The future of Residential Capital LLC may hinge on whether its parent, GMAC LLC, succeeds in converting to a bank holding company.

Tom Marano, ResCap's chief executive, said in an interview last week that the dramatic rise in delinquent loans has burdened his unit with $2 billion of outstanding servicing advances. This is cash that ResCap, the servicer of about $392 billion of mortgages, must front to investors when borrowers fall behind. The company is reimbursed when the delinquency is resolved, typically by a foreclosure or loan workout.

This can take months, and meanwhile ResCap must pay interest on the credit lines it uses to fund the advances. GMAC owns a depository that can borrow from the Federal Reserve Board's discount window, but the Fed's loans may only finance the company's auto lending. (It used to be a unit of General Motors Corp., which retains a 49% stake.) ResCap "doesn't get the benefit of a bank's low cost of funding," Mr. Marano said.

However, GMAC (whose majority shareholder is the private-equity firm Cerberus Capital Management LP) says bank holding company status — which it applied for last week — would give its other businesses access to Fed funding. Such access, Mr. Marano said, could help reduce the massive servicing costs crippling the mortgage unit.

"The bank holding company, honestly, is critically important from a liquidity point of view, and our ability to service the 3.1 million loans we have currently, by giving us a lower cost of funds," he said.

In a note sent to clients Monday, Kathleen Shanley, an analyst at the bond research firm Gimme Credit LLC, wrote that "approval is no slam dunk" for the bank holding company application. For example, she pointed out, GMAC has said the Federal Reserve Board would require it to have $30 billion of capital, but it had $9 billion of equity at Sept. 30. GMAC has also applied for funding through the Treasury Department's Capital Purchase Plan. A spokeswoman for GMAC said it had no timetable for decisions by regulators on either application.

ResCap, a Minneapolis lender, has been unloading assets to reduce costs and shore up its liquidity. Its assets have declined by a quarter from a year earlier, to $66.5 billion on Sept. 30. Mr. Marano said the unit's assets have been selling for roughly 60 cents on the dollar.

ResCap posted a third-quarter loss of $1.9 billion, which made up the bulk of GMAC's $2.52 billion loss in the period. This month the parent company said, "Substantial doubt exists regarding ResCap's ability to continue as a going concern," absent further economic support from GMAC.

But ResCap got a reprieve last week when GMAC agreed to several transactions that would supply up to $500 million in additional liquidity to the mortgage unit.

Asked if he had worried whether GMAC might cut off his unit, Mr. Marano said, "It's been rough, to be quite honest. I've definitely had my concerns. But to be quite blunt, we have been in a mode of restructuring the business." He later said, "There really hasn't been a lot of time to be nervous."

Nonagency mortgages were once ResCap's specialty, but there is no longer a secondary market for them. Mr. Marano said one of his tasks at ResCap has been "to reengineer it into an exclusively Fannie Mae, Freddie Mac, and Ginnie Mae originator."

But ResCap's tenuous position has complicated its relationship with Fannie.

Their contract gives the government-sponsored enterprise the right to stop buying loans from the lender, or to transfer its servicing rights on Fannie-owned loans to another company, if ResCap's tangible net worth falls below $1 billion — as it did last quarter.

This month ResCap reached an agreement with Fannie that will let it continue doing business with the GSE at least through January. The lender posted $200 million of collateral to Fannie.

As part of the deal, ResCap agreed to sell the servicing rights on $12.7 billion of Fannie loans to another company. (Neither ResCap nor Fannie would identify the buyer.) Mr. Marano said those loans — which make up 9% of the total ResCap services for Fannie — were particularly expensive to service so he was grateful to get rid of them.

Mr. Marano is the former head of mortgage originations at Bear Stearns Cos. Inc., where he worked for more than 25 years. In April, the month before before Bear was taken over by JPMorgan Chase & Co., he joined ResCap as nonexecutive chairman. In July he took over as CEO from Jim Jones, who left the company.

When he arrived at ResCap, Mr. Marano said, he was "surprised" to find the company still had 9,000 employees. "That's when it really hit me that we had to make significant changes."

Although the head count was down from 14,000 in January 2007, "too much optimism" about the business had prevented the company from making deeper cuts, he said.

"You can't be staffed for the 2006 securitization market in 2008," Mr. Marano said. "There was a failure on certain parts of management to understand the scope of the decline in the securitization market." In September, ResCap announced a plan to cut 5,000 jobs by yearend and to close 200 GMAC Mortgage retail offices.

Aside from the need to make advances, delinquencies have raised ResCap's operating costs. Mr. Marano said it makes 5 million phone calls a month to borrowers. The company's loan officers have held 4,300 face-to-face meetings with troubled borrowers in 15 cities. This year ResCap has modified 250,000 loans.

"I think the economics of the model, unfortunately, don't work," he said. "The servicing fees are not adequate for the cost of doing the work, and you have an environment where servicers are trying to aggressively modify loans but our other sources of revenue are down and the cost of financing [is] up."

Servicing "is absolutely the most expensive part of the business, and to the extent that the industry doesn't find a solution, it will be a problem for everybody" he said.

"I think getting our funding costs down will be key."

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