ResCap to cut 1,000 more jobs

Residential Capital will eliminate more than 1,000 jobs as the company tries to regain its footing amid a severe slump in the subprime mortgage market.
The Bloomington-based mortgage lender, one of the country's largest, said Wednesday that about 86 positions in the Twin Cities will be affected. The company, which is jointly owned by General Motors Corp. and Cerberus Capital Management, employs 1,900 people in Minnesota.
The cuts come on top of a 1,000-job reduction the company announced this year, which included 47 local positions. Together, the two rounds of job cuts represent about 15 percent of Residential Capital's 13,000-strong workforce.
Most of the layoffs will be in the company's U.S. home mortgage operations and corporate services, which includes finance, human resources, legal and marketing, according to company spokesman Brett Weinberg.
"Because the U.S. mortgage market continues to underperform, we regret to have to announce additional layoffs," Chief Operating Officer Jim Jones wrote in a memo to employees. "The reductions are an unfortunate necessary step in the plan to return [Residential Capital] to health and profitability, and to position us to effectively capitalize on the opportunities ahead."
About a third of the 1,000 positions are already vacant, leaving 600-plus people who will actually lose their jobs.
The layoffs come one day after the company said that Chief Executive Bruce Paradis will retire in June. Over the past month and a half, most of the company's senior management team has left, including its chief operating officer, chief financial officer and treasurer.
Jones, who joined Residential Capital, or ResCap, in March, will replace Paradis.
Rising subprime mortgage defaults have taken a toll on lenders across the country, but ResCap has proved particularly vulnerable. The company offered some of the riskiest mortgage products, including interest-only mortgages, and subprime loans that required little or no income documentation.
Last month, the company said it lost $651 million in the fourth quarter, compared with a profit of $118 million during the same period a year ago.
In 2006, ResCap earned $182 million, compared with a profit of $1 billion the previous year.
"ResCap did not move quickly enough to reduce exposure in the face of this downturn," Paradis recently told investors.
ResCap has said that it will cut costs, tighten underwriting standards, and accelerate "lost mitigation efforts" to help borrowers pay their bills and avoid foreclosure.
The company will also receive $1 billion in new capital from GM.
But company executives and analysts warn that the subprime market will deteriorate further this year.
Interest rates on more than 10,000 of the company's subprime adjustable-rate mortgages will reset by the end of the year, with many borrowers seeing their monthly payments jump by more than 30 percent, which likely will lead to more defaults.
Jones' memo said he is confident ResCap will recover.
"The next few months will determine how well ResCap will emerge from this market disruption and how fast we can begin to capitalize on the opportunities ahead," Jones said. "We are already seeing signs that the strong will grow stronger. We will be in their company."