General Motors Corp., the world's largest automaker, may take a charge of almost $1 billion to cover bad mortgage loans made by its former home-lending unit, according to a Lehman Brothers Holdings Inc. analyst.
Residential Capital LLC relies on loans to people with poor or limited credit records or high debt burdens, for more than three-quarters, or $57 billion, of its loan portfolio, Lehman analyst Brian Johnson wrote in a research report. Delinquency rates on such subprime loans made last year are at a record high.
About 13 percent of the subprime loans backing bonds issued in 2006 and rated by S&P are delinquent, with 6.65 percent of the loans behind in payments by 90 days or more, according to Standard & Poor's. More than 20 lenders have closed or are seeking buyers since the beginning of 2006. Subprime mortgages typically have rates at least two or three percentage points above safer prime loans.
``Some traders are expressing their view that we're a pure mortgage market play, whether that's appropriate or not,'' Louise Herrle, ResCap's treasurer, said in an interview last week.
The sub-prime story is beginning to filter into the broader market. I seriously doubt this will be the last event in this area.