GMAC Financial Services and its subsidiary Residential Capital (ResCap) will undertake added initiatives to further optimize the mortgage business such as closing some of its businesses.
Responding to the downturn in the credit and mortgage markets, ResCap has enacted a plan to considerably streamline its operation and reduce costs. The firm also aims to refocus its resources on strategic lending and servicing.
On Sept. 2, a plan was approved that included closing all 200 GMAC Mortgage retail offices, stopping originations through the Homecomings wholesale broker channel, further curtailing business lending and international business activities, and right-sizing functional staff support.
The mortgage firm is also evaluating strategic alternatives for the GMAC Home Services business and the non-core servicing business. All these actions will reduce the ResCap workforce by roughly 5,000 employees, which is equivalent to 60%. Around 3,000 employees will receive notification this month with the majority of the remaining 2,000 reductions expected to occur by yearend.
"While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," ResCap Chairman and Chief Executive Officer Tom Marano said. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk."
The firm will incur a charge expected to range from $90 to $120 million, reflecting the 3,000 workforce reductions and related operational streamlining initiatives. The charge will also include costs related to severance and other employee-related costs of roughly $50 to $60 million and facility closure costs of about $40 to $60 million. The majority of the charge is expected to be reflected in the 3Q08 and result in future cash expenditures of roughly $55 million. Potential charges related to the remaining 2,000 workforce reductions have not yet been determined, according to the company.
The workforce reductions will include a range of administrative and managerial positions. All eligible employees that will be affected by these reductions will be provided severance packages and outplacement assistance.