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GMAC Financial Services Reports Preliminary Third Quarter 2008 Financial Results


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NEW YORK, November 5, 2008: GMAC Financial Services reported a 2008 third quarter net loss of $2.5 billion, compared to a net loss of $1.6 billion in the third quarter of 2007. Results were primarily attributable to a significant loss at Residential Capital, LLC (ResCap) as adverse market conditions domestically and internationally continued to affect the mortgage business. GMAC's automotive finance operation also experienced pressure from lower used vehicle prices and weaker consumer and dealer credit performance. Other items affecting results were realized losses and valuation adjustments on assets held for sale and certain other investment securities as a result of illiquidity in the credit and capital markets. These items were partially offset by profitable results in the insurance businesses.

"The economic and market conditions created an unrelenting environment for our business and the financial services sector overall," said GMAC Chief Executive Officer Alvaro G. de Molina. "Clearly this weighed heavily on financial results in the third quarter.

"In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity. In this regard, we've limited originations to match funding sources and are streamlining operations and evaluating opportunities to shed operations that are not essential to the core business," said de Molina. "In addition, we are pursuing strategies to increase flexibility and access to funding such as participating in the Federal Reserve's commercial paper purchase program via our asset-backed credit facility and engaging in discussions with regulatory authorities regarding bank holding company status."

GMAC's consolidated cash and cash equivalents were $13.5 billion at Sept. 30, 2008, down modestly from the cash and cash equivalents balance of $14.3 billion at June 30, 2008. Of these total balances, ResCap's cash and cash equivalents balance was $6.9 billion at quarter-end, up from $6.6 billion at June 30, 2008. The change in consolidated cash is related to debt maturities at GMAC in the quarter, which were partially offset by reduced origination levels.

GMAC Bank assets and deposits continue to grow at a measured rate with total assets of $32.9 billion at quarter-end, which includes $8.5 billion of assets at the auto division and $24.4 billion of assets at the mortgage division. This compares to $31.9 billion at June 30, 2008. Deposits also increased in the third quarter to $17.7 billion at Sept. 30, 2008, compared to $16.9 billion at the end of the second quarter.

GMAC previously disclosed it is in discussions with federal regulatory authorities regarding, among other things, seeking bank holding company status under the Bank Holding Company Act of 1956, as amended. In conjunction with this initiative, GMAC intends to commence a private offer to exchange a significant amount of outstanding indebtedness for a reduced principal amount of new indebtedness. Timing and details should be disclosed in the near term.

Global Automotive Finance

GMAC's global automotive finance business reported a net loss of $294 million in the third quarter of 2008, compared to net income of $554 million in the year-ago period. The decline in performance was primarily driven by an increase in credit reserves as a result of the continued deterioration in used vehicle prices, which affected certain retail balloon contracts. Also affecting results was an impairment on operating leases related to the truck vehicle portfolio in Canada, weaker consumer and dealer credit performance, and valuation adjustments on securitization retained interests.

New vehicle financing originations for the third quarter of 2008 decreased to $11.3 billion of retail and lease contracts from $14.5 billion in the third quarter of 2007, due to tighter underwriting standards and lower industry sales.

Due to the current volatility in the global capital and credit markets, GMAC has recently taken steps to more closely align auto financing activities with available funding. Most recently in October, the company implemented pricing and underwriting adjustments in the U.S. and select international markets. In addition, in Asia-Pacific, GMAC announced it would cease retail and wholesale originations in Australia and New Zealand by the end of the year. The company also ceased retail originations in seven European markets as of Nov. 1, 2008.

Credit losses have increased in the third quarter of 2008 to 1.55 percent of managed retail assets, versus 1.01 percent in the third quarter of 2007. The sharp increase is related to higher loss severity in North America and increased losses in Latin America due to weaker economic conditions. Delinquencies remained almost flat with the year-ago period at 2.62 percent. Increased loan servicing efforts and tighter underwriting aided in keeping delinquencies from increasing during this weaker economic environment.

Insurance

GMAC's insurance business recorded net income of $97 million, down from net income of $117 million in the third quarter of 2007. Performance reflects slightly lower written premium and a decline in investment income due to realized losses and an impairment on Lehman Brothers securities as a result of recent market volatility.

The insurance investment portfolio was $6.6 billion at Sept. 30, 2008, compared to $7.5 billion at Sept. 30, 2007. The decrease in the portfolio is

related to a dividend payment to GMAC and changes in the market conditions that have caused the portfolio to have aggregate unrealized losses.

On Nov. 3, 2008, GMAC agreed to divest its reinsurance business, GMAC RE, to Maiden Holdings, Ltd. This transaction is part of GMAC's strategy to pursue opportunities to shed non-core operations in an effort to preserve capital.

Real Estate Finance

ResCap reported a net loss of $1.9 billion for the third quarter of 2008, compared to a net loss of $2.3 billion in the year-ago period. Results are primarily attributable to continued adverse market conditions, which drove high credit-related provisions and weak revenue.

During the third quarter, ResCap announced additional actions to significantly streamline operations, reduce cost and adjust its lending footprint. These actions included closing all GMAC Mortgage retail offices, ceasing originations through the Homecomings wholesale broker channel and further curtailing business lending and international business activities. In addition, ResCap entered into an agreement to sell the GMAC Home Services business to Brookfield Residential Property Services.

ResCap's U.S. residential finance business was negatively affected by lower mortgage production and a decrease in net servicing fees. While prime conforming loan production decreased year-over-year with $6.8 billion in the third quarter of 2008 versus $12.2 billion in the year-ago period, production of higher-margin government loans increased to $4.1 billion this quarter compared to $1.4 billion in the third quarter of 2007.

The international mortgage business experienced a net loss in the third quarter related to weakening consumer credit in key markets and increased cost of funds. ResCap has currently suspended all production outside of the U.S. with the exception of Canadian insured loans. ResCap's international business is now focused on management of assets in the U.K. and continental Europe. Results were also negatively affected by unfavorable foreign currency movements. The business lending operation experienced continued losses in the third quarter due to high levels of loss provisions and other impairments related to the current real estate market conditions.

In the third quarter, GMAC forgave $101.5 million of debt outstanding under the mortgage servicing rights credit facility with ResCap as a capital contribution to the mortgage subsidiary. In addition, GMAC also forgave $95.3 million of outstanding principal and accrued unpaid interest on ResCap notes held by GMAC. In October, GMAC forgave additional debt to ensure that ResCap remained compliant with the tangible net worth covenant.

Adverse market conditions have made it difficult for ResCap to maintain adequate capital and liquidity levels. As a result, absent economic support from GMAC, substantial doubt exists regarding ResCap's ability to continue as a going concern.

Outlook

The global capital and credit markets remain disrupted and general economic conditions have deteriorated. GMAC's business continues to be affected by these conditions and has led the company to take several actions to manage resources during this volatile environment. These steps include:

  -- Aligning auto originations with available committed funding sources in
     the U.S. and abroad
  -- Streamlining operations to suit the current business plans
  -- Growing GMAC Bank within the regulatory guidelines
  -- Reducing risk in the balance sheet
  -- Divesting select non-core operations such as GMAC Global Home Services
     and GMAC Reinsurance

GMAC is focused on pursuing strategies to increase flexibility and access to liquidity with the primary focus of continuing to support automotive dealers and customers.