Warren Buffett is in talks to buy GMAC’s Residential Capital, one of the biggest residential mortgage-servicing firms and originators, sources told The Post.
Buffett, along with Appaloosa Management and Avenue Capital, is said to have large debt positions in ResCap.
To stay in compliance with its loans, ResCap needs to have a net worth of $250 million, but in recent months has come close to falling below that threshold.
GMAC several months ago said it intended to have a restructuring or finalization for money-losing ResCap in place by the end of the year.
“It’s speculation and we don’t comment on speculation,” GMAC spokeswoman Gina Proia said about news of the talks. Buffett’s Berkshire Hathaway did not return calls.
Government-rescued GMAC, which is a bank focused on financing car purchases, is largely protected from ResCap’s debt, though ResCap’s losses drag down its earnings. The mortgage-servicing firm has posted losses of more than $1 billion a quarter from the third quarter of 2007 through the second quarter of this year.
A source who was considering buying ResCap said he would be surprised if Buffett bought now — at a time when investors see the company’s debt as overpriced.
He said the trading value implies a positive net worth, while he believes the company has more than $1 billion negative net worth.
But “ResCap is a good solid business platform and has technology,” said David Lykken, president of consultant Mortgage Banking Solutions.
Lykken believes buying it now when there is a void in residential mortgage providers makes sense — at the right price.
“ResCap has the potential to be the next Countrywide” in the days before the worst of the subprime mortgage meltdown, he said.
Buffett does not have a history of buying into residential real estate.
He might buy ResCap for the servicing portfolio, still the country’s fifth-biggest, a source who purchases companies similar to ResCap speculated.
If interest rates rise Buffett could do very well servicing mortgages that would then take longer for borrowers to pay, leading to more profits, the source said.
However, if the recession deepens, an increase in delinquencies could hurt margins.
The source did not know about the Buffett talks, but felt based on similar sales in the market that the Oracle of Omaha would likely be paying very little for the origination side of the business.
Buffett has just made a similar investment in commercial mortgages, by buying a former GMAC division.
Berkadia Commercial Mortgage, owned by Berkshire Hathaway and Leucadia National Corp., this month bought bankrupt Capmark Financial Group’s North American loan origination and servicing business for $468 million. The sale includes a $240 billion servicing portfolio — the third largest in the US. With Kaja Whitehouse