Struggling with their own problems, the mortgage industry's megaservicers are unlikely landing spots for GMAC's troubled home loan unit.
That leaves an open field for financial or strategic buyers that want to make a play for Residential Capital's (ResCap) distressed assets; instantly get big in mortgage servicing and origination; or some combination.
Warren Buffett's Berkshire Hathaway is reportedly interested in buying ResCap. Observers said that would make sense, since Berkshire has already bought a commercial mortgage servicer with ties to GMAC, and it is one of the largest holders of ResCap's debt. The Omaha investment company did not return calls seeking comment.
Whatever size the buyer, they will need a strong stomach.
The unit "is saddled with a portfolio that's not favorable in this environment because there's not necessarily a large bid for nonprime second lien assets," said Adam Steer, an analyst at the bond research firm CreditSights. "If a bid came in, it would be punitive."
Last week, at the same time it announced receiving another $3.8 billion from the Treasury Department, GMAC said it was exploring "strategic alternatives" for ResCap.
A GMAC spokeswoman would not discuss the possibility of a sale of ResCap, which would require the approval of GMAC's board.
The fresh government cash enabled GMAC to in turn inject $2.7 billion of capital into ResCap, through mortgage loans transferred from GMAC's bank unit, forgiveness of intracompany debt and cash.
That injection offset $2 billion of writedowns of mortgages that ResCap holds on its books and $500 million set aside for forced repurchases of faulty loans in the fourth quarter.
With a $380 billion servicing portfolio, ResCap is the fifth-largest mortgage servicer, behind Citigroup, and the fourth-largest originator, after JPMorgan Chase. Bank of America Corp. leads both categories. Industry experts said ResCap's peers, nearly all of them bank-owned, have no appetite to purchase servicing assets.
The four largest servicers are struggling with significant capacity constraints and face pressure from the Obama administration to modify millions of loans under the Home Affordable Modification Program. Three of the four largest servicers — Bank of America, Wells Fargo and JPMorgan Chase — made big bank acquisitons in 2008 that included large servicing operations.
Steer said any problem for any potential purchasers on the servicing side is that a significant portion of the loans that ResCap handles are securitized, making it much more difficult for a buyer to rework loans.
The most likely buyer would be a private-equity firm with a focus on scratch-and-dent, or distressed, loans, he said.
Tom Piercy, a managing member at Interactive Mortgage Advisors, a Denver advisory firm, said potential buyers would be interested in the combined servicing and mortgage portfolios, while the servicing assets alone might sell at a discount.
"The primary focus would be on the mortgage assets themselves," Percy said. "While servicing is still attractive to the investor, the servicing asset is pretty much a distressed asset as well. Given the traits of the servicing asset, you most likely end up doing the same deal with the same investor."
Some industry experts said the terms of the latest government bailout for GMAC suggested that the Treasury Department may already have lined up a buyer for ResCap.
The New York Post reported last week that Berkshire Hathaway was in talks to buy ResCap. Berkshire Hathaway and Leucadia National Corp. acquired the bankrupt Capmark Financial Group's $240 billion commercial loan and servicing unit last month. (GMAC owned a roughly 25% stake in Capmark when it filed for protection from creditors last year.)
Kirk Ludtke, a senior vice president at CRT Capital Group, a Stamford, Conn., investment bank, whose clients include some ResCap bondholders, said they were pleasantly surprised that Treasury did not ask them for any concessions with the latest infusion. That welcome (for them) news fueled speculation that Treasury has lined up a deal for Buffett to buy ResCap, he said.
"They didn't ask bondholders for concessions because Treasury and GMAC want to attempt a consensual deal with bondholders, whether they recapitalize ResCap, spin it off, break it up or sell it, or any combination," Ludtke said.
Another possibility, some observers said, would be for GMAC to try to isolate its legacy private-label loans at ResCap and pursue a prepackaged bankruptcy of the unit or negotiate a liquidation with creditors. In this scenario, more attractive parts of ResCap, such as the online lender Ditech, would move to GMAC's Ally Bank.