correct term to use when referring to a party’s ability to perform - trust relates to a party’s desire to perform, which is a different thing.

Your disparaging use of the term “trickle down economics” to describe the Federal Reserves actions in making credit more available to the banks seems politically motivated. Lowering the federal funds rate is standard Federal Reserve action when the economy declines, and it existed decades before the term “trickle down economics was coined. Furthermore, easy credit, far from being ineffective, can be devastatingly effective, as Mike Kelly points out at the beginning of his post to this thread just 25 minutes after yours. Your political slant is also suggested by your use of the word “capitol” instead of “capital.” A Freudian slip?

[Anonymous]

Dougmc -- I think ability and desire are not as distinct as you might believe. But from the political leanings obvious in your post, it's clear that there are many subtleties you miss.

[Maggie Knowles]

Michale Snyder asked, "The question now is how do you regain a trust you've destroyed?"

I found an answer to your question in "Obamanomics: How Bottom-Up Economic Prosperity Will Replace Trickle-Down Economics" by John R. Talbott, John R. http://tinyurl.com/66ql2y

The answer is transparency. If information is public and accessible to all, there is less corruption.

from, chapter, The Biggest Problem: Corporate Lobbying, page 109

Obama has spoken often of his desire to re-engage the American people in democracy. He has suggested town hall meetings with his cabinet members and broadcasts of important administration conferences over the Internet or on C-SPAN to ensure openness and transparency. He understands that the way to battle corruption, both by corporate special interests and your elected representatives, is to open the process of governing to the people. It is the people who should be deciding issues important to them, not some government bureaucrat, and certainly not some lobbyist.

Note: I read that Obama wants to use technology to make it easy for people to vote, like voting from cell phones. That would increase participation for sure, the more people participating, the less corruption by lobbyists and corporations. Obama wants to make all lobbying activities and money to be made public record on a public searchable database on the Internet. The more transparency, the less corruption. Obama gets it.

[Laker]

Michael Snyder, I are correct in many of your points but i think "Dougmc " got the best one.
The banks do not know that value of a house today that they are asked to lend money....that is the problem.
Had they known the value, (secured) lending would be a done in hours not months. Today, banks are giving free money in credit card offers that are completely NOT secured. Giving a mortgage (secured by the property) is alway better than giving money with nothing in return (well maybe thanks to Biden, we can't write off the CC debt anymore...but still)
So, based on the willingness of the banks to give away money today in CC offers, rest assured that if the banks figure out the value of the housing, they will start lending freely!
Hint: knowing the true value of a house will occur "the second" we hit bottom....obviously, we are far from that point...look at the graph from Suisse bank..that only refers to National prices...CA is much more overinflated, so the correction will take longer and deeper.

[Dougmc]

Anonymous at 4:16 p.m.

You say that “ability and desire” are not that distinct. Perhaps so, from the subjective point of view of the person who is supposed to perform, in this case a borrower. He may try to convince himself that he really wants to repay his loan but just doesn’t have the resources, when in reality (or the view of some third parties) he does have the resources but prefers to apply them elsewhere. However, Michael Synder was referring to the lender’s perspective, saying that credit is not available because the lender does not “trust” the borrower. I’m saying that the lender won’t lend because he doesn’t know the value of the borrower’s collateral, be it the house of the homeowner or the package of mortgages held by a financial institution. Trust is based on personal knowledge of the borrower’s past conduct, including matters that go beyond a credit report. In today’s mass credit markets, trust is not a factor. Statistics (credit reports) and the value of collateral are the determining factors.

Even if you disagree with my conclusion, I fail to see how it is “political”, as you assert. Although I disagree with Michael’s connection between a lack of trust and the unavailability of credit, I wouldn’t have characterized his opinion as political either, if he hadn’t dragged in the phrase “trickle down economics.” I want to thank Maggie Knowles for making the political implications of that phrase explicit in her post that followed both mine and yours.

[Michael Snyder]

So far Maggie is the closest to the mark, but I'm not grinding a political ax here. I'm well aware of the difficulties in valuing assets in this market, but again that's not my point. I'm speaking to the lack of trust at the highest levels of financial management.
In an article on http://www.bloomberg.com titled "JPMorgan, Facing Federal Probe, Exits Municipal Swaps (Update3)" writers Selway & Braun report on the exact type of behaviors that have extended the impact of this crisis far beyond the questionable real estate loans that alerted the world to this situation. When Lincoln Savings collapsed there was Warren Buffet who stepped in and cleaned house. It was his personal reputation for honesty that was instrumental in the system's recovery. However the only lessons learned by Wall St. were how to cover their tracks.
In California real estate full disclosure is mandated and transparency is how a Realtor builds trust with their client. JP Morgan's dealings with the Erie PA School District show the sociopathic nature of Wall St. Profit is a good and necessary thing for the health of any business or economy; but to build it off the backs of our children's education is short-sighted & unconscionable.
Reganomics is a politically motivated system of economics enforced by a tax code that is built on the principle that big business can do it better. That's almost as smart as the head of the Patent Office who declared there was nothing left to invent around the turn of the twentieth century. Small business built this country and even with a decades long campaign to eliminate small town Main Streets and replace them with Wally Worlds it's still the guy/girl in their garage that's driving the innovations that will move our economy forward.
We've got a real mess to clean up here. What I'm talking about is a fundamental change in how people do business & I don't see either the political will or the personal integrity in business to get the job done. What I see is a continuing pattern of finger pointing and legal maneuvering; a whole lot of "I didn't knows & Mommy, he made me do its." We've degenerated beyond having to look to legal statute to determine our business behavior all the way to; if we don't get caught it's all good. When folks can return to that "handshake" standard of trust these market woes will be behind us. Until then we will continue to slide into our new found third world status.

[Inland Empire]

Having once had a GMAC home loan, I think they should also sow the ground with salt.

[Maggie Knowles]

Michael Snyder - I read the article you referred to, "JPMorgan, Facing Federal Probe, Exits Municipal Swaps (Update3)" which can be found at http://tinyurl.com/5teoxm

The answer to your question about rebuilding trust is in the article:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
States, counties and cities routinely ask suppliers to compete for the right to sell police cars, computers and ambulances; they don't do that with public finance. About 80 percent of debt sold by municipalities today is arranged without competitive bidding. That's up from 27 percent in 1974, according to data from Bloomberg and Thomson Reuters.

In these noncompetitive financings, known as negotiated deals, a municipality talks privately with a bank about public financing and negotiates an interest rate and price with the bank. In a competitive deal, the issuer posts a public notice asking banks to put in bids and awards bond work to the bidder who offers the lowest costs.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
We have to get back to competitive deals, issuing public notices asking banks to submit bids, (the way it used to be). I would add that all this should be public record too, all posted on the Internet as a searchable database accessible to all Americans. Make the entire process open to the public. If we shine a bright enough light from every angle, there will be nowhere for the thieving cockroaches to hide. We have the technology to accomplish it now, we just need the political will of average Americans.

[mitzi]

I know for a fact that GMAC is practicing totally unethical business practices with many homeowners. It's almost like they deliberately would throw these families into default by saying payments were "missing", then adding fees & forcing them to sign new contracts. Dealing with them becomes a nightmarish hell & the family soon realizes they have been had, so they flee before it gets any worse or they throw any more money away on a house they've realized they will never own out right because the company has taken shady to a new high.

Some families are been evicted without being properly evicted through the court system. Unwitting real estate agents show up at people's home with "notices" & order the people to leave. They move the people's belongings to unknown locations without phone numbers or recourse for these people to retrieve their private belongings. They change locks on doors all this without the intervention of local authority.

Don't lay all this at the feet of homeowners. Many of these people wanted to pay for & stay in their homes, even to pay them off, but they were caught in an evil game of bait & trap. I say let GMAC as a company burn in hell & all those at the top responsible for this mad cruel behavior. imprisoned. It's time people woke up & realized the nasty games these people have been playing with sincere, although probably naive, folks.