Sometimes its the vultures who get eaten. General Motors was lucky to unload a majority stake in its finance subsidiary (GMAC) for $14 billion last year. The subsidiary, now 51% owned by vulture fund Cerberus Group, just reported a $1.3 billion loss for the third quarter. That was due to $2.3 billion in red ink from GMAC’s mortage operation GMAC ResCap.
The company’s residential mortgage funding fell 16% in the quarter to $29 billion. Ratings agencies S&P and Moody’s have downgraded GMAC’s debt. According to the investment research firm CreditSights, Cerberus and GM agreed to convert $1.1 billion in prefered stock in the venture into common stock to shore up GMAC’s balance sheet. Still CreditSights writes: “Net-net, the long term viability of the ResCap businesss model and franchise remains in question.” Ouch
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.