Ally Financial Inc (ALLY) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the GMAC 2007 third quarter financial results conference call. My name is Melanie, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded. And a taped replay will be made available from 3 p.m. Eastern Daylight Time November 1, 2007, until midnight November 5, 2007. I would now like to turn the program over to your host for today's conference call, Susan Shank, Director of Investor Relations. Please proceed, ma'am.

Thank you very much, Melanie. Good morning. And thank you all for joining us. Today, we will be discussing GMAC's 2007 third quarter results. A couple of things that we'd like to draw your attention to -- first of all, on the second page of the deck, we have forward-looking statements that will cover everything that is included in the chart deck and also everything that is said here today.

In addition, to comply with the SEC's Regulation G, we have provided charts in the back of the presentation that will reconcile certain managerial items to GAAP. Please refer to those as we're going through the presentation. I'd like to highlight that we are broadcasting this call live via the internet as well as over the telephone lines, and the financial press is participating.

This morning, Sanjiv Khattri, our Executive Vice President and CFO, will take us through the results of the third quarter. After the presentation, we will have 30 minutes available for Q&A from the financial analyst community and investors. And then we will follow that with a 30-minute Q&A session with the financial press.

I'd also like to mention we've got several other executives in the room to help us answer your questions. With us today are Jim Jones, EVP and Chief Executive Officer of ResCap; David Walker, Group VP of Global Borrowing; Linda Zukauckas, Group VP Finance and ResCap Controller; David DeBrunner, GMAC Controller; and Ken Fischbach, Managing Director of ResCap Investor Relations. And now I'd like to turn the call over to Sanjiv Khattri.

Thank you, Susan and Melanie. Good morning and good afternoon and evening, everybody. We appreciate you making the time to join us for our update on Q3. I'm on page three. Q3 results are a little disappointment. There's no other way to look at it. The whole story of the tale of two companies continues, but ResCap had significant losses in Q3.

Overall loss on a GAAP basis was $1.6 billion at GMAC, which compares to a loss of $173 million, same period last year. The loss was driven exclusively by performance at ResCap, including the goodwill write off. We wrote off all the remaining goodwill at ResCap, a total of $455 million. Excluding ResCap, our Q3 operating income was $665 million, here 51% above Q3 last year, and running at double the level year to date versus last year.

Results at ResCap reflected the massive disruptions in the global capital markets and on the mortgage markets that all of you have been experiencing for the last several months. We are, and I'm going to spend some time later in the deck, have taken significant steps to restructure the market and react appropriately to these fundamental changes in the marketplace.

The performance in auto and insurance continues to remain strong, very good quarter for our auto finance business, a good gain on sales, some good cost performance. And underlying fundamentals remained very good. And insurance continues to operate very well, solid underwriting results. And as you'll see later, very pleased with where that business is headed.

Consistent with our historical policy, GMAC and ResCap maintained very strong liquidity and capital positions in the quarter. In fact, GMAC finished the quarter with cash close to $29 billion at the end of September 30th. That included $6.5 billion at ResCap. Within the $6.5 billion at ResCap, about $2.2 billion was in the GMAC Bank, which is becoming a very important part of our plans going forward.

GMAC also injected $1 billion of capital into ResCap in the quarter. And our shareholders have informed us that they intend to convert $1.1 billion of the $2.2 billion of outstanding preferred into common equity as of today. So a positive improvement at the GMAC capital level. We are obviously moving very aggressively to restructure the business within ResCap as the weakness continues. Of course, we will maintain focus on the rest of the business at the same time of cost.

Moving to page four to give you some data, moving from the bottom, overall GAAP loss was $1.596 billion. That's down $1.4 billion from the same period last year. I've already mentioned the goodwill. Some of you may recall a year ago we also wrote off the goodwill at Commercial Finance. That's an apples to apples comparison on a goodwill basis. Operating earnings of $1.1 billion in Q3, which is down $1.7 billion from the same period last year.

I will spend a lot of time on ResCap. So let me just highlight that their operating loss was $1.8 billion compared to a small gain a year ago. But operating income, excluding ResCap, was at $665 million, which is up $226 million from prior year. As I said earlier, that was strong performance across all the non-ResCap sectors.

In global auto finance, we reported a very strong quarter, $519 million. That breaks out into $403 million for NAO, some nice gain on sale in NAO. We obviously had the benefit of lower taxes because of the LLC conversion, good cost performance also, and overall nice residual performance also were the positives.

Margins are still up year over year. But we are starting to get concerned a bit about NAO margins in light of our cost of funding going up. IO International had a very good quarter, $116 million of net income compared to $83 million last year. Within international, obviously helped by some good tax planning and some effects. But one of the primary drivers of our performance in international remains our strong performance in Latin America. We took some pricing action there. And we had some good results from that.

With the negatives within IO, are starting to get concerned a bit about cost of funding as some of the capital market issues spill over affecting our actual cost of debt within IO. But overall, global auto finance is running at about two times versus last year, year to date, and significantly up in Q3 also.

Insurance, while on a net income basis was down year over year, the main reason for that is capital gains. If you remember late last year, we right sized our portfolio and changed a 30% equity focus to a 10% equity focus, and we took a bunch of capital gains in September. We had over $18 million of capital gains. Net-net, we are $54 million off. If you adjust for the capital gains, insurance actually had a very good quarter.

And then in other I did want to mention our turnaround within Commercial Finance continues. Last year, we took significant provisions related to some credit issues we had in our legacy portfolio and Commercial Finance. This year, we are seeing solid performance, good handle on credit, good handle on cost, and continue to see traction in certain revenue items, so feeling good about where Commercial Finance is headed.

Moving to page five, just a quick second on pre-tax, as you all know, as part of the sale of 51% to our consortium led by Cerberus, GMAC, and most of our U.S. operations converted to an LLC format, which means that our taxes for those businesses are actually paid for by the shareholders. As a result, it's important also to see the pre-tax level of performance I did want to flag to you.

Because of that result, our tax debit was only $68 million versus what should be a much bigger number because so many of our losses we cannot get any tax credit for. Overall, though, we continue to do smart tax planning and some good tax rates out of international and insurance, the two biggest tax-paying entities within the GMAC family now.

Now let me change gear. I'm on page six now. And I'll spend the next 10, 15, 20 minutes talking to you about what happened at ResCap and give you some idea of what we can look forward to in the future. Our standard key metrics chart, I'm on page six now. If you look at our U.S. residential finance business, clearly unacceptable performance in that space.

The illiquidity in the market, weak credit performance basically increased our reserves and marked down the losses. A lot of those were, of course, non-cash. But still overall performance was fairly weak. We also, of course, took some proactive action to reduce our production in light of the liquidity challenges. And I'll show you some production data later that lays it all out for you.

Some of these negatives started spilling over to the rest of ResCap. Business lending, business which so far had been able to manage their portfolio in a prudent manner, the weakness in the homebuilders ultimately affected the performance of our book. We had to take certain provisions and also certain impairments for out lot options and model homes. So net-net, a fairly poor quarter for our business lending business.

International business continues to be quite stable from a pure operating point of view. But I have the liquidity issues that were happening in U.S. spilt over internationally. We saw what frankly is a totally moving model in international. We saw the negative effects of that illiquidity independent, I think, in Europe. And that had a fairly meaningful effect on our held for sale book in international.

The one positive spot within ResCap was our focus, successful focus, on capital and liquidity. This has obviously been a primary focus of ours that as we tried to restructure our business and focus in the future, we've got to stay focused on capital. GMAC injected $1 billion of equity. Liquidity was up significantly. And our equity finished at $6.2 billion at the ResCap level.

As I step back and look at what we are going to be doing in ResCap, in summary, try to continue to reduce the risk in the business, controlling some of the revenue to more items that we can easily liquidate or fund in an efficient manner, restructure the business, and create a platform that remains scalable, do all this with continued focus on capital and liquidity. That's sort of going to be our game plan over the next several months.

Moving to chart seven, I wanted to give you a feel for what are some of the significant items in the P&L. And before I do that, I'll give you a quick snapshot of our condensed income statement in terms of how it would appear on the Q that we will file next week, just high level, did want to speak to the actual numbers within the business segments -- RFG a loss of $1.6 billion on a GAAP basis, the loss of $1.2 billion on an operating basis after adjusted for good will. International business had a loss of $430 million on an operating basis.

Our business capital group -- these are all ResCap segments -- had a loss of $164 million. And then we had a corp other about $15 million. So across the board, very disappointing performance at the ResCap level.

Page eight, very briefly did want to take you through significant items. As I said earlier, a huge majority of these items are unrealized and non-cash and going over $2.5 billion of what I would call special significant items. On an apples-to-apples basis, this number was closer to $500 million a year ago.

So we had over $2 billion year-over-year shift in terms of what happened to our HFS valuations, what's happening to the value of our residuals and trading securities, provisions in our HFI book, our impairment within our REO portfolio, (which is at $1.6 billion right now), and impairments both in the lot option and model home business. And as I said earlier to you, we did make the decision to write off our goodwill, concluding that it was in fact impaired -- that was $455 million.

So this lays out for you hopefully in a transparent manner what were some of the special P&L items affecting our business. And again for perspective, this $2.5 billion of significant items were closer to $700 million loss in Q2 and $1.2 billion in Q1.

I wanted to highlight to you that if you step back and look at what happened in ResCap and then tried to diagnose our P&L, it's simply the HFS marks, provisions in HFI, goodwill impairment, and certain other asset impairments. That can actually explain to you the sum total of what happened to us in Q3.

Moving to page nine, our standard Pac-Man chart where we lay out to you the sum total of non-prime exposure across all of ResCap. And let me go bucket by bucket. Loan servicing book, only about 10% of our book is non-prime. And this used to be 14% a quarter ago. So that's sort of flowing through appropriately. Some of that is a reflection of the low origination that GMAC is doing of non-prime.

Warehouse lending used to be a big issue a year ago. We are a $9 billion book. A huge majority of that was non-prime. We're down to $1.8 billion with a much smaller component of non-prime. And we have basically restructured that business. And I will talk to that briefly.

Within held for sale, we are down to $15 billion. It used to be $19 billion a quarter ago. And I did want to mention to you now that our majority of our held for sale exposure is now international. About $10 billion of the $15 billion are international. And in the U.S., we are truly either putting the stuff in the bank or truly moving to a pure moving model, only putting stuff in HFS that we are confident that we can liquidate in an efficient manner in the near term.

I did want to spend a couple of minutes on the HFI portfolio. Our overall HFI portfolio on our GAAP books is about $60 billion, but not if you look at it properly. I think you need to exclude the amount of the portfolio that is already securitized in which our downside is limited. And I will show you analysis of that, which I think will highlight to you what our future risk profile is in that portfolio.

But after excluding that, that's $22 billion of HFI, a much smaller chunk of it is non-prime. Only about 19% is non-prime. And a significant majority of it is prime non-conforming. So wanted to make -- be transparent with you with respect to where the underlying risk exposure is within ResCap on a global basis.

Moving to page ten, we did a special chart for you to highlight, to basically illustrate for you how this balance sheet would look if we excluded certain activities. So on the left hand column is clearly a GAAP balance sheet. And for informational purposes, what we decided to do was to carve out $39 billion of on-balance sheet securitized portfolios and also carve out for you -- in that $39 billion portfolio, our downside is limited to our net book value, which is about $400 million

And we also took out the bank. As you know, under GAAP, the GMAC automotive piece of the GMAC Bank is fully consolidated into ResCap. We carved that out because ResCap frankly has no economic interest in that bank. This is just purely for illustrative purposes. It's not intended to depict any actual or contemplated transaction. But I wanted to show with you what the risk we have with respect to the primary chunk of our HFI portfolio going forward.

If you look at the $3.4 billion of GAAP losses we've had year to date, $1 billion of that relates to this on-balance sheet securitized portfolio. And our future downside to that is limited only $400 million. And for illustrative purposes, if you strip our balance sheet from $115 billion balance sheet, we are down to only about $70 billion.

And then again, I'll give you a very simplistic ratio for you. If you look at our equity to assets basis on a GAAP basis, we are closer to 5.4%. But after making these appropriate adjustments, on an illustrative basis, we are at 8.3%. I think this becomes a very important aspect going forward because under GAAP, until we liquidate this portfolio, we will continue to have to accrue provisions on an HFI basis. But our economic downside will be heavily limited.

Just below that chart, I've listed for you what our economic downside was over the quarter. And as you can see, it has gone from $1.6 billion at the start of the year at first quarter all the way down to $400 million. So important chart as you assess the future risk in the ResCap balance sheet.

Moving to page 11, we wanted to increase our transparency with respect to production. What was happening, as we have talked to you earlier also, we did right size and change the mix of our production in reaction to what was happening in the marketplace. Overall, domestic -- this is U.S. data -- we had a production of about $20 billion. This compares to $44 billion a year ago.

But what is more interesting is that our primary conforming production basically stayed more or less constant in the $12 billion zip code. But the significant decrease went in nonconforming as we took major steps to offset the weakness in the credit markets and originate things that we were more confident of being about to monetize in a cost efficient manner.

And if you see our non-prime production is down to actually nothing in Q3. This trend, of course, is continuing in Q4 also. And this is a key level we will use. We are maintaining our platforms in which we can exploit our inherent capability to originate non-prime. But until we see more stability in the market, you will see that the actual amount of non-prime production we will do will be very measured and will be a function of what we think we can efficiently fund.

Moving to page 12, I wanted to briefly talk to you about servicing and warehouse lending. Servicing remains a very bright spot. If you look at overall ResCap, the bank continues to perform very well, both from a risk management point of view and also from an actual financial point of view. And the other big bright spot in the ResCap portfolio is our servicing book.

Dare to say we have one of the best servicing platforms in the U.S. Now it's a fully integrated platform. Over the last several months, we have successfully integrated the non-prime, subprime platform out of Minneapolis with the prime platform out already. So we have one-stop shopping now with respect to all our products, loan products, our investors, and our borrowers.

Our portfolio actually is at $425 billion, an increase year over year of $25 billion. We remain the number one subservicer in the market, a business that's important for us in terms of our fee-for-service income. And we are taking significant steps to maintain the quality of our service portfolio and what frankly is a very stressed credit environment.

You are already aware of the underlying credit fundamentals in this business. And we have increased our capacity to better manage and avoid foreclosures. We're referring people to our Home Ownership Preservation Enterprise counseling so that we can support them. Over 28,000 customers we have supported. We are also in a very prudent manner providing close to 7,000 modifications this year, including 4,500 permanent modifications. And we are continuing to revisit our underwriting to make sure that we can learn from the problems that the book in 2005, 2006 is creating for us in '07.

As I mentioned briefly when I was giving you overall non-prime exposure, our warehouse lending receivables are down to $1.8 billion. We have totally changed and restructured this business in terms of the relationships and how we package that business and what the positive pros and cons are of each of our customer clients, much more focused. We're also over time subject to regulatory approval continuing to shift a key part of our warehouse funding platform to the bank. And that will significantly allow us to improve our cost of funding in this area.

Moving, a quick slide on business lending--as I said earlier, there's ultimate, there's still the effect of the weakness in underlying housing, has started affecting homebuilding industry in a very meaningful way. And Q3 was a very bad quarter for the homebuilding space. Significant amount of cancellations, increase in home inventories and foreclosures created what I would frankly call a profit storm in terms of performance in this space.

We did refocus our business totally and shifted the strategy from asset growth to asset management and workout. We have also really refocused the areas in which we will compete in, trying to compete in middle market niches where we can be really value added, where our cost of borrowing will not be a liability, but our ability to package and structure the appropriate liability structure with people. We'll focus on that long-term relationship that we've enjoyed with certain developers.

We're restructuring the way we do our customer contact, implementing much more stringent credit guidelines, and also building some in-house workout because frankly over the next several quarters, I expect a decent chunk of our portfolio to be focused in some sort of workout area because of the weakness underlying builders have.

BCG as a whole on a segment basis did lose $172 million in the quarter, which compares to a gain of $32 million a year ago. The balance sheet did shrink in this space in Q3. But that was primarily driven by the sale of Health Capital. Underlying balance sheet when down about over $200 million.

A quick slide on international, I'm on page 14 now for those following the hardcopy. Basically, in August, which is always a slow month in Europe, just to give you some perspective, we have about a $16 billion balance sheet internationally, about 80% of that is in Europe, with over 55%, 60% on a global basis out of the UK. So we are primarily a big UK operation. Of course, we've got a growing presence in Australia and a very good presence in Canada and Mexico. But primarily, the main driver of our business is the UK and continent right now.

There was no liquidity in the mortgage markets. The securitization markets even in September opened very weak. I'm proud to say that our time on the continent in Europe, the first two major public deals have got down in Europe, you may have read. We successfully announced a seven-year term ABS transaction in the German market, which has been a tough market.

And a week ago, we announced another EUR500 million transaction in the Dutch market. So we're starting to see some signs of strength. But overall, spreads are still very weak. And more importantly, liquidity, especially for the lower tiers of credit, continues to be very weak internationally.

The interesting factor that if you look at our portfolio and if you compare that to the U.S. where this lack of liquidity was driven both by illiquidity in the market but by also underlying poor credit performance, we are not seeing that poor credit performance in our book. In fact, not only do our losses remain stable, but except for certain weak pockets, overall credit performance remains quite on plan and stable.

So we are not actually seeing this perceived weakness that the market is valuing in actual loss performance. Having said that, we are not taking it for granted. And we have stepped up our efforts in our median markets in terms of aggression, where we actually service ourselves or working with our third-party services to make sure that we are managing any deterioration in the portfolio in an aggressive way.

Basically, what happened to our market is we also have a long pipeline. That's the other factor I should share with you. So unlike the U.S., where the pipeline is much shorter and in some cases a matter of days and in most cases a matter of weeks, the pipeline in Europe is anywhere from two to four months.

So any underwriting decision you make today, it will take you several weeks to actually translate that. As a result of that, our Q3 production was still meaningful because we were basically translating into assets promises we had made three months ago, four months ago. As a result of that, we had to look at our overall portfolio in terms of what was on our books and what was also in the pipeline under pre-committed prices.

And in light of the weakness in the capital markets, we had to take some held for sale write downs, all of them -- only $67 million of them were realized. But $463 million were just pure write downs in residuals and mark-to-market valuation. So net-net, clearly some work to do in international. However, as the underlying credit remains strong, we believe that once the liquidity returns, we should have a good handle on that business.

Very quickly, I'll quickly go through chart 15. This is the chart we've shown you in terms of overall credit quality. As you read this chart, you should keep in mind that over $39 billion of the $61 billion of HFI that is being tracked here, our downside is limited to $400 million only. So some of the credit metrics may be misleading in terms of what you should expect in the future. They're obviously factually totally correct right now.

Non-accrual loans are up to 14% for all the reasons I talked about. It's both frequency being up and also severity in light of the significant weakness in HPA that we are seeing affecting it. These charge-offs as we take -- as we repossess, forclose houses and try to work them out, clearly having to take some significant foreclosure chare-off action.

I'm on page 16 now, wanted to quickly take you through ResCap liquidity, a very meaningful bright spot. We took some significant actions in July, August, and September to beef up liquidity because we know that in the end the game is going to be based on the players who continue to have strong liquidity. We took some cash we reported at $6.5 billion for quarter end. That's a huge improvement from even the levels at Q2, which were already at record levels of $3.7 billion, strong equity position of $6.2 billion.

I did also want to flag to you that we have not drawn our global $1.7-billion facilities. That obviously remains available to us to draw added cushion for us. And we were also successful in lining up, renewing a huge close to $5 billion facility in the UK, which we accelerated and were successful in renewing. And we also got some new capacity in terms of MSR funding and new repo facilities in the U.S. I also wanted to mention to you that we successfully sold our Healthcare Capital business for $900 million to Commercial Finance within GMAC. So liquidity position remains very strong.

Very quickly, on page 17, wanted to talk to you about the bank. The bank has now become a very important component. If you stand back and see what happened to ResCap, our primary model within ResCap is that of a moving business. And as the credit market started choking. We had to pay the price in terms of what that did to asset valuations. We have taken significant actions obviously with the full support of the regulators to grow our bank and to move eligible production to the bank.

And you can see I've laid out for you some of the data. 29% of our production in Q3 went straight to the bank. This number is going to significantly increase in October. And when we show you this data in Q4, you will see that, of course, subject to full regulatory approval, the bank will continue to become a very meaningful source of funding.

We've continued to enjoy significant support not only from the FHLB in terms of borrowing lines, but also very stable deposit liabilities, which in fact are up 50% from year end 2006, so wanted to flag to you. Also, just in interest of completeness, did want to mention the $28 billion of assets to the bank, about $6 billion or so then are from the automotive business. The rest is mortgage.

Couple of quick slides -- on page 18 on the restructuring, which we announced a couple of weeks ago, the restructuring is in full throttle right now. We basically wanted to reduce and focus our product offerings very consistent with the comments I made with you earlier, taking out 3,000 heads. That's about 25% of our workforce. We've already taken out 2,000 earlier this year, so for a total of 5,000. We're in the process of closing about 50 facilities and sales outlets across the country and also focusing more and more on direct origination and really downsizing both the scale and quality of our institutional correspondent business.

This restructuring will affect all three businesses. I've talked to you about BCG will focus on middle market developers. Our international business, we will limit significant production only in markets where we have multiple sources to fund and sell our assets. Domestically, of course, we will continue to grow our prime performing on a high-end quality business and also to the extent possible leverage a very well-run bank, and continue to improve our focus on credit and risk management.

Due to this restructuring, we are taking -- we will incur restructuring charges in the $90 million to $110 million. A majority of those will be in incurred in Q4 when the actual exits of the people happen and the facility closures start to happen.

Very briefly, page 19 -- basically a more simplified, more focused business model consistent with our access to capital, consistent with our unique, creative origination platform for low-cost producer, focus directly toward the consumer, streamlined product suite, 80% in the near term. 80% of our production is going to be agency-government focused. And also, as much as possible subject to regulatory approval, up to 80% of our production will go to the bank. So we've taken significant actions to refocus our operating model, which frankly was historically based on the more buoyant home market that we had over the last several years.

So if I summarize on page 20 the outlook--as you guys know the global capital markets a lot better than I do, remains very volatile. Markets are still stressed. Liquidity is returning. There's pockets of strength, frankly, in terms of certain aspects of the capital markets. But still it remains volatile. And valuations for the lower credit stuff still remains very poor.

We expect some of this weakness, frankly, to last until at least early 2008. Home prices continue to be an issue, affecting not only valuation in the capital markets, but also affecting our credit performance. And you're all aware of the data, both in terms of old homes and new homes.

All of this will put some stress on Q4. It's also important to understand that a lot of our restructuring in terms of impacting the bottom line, that'll start happening in Q1 of next year. We are, obviously, throughout this process very focused, as I said earlier, as we restructure our business, go move to a low-cost scalable model, and make it more focused and to reduce our risk, we will continue our focus on liquidity and capital, which remain very strong.

So now if I could change gears -- I'm on page 21 now -- and spend the next quick few minutes on the rest of GMAC. Auto finance now globally, we sort of pencil our production originations as a yellow. If you remember last year, we had the big 72-hour sale GM led in July. As a result of that, our volume was heavily spiked. We had significant penetration of GM volume because of that sale. Due to that comparison, new originations are down.

But if I peel the onion one layer, we are actually quite pleased with not only our diversified volume but our overall mix of our standard business of GM. And we continue to show significant growth internationally. And I will show you some data on that.

Credit losses -- while delinquencies have been up, overall losses remain very much within historical levels. And we are quite comfortable with how that piece of the business is operating, very vigilant.

Lease residuals continue to perform well, continued good discipline by GM. And as you can see in the attached appendix data that we put next to the press release, some very good performance with respect to residual performance in terms of both our service book and our managed book.

And then margins, we gave it a yellow. Our actual margins year over year are actually up. They're also up from Q2. However, we are starting to see some slowdown in the improvement because of cost of borrowing. So we just wanted to flag that to you. But net-net margins are still quite healthy on a global basis, both for international business and our North American. Within international, of course, we are seeing weakness in Europe. That is bringing down the total number down, but still quite healthy from versus historical levels.

Page 22, wanted to just highlight to you some of the production. We've talked to you about how we are focusing on growing our non- subvented business and our used business. Used business is up 50% year over year, $2.3 billion of origination. And as I said to you earlier, while our new originations are down year over year, if you adjust for our special sale in July, it's actually a good performance. That's over $14 billion.

You should look at page 23 and 24 together. We wanted to because of the interest people have in terms of how credit is performing and is there any leakage into auto finance that we wanted to share with you some words, also some data. If you look, Q3 delinquencies are up year over year. That seasonally Q3 is up, but even underlying, we are seeing some weakness in consumer, primarily in geographies where there is housing weakness also. So there is some correlation starting to show up in terms of our new customers. But overall also, I think the lower credited consumer is getting weaker. There's no questions about that.

Our overall losses, though, continue to be very manageable. We are very proactively servicing these accounts. And we feel good about how we are handling that. We've taken--continue to emphasize doing better work of initial verification. We have reduced our production of the riskiest non-prime assets. And as I said, proactively, we've also expanded our collection force.

IO, actually, delinquencies performing very well. I did want to mention that. While there is a bit of weakness in Mexico and Brazil, as you may have seen in the press release attachment, underlying metrics for IO are actually very, very strong.

Changing gears briefly to talk about insurance--written revenue was up year over year. However, again, we marked it yellow because we continue to see a very soft market in the personal auto insurance space in the U.S. And that continues to be a challenge. And then over time, we are starting to see the spillover effect of GM's extended warranty program that they have announced. So net-net, those are down year over year.

But we continue to make great progress in our insurance business and our international business both organically and as a result of the acquisition we made in the UK. So I'm feeling pretty good about our written revenue but with more work to be done to diversify our extended warranty business in the U.S.

Underwriting results remain very strong. We had some bad weather in Q3 in the Midwest. And that affected slightly our core earnings year over year, but overall very pleased with how we are performing, even at a combination ratio of 95%.

And investment income, I already mentioned to you earlier. We have right sized the portfolio. And underlying investment income remains very strong. You need to adjust for capital gains and what happened. In core earnings, the concept that now we have shared with you over the last four quarters, our core earning performance slightly down. But year to date, we are up $62 million. So insurance is performing very well. We are very pleased with how all of that has played out.

A quick slide on global liquidity, something which is of fundamental importance to us -- great work by the team. And we picked up liquidity in what, frankly, was a very tough market Q3. We finished cash at close to $29 billion. We also successfully negotiated our $10-billion line with Citi to a $21.4 billion facility.

We did over $11 billion of whole loans and ABS transactions, both private and public in the U.S., and over $3 billion, excluding ResCap, and another $2 billion from ResCap, close to $5 billion of new funding also. And we also, as I talked earlier changed the mix of our illiquid production so we didn't have funding issues going forward.

This will remain a key priority. I want to assure you that the management of GMAC and the finance team under us is very focused that we continue to keep our access to liquidity high, even at the cost of short-term earnings.

Quick slide on growth, I won't go through it. But it remains a focus. And this is one of the challenges we have as a management team. Even as we focus our energies on restructuring and turn it around ResCap, we cannot keep our eye off two things. One is the stable and strong performance we have within our other businesses, but also focusing on what we call diversified growth and good track record.

I would be remiss if I did not make one sentence about China. China, we're up to $1.4 billion balance sheet. That's double from a year ago. And we continue to benefit from what I frankly think is the best auto finance platform in China and obviously benefit from the strong performance GM is enjoying in China. So overall our growth is on track.

So to summarize, I'm on page 29 now. To summarize, this was a disappointing performance overall because of the global dislocation in mortgage and credit markets. A very solid performance in insurance and auto was not -- could not overcome the significant losses at ResCap. We are very aggressively and proactively reshaping the business model at ResCap in reaction to these fundamental changes. And we will have a scalable infrastructure that will be able to react to what is frankly a volatile market.

And we have, both at the GMAC and at the ResCap level, we believe we have ample liquidity to not only contend with these challenges, but also in certain areas in fact play offense. And we will stay focused on restoring GMAC overall to profitability. Thank you for your time. And now back to you, Susan.

Thank you very much, Sanjiv. Operator, we're ready to take calls from investors. Would you please inform the listeners how to queue up a question?

Yes, ma'am. (OPERATOR INSTRUCTION) And our first question comes from the line of Stuart Hosansky with Vanguard. Go ahead.

Yes, good morning.

Good morning, Stuart. How are you?

Good. How are you?

Good.

I was wondering if you could possibly walk us through the rest of 2007-2008, your debt profile in terms of maturities and then also your asset roll-down profile.

Well, if you look -- and one of the things I did not mention in my remarks, which I should is that in Q3 we did transfer $6 billion of assets from HSF to HFI. So if you look, that is one of the reasons why HFI is actually flat. It was actually running down.

As the production goes down of nonconforming product and we take -- you will see an overall decrease in our asset size within ResCap. And the GMAC level of costs with the continued acceleration to the moving model, you will see that we will be a much faster mover. So what we originate, we will sell fairly quickly.

So all in all, if I look at asset runoff, my prediction would be that the amortization and the sale of assets will exceed the overall production levels, both on the auto finance space and also on the mortgage space.

In terms of key maturities, there's no really chunky maturities in the first half of the year. Second half of the year, ResCap does have about $4.5 billion starting from May onwards, about $4.5 billion of unsecured term securities. What are -- David, what are the exact GMAC levels, which of course was a big year? This year we have -- as you saw in our debt numbers, one of the major reasons why that is going down is a lot of our unsecured debt that we did in 2001, 2003 is running off.

Unsecured public debt maturities are roughly $11 billion for the rest of GMAC, the auto businesses in 2008.

And for perspective, that number used to be 2x, 3x in 2006, 2007.

So on the -- particularly on the ResCap side, you would probably be looking at retiring that debt through matured financing?

We have multiple sources. I don't want to get into specifics of the capital planning to be a function of what's happening in the marketplace right now. We are very confident, both with our committed access to funding that we have, the state of the balance sheet, some of the right sizing and focus we are doing.

So without getting into how we would do it specifically, we are at this time very confident and comfortable in our ability. And as I said to you earlier, capital and liquidity remain the primary focus. And so we are very mindful of being prudent and careful in that manner.

Okay. And one final question if I can -- the facility that you set up or the arrangement that you set up with Bank of America a couple years ago, did that have the flexibility to borrow under that or sell assets to that on the ResCap side as well as the GMAC side?

No. It's been a very good facility. And it is only focused on U.S. retail assets, but frankly a very important long-term partnership. It has about two and a half years, slightly over two years left on it. And it's primarily focused on U.S. retail assets.

Thank you.

Thank you. Thank you, Stuart.

And our next question comes from the line of Doug Karson with Banc of America. Go ahead.

Great. Thanks, guys.

Hi, Doug. How are you?

I'm doing well. A question about the equity infusion of $1 billion -- it appears that ResCap may have violated a minimum net worth covenant without the infusion. And I'm wondering if that covenant was not in jeopardy, what would the appetite have been at GMAC to have provided that equity infusion? And going forward, how does GMAC feel about continued support of equity for the ResCap business, given the market dislocation we have here?

Well, Doug, couple of clarifications--we did not breach any debt covenant. The debt covenant is measured in the quarter end. And obviously, we are very vigilant about the state of our bank lines and the requirements and managing it, both at the ResCap board level and at the GMAC board level. We are looking at our capital planning requirements, looking at the balance sheet and doing the prudent thing with respect to both capital and liquidity.

So I think the shareholders feel good about the turnaround plan at ResCap, the actions we are taking, things that we do control in terms of restructuring, right sizing the production, taking our cost out, focusing the platform. All of those actions would suggest that when the liquidity does return in the market and there's some stability, we will be well positioned to exploit that.

On that basis, the GMAC board elected to eject equity into ResCap. I'm assured this is a continuous exercise. And it was a decision that the shareholders made. But I'm very confident at this time about the outlook for ResCap. And as a result of that, we will take the appropriate steps in the future also to make sure that both at the GMAC level and at the ResCap we have adequate capital and adequate liquidity.

Right. I had just one other question, and then I'll let someone else in the queue. The prime conforming business, it looks like production was about $12.2 billion, which is about equivalent to last year. Given the cost of capital now, how profitable is that production?

Most of that business going forward will go through the bank and go to Fannie-Freddie. I don't know whether, Jim Jones, you wanted to add anything.

Yes, I think that the issue would be at the moment that it's got a decent spread attached to it in terms of the gain on sale profile of pretty much what we would expect. Our issue, quite frankly, is that we at the moment have a production machine that's got a cost to originate for not only a more complicated product set but for a much greater production. And that's really the essence of the announcement that we made about cost reduction.

All right. Great. Thanks, guys.

Thanks, Doug.

Our next question comes from the line of James Leda. Go ahead, sir.

Can you hear me?

Yes, we can. Go ahead, Jim.

Thank you for taking my questions, just a few.

Sure.

The first one -- I wanted to ask a little bit more about the rate of erosion in margins at ResCap specifically. Where are we currently? And what should we think about the inflection point?

Overall, on the business, the margins are negative, which would be obvious based on what happened to both of the liquidation of those assets. We don't want to get into specific numbers. But as Jim pointed out earlier, we are appropriately pricing the new production to reflect both the current credit outlook and also the current liquidity outlook.

So going forward, as assets perform, we should be seeing back to positive margins. But right now, James, the margins are obviously negative because many of the assumptions that we had made several months ago when we originated the paper have not played out in terms of both at what levels we would securitize and what some of the margin costs would be. So that has affected our performance.

And you stated that the board at GMAC stands ready to make sure that liquidity remains robust or adequate or however you want to characterize it at both the GMAC and ResCap level. But given that and given the uncertainty in the outlook, I mean, how sustainable is this situation? And part B to the question is what communications have you had with the ultimate owners here, GM and Cerberus, about supporting that, supporting this current market environment and for how long that's sustainable?

Well, Jim, first of all, I would be remiss if I did not make it clear that I cannot blanket speak for the shareholders. That's a decision the shareholders will make and the board will make. These are very important decisions with respect to capital planning. And those are made at the board level and at the shareholder level.

I can assure you that we are working very proactively with both our shareholders, Cerberus, the consortium led by Cerberus, and by General Motors. And they're up to speed with both what has happened to us and what the outlook is and what the steps we are taking to improve our outlook.

And obviously, they were supportive of the decision to inject $1 billion of equity into ResCap. They have been supportive of the restructuring plan at ResCap. They have been supportive of how the rest of the business is performing. And clearly, any decisions that the GMAC board would make would reflect the views and the input of our shareholders also.

So I don't want to represent anything blanket. But I did want to assure you that all the right shareholders and stakeholders are heavily involved in making sure we do the right thing at the ResCap level and at the GMAC level.

Okay. Clearly --

You should also be aware, Jim, just one other point I did want to flag to you that the shareholders did agree -- decide to convert $1.1 billion of preferred into common as of today. So clearly, they are mindful that they need to do whatever is required to keep liquidity and capital strong at both GMAC and ResCap.

Certainly, at this point in time, clearly, the contribution in the quarter came from the GMAC level. That's correct?

That is correct.

Yes. Just curious as to why that maybe didn't come from up above and came from GMAC level specifically.

We're getting into semantics. ResCap is 100% owned subsidiary of GMAC. So unless you wanted to create a new class of shareholders, GMAC is 100% owned by ResCap. And GMAC on the other hand is owned 51% by the consortium and 49% by General Motors. So again, we made the decision at the GMAC level with the support of the GMAC shareholders.

Right. Okay. If I could jump very quickly just to think about the allowance, can you tell us how much of the allowance is ascribed to non-prime, excluding the securitized portion? And how does that compare to non-performing balance?

What I can -- without giving you specific numbers, a huge amount, huge majority of the provision is relating to non-prime. And a huge majority of the non-accrual 14% is also relating to non-prime.

Yes, I think one of the things you have to remember is that our held for investment portfolio is substantially younger than -- on the prime side -- is substantially younger than the non-prime side. So the non-prime has the disadvantage of both being seasoned out and having been originated a point in time where housing values were higher.

Exactly. Because if you look at -- if I exclude the securitized portfolio, which is how you should look at it, the $21 billion, about $15 billion of that is in the bank. And only recently have we started putting HFI, prime HFI, in the bank.

Okay. And one last quick one, and I'll let you go. For the Citi facility, can you tell us where we're at with regard to how much you were able to get there? And $21.4 billion, I think, was kind of the most that you could get on that facility, just an update versus where we were in mid-September. And I'll let you go. Thank you.

Thank you. Well, the Citibank facility overall is $21 billion, as you recall. We can draw up to $14.4 billion. And then we need to go, and Citi needs to syndicate that to clear the capacity again. They have been successful in syndicating some of it, so our actual capacity is closer to $16 billion, and we've utilized about $12 billion of it, so we still have over $4 billion of net capacity that we can use across auto ResCap. And of course, we are working closely with Citi to securitize some more of those productions to create more capacity. Thanks.

Our next question comes from the line of Brian Johnson with Lehman Brothers. Go ahead.

Morning, Sanjiv.

Good morning, Brian.

Can you give us a sense thinking of your going forward strategic plan? If the market remains around $20 billion origination volume, primarily prime conforming, where does your SG&A need to get and your non-interest expense need to get to for you to have an attractive business? And do the current restructuring plans get you there?

Well, Brian, I don't want to talk specific numbers. I can assure you that Jim and the team and Mike and everyone are taking some very significant actions to right size the business for the current environment. We are not leaving cost in there in the hope that the market comes back. It'll be a scalable model. I don't know, Jim, whether you wanted to elaborate some more how you are looking at your restructuring.

Yes, I think that the restructuring certainly was done with current revenues in mind and current market conditions in mind. So you can certainly anticipate that our expense reduction goals were established very much to correspond to that.

And about how many hundred million is the reduction goal?

With regard to the staff reductions and the associated costs in terms of facilities and technology, it will be order of magnitude just under $500 million annualized.

Okay. And second, for non-prime conforming business, how should we be thinking of kind of a run rate gain on sale from the new strategy of originating then quickly selling that production.

Are you asking this for ResCap, or --?

For ResCap.

Again, as I said, it really depends on the class of the margins, as you know better than I do, on the conforming are very, very tight. And the whole profit there is by managing lean costs and also having high velocity in terms of churn. But again, I don't want to give specific margin data.

But currently, the way we are pricing our production, we are confident that if the situation stays stable, we will be able to get a margin, a decent margin. The real margins, as you all know, are in nonconforming. And there, of course, we are being very prudent in terms of what we originate.

Okay. Does the strategic plan assume a rebound, though, in the nonconforming production?

Well, again, we have various scenarios. But we are right sizing the business and managing its liquidity on the current environment.

Okay. Thanks.

Thank you. Thank you, Brian.

Our next question comes from the line of Chet Luy with Barclays. Go ahead.

Hello?

Hi, Chet. How are you? We can hear you.

Good morning. A few questions here -- first, can you give us a sense as to how much GM contributed out of the $1 billion capital infusion into ResCap?

GM did not. As we clarified in the earlier question, this equity came from GMAC. So GM did not have to inject anything. GMAC, GM, and the consortium, when they converted the preferred, they converted the preferred in such a way that the 51%-49% ownership slip was maintained. So simplistically, Cerberus converted 51%, and then GM converted a portion of its convert to get to exactly 49%. So that was the only economic change from GM. The $1 billion came from GMAC to ResCap.

Got you. Now switching gears to the auto finance side of the business, do you expect or are you seeing signs that the subprime contagion is spreading into prime auto loans and away from 3Q seasonality? Are witnessing trends that indicate we're likely to see delinquencies increase considerably from current levels? And finally, what is your prognosis of asset quality and delinquencies in auto loans in the event of a recession?

Well, that's a lot. Let me just briefly, as I said earlier in my prepared remarks, there is some weakness in the consumer. And there is more weakness in the lower tiers if you look at -- I'm sure you've seen the data. Overall, borrowers are -- consumers are a bit more stretched now than they were four quarters ago or two quarters ago or a year or two years ago so that the lower credit tiers we are seeing some weakness, increased weakness.

We are managing our losses very well as I showed you in terms of our data. Our delinquencies are up. They're not exclusively up in subprime. I would actually say the lower tier -- our subprime in the U.S. is around 16%, 17% of our book. We obviously have proprietary credit models. But using the FICA score that's in the 620 zip code or so, below 650 and 620 zip code is about 16%.

And while we are seeing some weakness, nothing very unique, obviously, we've priced also for that weakness. We expect higher losses in that space. So right now, it's not translated into any major losses. Having said that because frequency in terms of delinquencies, if that's up, we are being very vigilant in terms of proactively servicing that.

And as I mentioned to you earlier, we have also what are what I call the bottom tier within our subprime. We have significantly reduced the production in that space. I cannot predict what would in the unlikely event that there is a recession what would exactly happen. Obviously, the consumer would be weakened. We have historically seen that interest rates and unemployment are a very good correlation to actual losses in the housing market and in the auto loan market--excuse me. And we are in -- unemployment, despite the weakness in certain parts of the market, still remains quite strong.

So again, it'll obviously be weaker. But there's no specific number that I can offer you for your consideration. We are staying on top of it by proactively servicing it.

Yes, thank you. Just two quick follow-up questions here -- are you witnessing weaker players move out of the prime auto loan market? And are you seeing remaining players easy on their writing standards?

No, I have -- the market remains very competitive. I think it's been competitive now for several quarters. A lot of the mainstream commercial banks are now significant players in this space. And credit unions continue to be a very formidable competitor locally. You're not seeing any major change.

Certain of those very small players did have some issues with their service book. But our primary competition still remains as strong as ever. And we think we have a very good value proposition, both at the wholesale level and at the consumer level, which is why we have so much production. So what we have to do is, Chet, make some more progress on cost of funding. And that has to be so that allows us to become more competitive with some of our mainstream competitors.

My final question, Sanjiv, is has availability of credit been impacted materially? And is this impacting vehicle sales?

No. As I said, one of the things -- and I should've mentioned that earlier -- our underwriting standards have remained consistent. If you look at our overall book in the U.S., we are writing in the 710, 715 level FICA score. That's the average book we're writing today. That was the average book we were writing a year ago. That's the average book we wrote two years ago. So we actually have not changed our underwriting standards overall. This is about quite stable in terms of how we are underwriting. And so that will stay. But as I said, the focus will be on more proactive servicing.

Great. Thank you, Sanjiv.

Thank you, Chet.

Our next question comes from the line of Keven Maloney from BlackRock. Go ahead.

Thanks very much. Just a few questions about -- I think I missed this. You mentioned that there was a transfer from I think the held for sale to the held for investment portfolio. So anyway, what was transferred, whether it was prime, non-prime, second lien, or --?

Well, basically, we did a $6 billion transfer, obviously, totally in a prudent manner in mid-August. About $3 billion of that was prime. And $3 billion of that was non-prime.

Okay. Great. The securitization that you did that basically offloaded -- I don't know--a significant amount of the held for investment portfolio, is there any recourse back to you besides the $400 million that I guess -- the first loss position you had to keep?

No, no, there is not. Clearly, most of those HFI sales are beyond their [reps] and warranty period or their EPD period. So obviously, many of these securitizations do have those clauses. But as that portfolio seasons more, there's no recourse at all and nothing meaningful. I think the way you should look at that $38 billion portfolio is we are proactively servicing it. We are minimizing our losses because it's important [for all of them] that portfolio perform well. But our economic downside is limited to $400 million in that book.

Okay. And if I did the calculation right, I think on an on-balance sheet basis, you have about $4 billion of subprime left or non-prime within the held for investment portfolio. Or am I wrong on that?

That is correct. I think $3 billion plus something, that's the right math.

Okay. Great. As far as the bank lines and the repo lines, could you give us some idea of when the maturities come up, how long they are, and any terms and conditions for performance?

There are tons of facilities on a global basis. We had a big facility mature early October in the UK, which we pulled forward. And in September, that was a GBP2.4 billion facility I talked about. There are some renewals coming up in the continent, some renewals coming up in Canada in Q4. The big U.S. global facilities are in May-June timeframe. So there is, I think, in the 10-Q and the K we disclosed to you detailed maturity profiles. If you have some specific questions, you can call Ken or Susan. And we can get that data for you.

But you can imagine for a complex company like ours with multiple relationships, both in the capital markets and in the banks, we have multiple maturities at different times. So there's no single facility. The asset-backed facilities are also the same, where most of those are 364-day. But a lot of them are also term ABS or longer-term facilities. So really, I think I would encourage you to go through our K and Q where we disclose. And if there are any more questions we can answer, Ken and Susan can take care of it.

Okay. Great. I think some of the maturities were not disclosed. But that's fine. I'll go through that channel. Also, could you talk just a little bit quickly about production? How did the change, meaning did you use more correspondence? Did you use more direct? Was [dietech] more important? Can you give us some idea how that changed?

Jim, can you?

Yes, I can tell you that the mix was effected more from a retraction away from doing institutional purchases and a diminished volume with regard to correspondent, while sustaining volumes on the retail and direct-to-consumer dietech channels.

Okay. Great. Thanks a lot. That's all the questions I had.

Thank you, Keven.

Ladies and gentlemen, at this time, we would like to invite members of the media to ask questions. (OPERATOR INSTRUCTIONS). And our next question comes from the line of Monica Keany with Morgan Stanley. Go ahead.

Hi, I wanted to ask a clarifying question, Sanjiv, on the Citi line.

Sure, Monica.

Could you go through it again, the details? And how much is right now available that ResCap can draw? And furthermore, are there any covenants that we need to be aware of?

I just wanted to make clear it's a complex facility. It has three borrowers of record, Commercial Finance, GMAC, and ResCap. Each of their individual capacity actually exceeds the sum total because of the way it is structured. So it depends on asset eligibility and agreement. We are very pleased with how the facility is working. It has achieved the objective we have.

In terms of specifically, ResCap has -- the size of the ResCap facility is about $8 billion. But again, it has to do, as I said, the devil is in the details in terms of asset eligibility, in terms of capacity in the overall line.

So I think it's important to think that when we look at it from a capital planning point of view, we took parts of the facility we thought would be most appropriate. As some of those assets get syndicated, we will now tap other types of asset. So I don't know, David, whether you wanted to add anything here with respect to the facility.

No, I think it covers for ResCap a variety of asset classes within ResCap mortgage production, mortgage servicing rights, business capital activities, etc. So we're working through the details of a number of those. And there's still significant capacity for ResCap to put assets into those facilities.

Sanjiv, can you move collateral from -- if you were to use like those [RALA] and [MALA] lines -- can aged collateral go into the Citi line?

There are some possibilities for that. But we actually have other facilities already committed long before the Citi facility at ResCap that would be more natural homes for aged product that falls out of MALA-RALA. And in fact, the actual amount of production in MALA-RALA today is quite low. So we have huge amounts of excess capacity in MALA-RALA at the moment.

Okay. And do you know what the HPA assumption you used from 2Q to 3Q and then for 2008 when thinking about the provisions?

Well, I don't want to give specific numbers. I did want to share with you -- you obviously see the public (inaudible - highly accented language) and shareholder data. We expect HPA across the board in the country to be negative in Q3. It was barely positive on an annualized basis in Q2. Our forecast currently is for continued weakness for the next several quarters.

I would be -- again, our assumption is that home price appreciation will be negative in the 1.5%, 2% zip code over the next several quarters. And it will -- mid next year, it will start reverting back to the mean, which again will take several quarters to happen. So we are -- our plan right now is fairly bullish on home price appreciation. And we are making sure that's reflected in our pricing and also the way we are servicing.

And then last question -- I don't know if I need for the queue on this. But do you have the unencumbered assets at quarter end?

No, I don't have it handy here. I did want to flag to you, though, that the whole concept of structural subordination remains a key measure for us. That's something we work with the rating agencies on. And we are managing that. Also, it's important as you do your own analysis, Monica, and other investors and as you try to look at the unencumbered state of our balance sheet, it's important to remember that we are translating a lot of our assets into cash.

And so cash obviously is also the most unencumbered asset that you can have. And you should keep that in mind as you look at the performance of our balance sheet. And we are comfortable, very comfortable, with the state of our unencumbered ratios at this time, Monica.

Okay. Thank you.

Thanks a lot, Monica.

Our next question comes from the line of Kabir Caprihan with JP Morgan. Go ahead.

They are only taking questions from sell side.

Yes, Kabir, we can hear you.

I apologize. Kabir has disconnected. Our next question comes from the line of [Matthew Breckinridge]. Go ahead.

Hi. On the transfer from held for sale to held for investment, was there a mark-to-market adjustment before it was transferred to the held for investment side?

Yes, there was. It was done totally in accordance with GAAP. So just -- my accountants are teaching me accounting now. And in basically a nut shell, the assets of held for sale, you mark it at the value at the day of transfer. So you have to write it down as appropriate. And then it becomes HFI. I don't know whether, David, anything to add in that regard.

No, that's appropriate, mark it down to lower cost of market before you transfer it, yes.

Okay.

So we did take a haircut before it was shifted.

The next question -- what is the total liquidity at ResCap?

In terms of-- it depends again. If you look $6.4 billion, the $5 billion of cash, we still have the global $1.7 billion facility unused. And then we have a ton of other committed and uncommitted secure and unsecure facilities. Some of them have asset criteria. Many of them are much more flexible. The unsecured ones are, of course, very flexible. So I think at this time, we feel pretty comfortable with our sources of liquidity. And I think you will see that all reflected in huge detail in the Q that we will file next week.

On the liquidity side, how much of your liquidity is subject to a borrowing base?

Well, again, most of the secured facilities, we need eligible assets for it. And in certain cases, we do have eligible assets. In some cases, we are building the eligible assets. In certain cases, we don't have the assets. So it really depends. But as I said, this time, you look at the whole mix and a combination of bank lines, et cetera. We feel pretty comfortable.

Okay.

Anything to add? Go ahead, Matthew.

I was going to ask -- the last question is are there any -- are any of your ResCap lines guaranteed by GMAC? Or are there any GMAC guarantees at all of any ResCap obligations?

No. You should be aware that when we created the firewall at ResCap, and we created ResCap close to two years ago, we took off any guarantees or any inter-company borders we had. We paid $1.00 down at record time if you remember. And at this time, there are no guarantees at all. And also, to the extent that there were any material inter-transactions, we would be disclosing those anyway. Any material transactions between GMAC and ResCap would get disclosed.

Okay. Thank you.

Thank you, Matthew.

Our next question comes from the line of Steve Pawliczek with Goldman Sachs. Go ahead.

Hi, Steve.

Hi. This is Steve Pawliczek from Goldman Sachs Asset Management. I had a few questions. First, how many of your or which of your facilities in terms of secured facilities at ResCap can be utilized to refinance unsecured debt of the $4 billion to $5 billion that you have in 2008 coming due?

Well, again, as I said, if you look at our sources and uses of funds, our sources are a multiple of sources. And our uses are a multiple of sources. Currencies are fungible. Dollars are fungible. So I cannot pinpoint to you that we will access this secured facility to pay off this unsecured facility.

If you look at the asset runoff we have, if you look at the other secured facilities you have, you look at some of the enhancements, either if it's improving or weakening, net-net we will generate certain amount of free cash flow. And that then, we will use that to pay off our liabilities. I think it's impossible to match one with the other. It's all a big complex sources and uses of fund plan.

Okay. And then just in terms of thinking about how much more equity GMAC can afford to contribute to ResCap, and we also had a Chrysler financial deal come recently, which was fairly conservatively capitalized, what is -- how much equity is really need at GMAC to run the auto finance business.

Because, obviously, if you look at the minimum net worth covenant that is referenced in Moody's press release, if you had more losses in Q4, you potentially would need to contribute additional equity again into ResCap. How much money do you -- how much equity do you really need at GMAC to support GM and its auto finance business? Have you thought about that?

Well, obviously, we take capital planning very seriously. And so does our board. We look at the adequacy of capital across our businesses, both at the GMAC level and at the ResCap level. And at this time, we are quite comfortable with the level of capital we have. If you look at the overall business philosophy as we look to de-risk this balance sheet in a more meaningful way, something we started three years ago but we are going to accelerate the process, we feel comfortable that we have the right capital both at the GMAC level and at the ResCap level.

So I don't want to get specific in terms of how much capital we specifically need. But I can assure you that both liquidity and capital are things that we look at very carefully, both at the GMAC level and at the ResCap level and you know within ResCap and the GMAC Bank level. So I did want to clarify insurance also. So it is something that we are very mindful of. GMAC, of course, owns 100% these businesses. And we are quite comfortable with the various ratios and what we need to do to make sure we enjoy access to liquidity.

Do you think GMAC has the capacity to significantly increase its financial statement leverage or leverage ratios to support ResCap?

Well, it again depends on what's on the asset side. Again, this is not--this is a three-dimensional question. So it really depends on what the risk is on the left hand side of the balance sheet. That will then dictate how much leverage we can take on the right hand side and how much equity we can afford. All I can tell you is these decisions will not be taken in isolation. We will be very prudent. We have some growth plans that we want to do.

We also have to run our core business within the auto finance business, which has been very good to us. We continue to perform there. And we also want to make sure that we have the right capital and liquidity to support the ResCap turnaround.

Okay. And then just one final question -- just to help us all understand and to confirm something, if ResCap were to file, GMAC is bankruptcy removed from that given the agreements that are in place?

This is obviously a very academic question. We are quite confident about the ResCap turnaround. But to answer your question specifically, I believe the agencies looked at that when they established the firewall. And I believe we are very confident that there is no substantial consolidation issue between GMAC and ResCap.

Okay. Great. Thank you very much.

Thank you, Steve.

Our next question comes from the line of Randal Klein with Avenue Capital. Go ahead.

Hi, Randal. How you doing? Long time, no see.

Very good, sir. How are you?

Good.

Two quick ones for you hopefully -- on international, obviously, most of the losses went -- or at least a significant portion went through kind of gain on sale, which was obviously a gain on loss this quarter. You talked about it being more of a technical issue than a fundamental issue on the underlying performance. Just kind of curious as to how you think about the outlook, if you will, specifically for international, given that backdrop. I'll stop there.

Randal, I wanted to clarify. The differentiation I wanted to make was -- and I'm sure there will be books written about what's happened to the markets over the last several months in the mortgage market. But if you look, the underlying fundamentals where home price appreciation was weakening and mortgage consumer was weakening. So you had a frequency problem and a severity problem. And that was the foundation under which then there was a liquidity problem. And all of it sort of became -- in late July, early August--became the perfect stomp.

If you compare that to Europe, it was more a combination of summer shutdown and then this [wholly sure] of contagion. There was panic in the market that the issues that are happening in the U.S. could also happen in Europe. There was not at least so far -- and again, I have to be careful--so far any underlying weakness in either -- in a meaningful way, either in severity and definitely in frequency.

And I read some of the data that you read, Randal, in terms of what the rating agencies and what some of the third-party observers are showing. And some of these massive weakness that were being predicted for Spain and for the UK have not really translated yet. Having said that, are there pockets where we are concerned? And are there asset classes that we are worried? Most definitely. And we are vigilantly managing those and converting them.

Now if the liquidity were to return and credit were not to get impaired, then many, many of these losses we should be in a position to recover. On the other hand, if we do try to realize some of these assets in the marketplace at current valuations, then we will not recover those losses. So I want to be careful here to differentiate that while the cause and effect was much more clear in the U.S., it was not so obvious so far in Europe.

Great. Okay. That's helpful. And second question -- within the non-prime exposure, both on held for sale and held for investment, any guidance you can give as to how much of that is U.S. versus non-U.S. exposure?

Well, within the held for sale, as I said, about $10 billion of the $15 billion is international and with a big majority of that sitting in Europe on the continent. So then to do the math, that leaves about $5 billion. And some of that is actually in the bank. And a very small piece of that is on the non-bank ResCap balance sheet.

I'm sorry. Just to clarify, just within the -- excluding securitization, there's obviously a lot less non-prime in the held for investment. And there's also still again a little bit left in held for sale -- or I shouldn't say a little bit -- about $3 billion left in held for sale. Between those, looking at it in those two ways -- and you may or may not have that broken out for the held for investment, excluding securitization -- how much of that's U.S. versus international?

I don't have that immediately handy. We can try to get that to you later. But it's sort of--you're following it the right way. And your logic is right in terms of it won't be such a big number because the $38 billion or the $36 billion in the U.S. of HFI securitized, that's primarily non-prime.

Right. Okay.

So you're on the right track, Randal.

Okay. If you have a chance, that'd be great to follow up. Thank you.

Thanks, Randal. Thank you. Ken will follow up to you.

Our next question comes from the line of Chris Ceraso with Credit Suisse. Go ahead.

Thanks, Sanjiv.

Chris.

I just had one quick question because it looks like the -- and you pointed this out in your comments about the increase in used vehicle financing as opposed to new vehicle financing. Can you just give us an idea of what the mix of prime versus non-prime borrowers is in each of those buckets and then how the delinquency trends compare?

I don't have how much of our -- I don't have data on how much of our used is non-prime. We can try to get that for you later, Chris. What I can tell you, though, is that clearly -- I mean, if you look at frequency, and used is higher than frequency new. But we have repriced for that. Severity versus UPB and higher in used versus new. But we price for that. So the business does behave a bit differently.

We are growing our used business in a very prudent way. We have to be careful that we are applying a unique set of underwriting standards and a unique set of servicing standards. Most of our used business, though, is vehicles that are less than five year old, four years old. So these are not vehicles that would have much more poor residual value. So it's -- we're doing it in a careful manner.

Our used was also at such a low base. We had to walk away from used over the last three years as we had capital shortfall. And so to be able to get up, we're still only doing $2 billion of used origination compared to $16 billion, $14 billion to $16 billion at the new level. So it's still not meaningful. Our overall portfolio is about between 20% to 25% of our portfolio in the U.S. is used right now. Our new volume is about 20% used. So it will take a while before our portfolio changes in a meaningful way in that regard.

Thank you very much.

Thanks, Chris.

As a reminder, ladies and gentlemen of the media, we would like to invite your questions at this time. (OPERATOR INSTRUCTIONS). And our next question comes from the line of Sam Crawford with Stone Harbor. Go ahead.

Thank you very much for taking the question.

No problem, Sam.

The restructuring charges, given the number of people that are potentially involved, 3,000 as opposed to $90 million versus $100 million at ResCap sounds actually quite high. And I'm wondering if you can help me by breaking down what portion of that is tied to personnel and what portion of that is tied to non-personnel, facilities closing, that sort of thing.

I think we -- maybe you remember we disclosed that in the Q, in the 8-K. If memory serves me right, about $40 million or so were facilities related. $30 million to $40 million was facilities related. And $60 million to $70 million was people related. And clearly, we did that in a prudent manner and clearly to the satisfaction.

Okay. And the second thing is on the portion of HFS portfolio, you've indicated that ten --

So sorry, Sam. I should correct you. I'm being corrected here that it's the other way around.

Right.

$60 million to $70 million facilities and $30 million to $40 million people.

Right. The HFS portfolio, $15 billion of which $10 billion is international. And as you said, the majority of that, at one point, you said it was in Europe. At one point, you said it was on the continent. I'm sorry to be a bit of a pain on this. But how much of it is UK?

I don't -- all I want is basically if I look at our balance sheet, about 80% of it is in Europe. 55% of it is UK. So 25% of it is in continent. I think you should assume a similar mix without being specific. There is much less HFS in Canada and Mexico. I can tell you that. So a huge majority of the nine is between UK and the continent.

Okay. And the very last thing if you can say anything at all about prepayment spreads in the HFI portfolio in the lower quality mortgages, what you're seeing in terms of the '06 vintage.

Again, I think prepayment is down in general. Some of the classic interest rate models that we all had to model our MSR are not working right now because of refile issues. The models used to assume a much easier ability to refile. And clearly, that's not playing out right now. Some of that has to do with underlying consumers are not being able to recapture equity.

In fact, many times, they're underwater on their mortgages, so even if the underlying rates have gone up. So in generally prepayments are down. And servicing income is up. But I don't--Jim, whether you wanted to expand on that, please?

Yes, I think in particular you need to think about the fact that both from a sales side is allowed much less purchase financing and swapping of homes if you will. On the other side, the refinance business substantially is diminished, and in particular in the subprime side where there were high advances and difficulty in terms of getting appraised valuations.

As rates continue to come down, we're seeing some life with regard to the application side of that activity. It still remains to be seen how much will actually be able to be pulled through and sustain the appraised valuations that people have in mind.

And very last question, a very quick one -- in the subservicing business, is there any aspect of that business -- at what point does that business become endangered by ratings changes that are servicing related?

Well, obviously, as you know, our servicing shop is independently rated. We work very closely with agencies. We feel very good about the safeguards, the risk control, the adequate funding, the adequate security protection that we have. And we are very mindful of protecting that business.

We think we've also got a variety of ways that we can demonstrate protection for those assets as they're being serviced. And to the extend necessary, we will implement those.

Thank you very much.

Thank you, Sam.

At this point, we have time for questions from two other participants.

The next question comes from the line of [Sylvia Tong] with TIAA-CREF. Go ahead.

Hi, can you hear me?

Yes, Sylvia, we can. Thank you for being on the call.

No, thank you very much. I have a question regarding press reports about GMAC being interested in being a partner with Cerberus on the Northern Rock situation.

I think I would rather not comment on that. As you know, consistently, we have looked to diversify our business and grow our business. We are looking at several opportunities. And any of those opportunities reach a stage where a disclosure would be appropriate, we'll obviously talk to it. In the meantime, I think the best reaction is no comment.

I guess just as a follow up then, I mean, how -- do you have any operations in the UK that are material?

Yes, Sylvia, we are a very major player in the UK. We have a huge mortgage operation. We are a top ten player in mortgages. We are also one of the biggest auto finance players in the UK. And we also have a very strong insurance business in terms of auto finance, in terms of auto insurance and wholesale dealer insurance. And we have a very good asset base lending platform out of Brighton and Commercial Finance. So we are -- UK's been a very important country for us for several decades.

And what -- and that would be in the subprime-ish category?

No, Sylvia. No, we are primarily, again, depending on what asset class you're looking at, the UK auto finance market. We are primarily in the new market. So that's primarily prime, very little subprime in auto finance or insurance. That issue is moot. And within mortgages, the classifications that you follow in the UK are different from the U.S. So we would be more what you would call non-conforming space primarily.

But doing both.

But doing both, doing both subprime and prime.

And I'm assuming with significant operations you have a view on the UK mortgage environment? And I was curious as to that view going forward.

Jim, you were there recently. You want to talk to how you feel about the UK right now?

Yes, I think that the issue in terms of the UK is that it has performed very well. As Sanjiv indicated, liquidity has been a material problem in the market, much more so than credit performance. I think that the issue is if liquidity continues to be as difficult as it has been, we will see marginal applicants squeezed out of the process. And we run the risk of creating more credit problems that are driven as much as anything by the lack of liquidity for financing new borrowers.

You're talking liquidity in the UK market.

Correct.

Okay. Thank you.

Thanks, Sylvia.

And ladies and gentlemen, our final question comes from the line of Josh Lipchin with Eaton Vance. Go ahead.

Hi. As you start originating more product out of the bank at ResCap, is it fair to assume -- and maybe these aren't directly connected -- but the cash balance at ResCap continues to increase?

No, Josh, not really. It really depends. If you go back to what was happening in July and August, there was no parity at all on what would happen in terms of the markets going forward. So the name of the game was how much cash do you have. I mean, to be candid with you, over time, would we want to keep so much cash? Of course not. I mean, cash is a lazy asset. But are we going to do anything to jeopardize our access to capital and our capital position? No. So until we feel much better about the capital markets, cash will remain a priority.

On the other hand, over time, I don't think the best way to run the business is to have so much cash. There is no specific correlation. You should be comfortable that we obviously make sure the bank is appropriately capitalized. It has all the right ratios. And we have done very well.

The bank has been rated very well by the regulators. And we're pleased with how that -- and that means we have to have more cash in the bank. We'll have more cash in the bank. If we are required to have less cash, we'll have less cash, same exercise we do at the ResCap level and at the GMAC level. So --

So this is just a general question. At the ResCap level looking into year end, what's your expectation with respect directionally to the cash balance that you have at ResCap?

I can't give you a specific number or anything. All I can assure you is that our cash position will be comfortable. Whether it will be as high as $6.5 billion, I can't say. Whether it will be even higher than $6.5 billion, I can't say. What I can assure you is that we will be very comfortable with respect to our near-term obligations and our ability to fund them in a very prudent manner.

Okay. Can I ask you one other quick question? Just bridging the cash from $3.7 billion at ResCap from the end of the second quarter to $6.5 billion at the end of the third, I know you have $1 billion that came in from GMAC and sale of that asset as well. But can you bridge that simply?

Well, again, I think, as I said, it's very complicated to say that this thing came in only. But in terms of external flows, I think you've listed the two external flows. The two external flows were $900 million for the sale of Health Capital and $1 billion of equity from the shareholders, GMAC. So everything else was then inside the business.

So that implies $900 million of positive flow internally from either runoff from the portfolio, or --

Well, we had runoff. But we also had some new facilities. And we had margin calls of some of the other facilities. So it's a complicated game. And it's always the problem when you look at variances. But I do believe you have the right to external imports to cash.

Okay. Great. Thank you.

Thanks a lot, Josh.

This concludes the question and answer portion of today's call. I will now turn the call over to Susan Shank for any closing remarks. Please proceed, ma'am.

Thank you very much, Melanie. That is the end of our discussion for today. Of course, if you have additional questions, please feel free to contact either the GMAC Investor Relations team or the ResCap Investor Relations team. And you can always check our respective Investor Relations websites for contact details if you need them. Thank you again for your interest, and we look forward to speaking to again soon.

Thank you, everyone.

Thank you, operator.

This concludes the GMAC 2007 third quarter earnings conference call. Thank you for your participation today. You may now disconnect. Have a wonderful day.