Form 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010, or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         .

Commission file number: 1-3754

GMAC INC.

(Exact name of registrant as specified in its charter)

 

Delaware   38-0572512

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 Renaissance Center

P.O. Box 200, Detroit, Michigan

48265-2000

(Address of principal executive offices)

(Zip Code)

(866) 710-4623

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing for the past 90 days.

Yes þ                    No ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files).

Yes ¨                    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨    Accelerated filer ¨   Non-accelerated filer þ    Smaller reporting company ¨
     (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨                    No þ

At May 6, 2010, the number of shares outstanding of the Registrant’s common stock was 799,120 shares.

 

 

 


Table of Contents

GMAC INC.

INDEX

 

        

Page

Part I — Financial Information   
Item 1.   Financial Statements    3
  Condensed Consolidated Statement of Income (unaudited)
for the Three Months Ended March 31, 2010 and 2009
   3
  Condensed Consolidated Balance Sheet (unaudited) as of March 31, 2010, and December 31, 2009    4
  Condensed Consolidated Statement of Changes in Equity (unaudited)
for the Three Months Ended March 31, 2010 and 2009
   6
  Condensed Consolidated Statement of Cash Flows (unaudited)
for the Three Months Ended March 31, 2010 and 2009
   7
  Notes to Condensed Consolidated Financial Statements (unaudited)    8
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations    59
Item 3.   Quantitative and Qualitative Disclosures About Market Risk    105
Item 4.   Controls and Procedures    105
Part II — Other Information   
Item 1.   Legal Proceedings    106
Item 1A.   Risk Factors    106
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds    106
Item 3.   Defaults Upon Senior Securities    106
Item 4.   Other Information    106
Item 5.   Exhibits    106
Signatures    107
Index of Exhibits    108

 

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PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

GMAC INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)

 

     Three months ended
March 31,
 
($ in millions)        2010             2009      

Revenue

    

Finance receivables and loans

    

Consumer

   $ 1,162      $ 1,292   

Commercial

     436        426   

Notes receivable from General Motors

     55        42   
   

Total finance receivables and loans

     1,653        1,760   

Loans held-for-sale

     224        94   

Interest on trading securities

     1        23   

Interest and dividends on available-for-sale investment securities

     100        57   

Interest bearing cash

     15        44   

Other interest income

     4        29   

Operating leases

     1,163        1,603   
   

Total financing revenue and other interest income

     3,160        3,610   

Interest expense

    

Interest on deposits

     158        177   

Interest on short-term borrowings

     117        161   

Interest on long-term debt

     1,485        1,738   
   

Total interest expense

     1,760        2,076   

Depreciation expense on operating lease assets

     656        1,057   
   

Net financing revenue

     744        477   

Other revenue

    

Servicing fees

     387        408   

Servicing asset valuation and hedge activities, net

     (133     (352
   

Total servicing income, net

     254        56   

Insurance premiums and service revenue earned

     468        495   

Gain on mortgage and automotive loans, net

     282        295   

(Loss) gain on extinguishment of debt

     (118     644   

Other gain (loss) on investments, net

     140        (16

Other income, net of losses

     88        (211
   

Total other revenue

     1,114        1,263   

Total net revenue

     1,858        1,740   

Provision for loan losses

     145        795   

Noninterest expense

    

Compensation and benefits expense

     430        371   

Insurance losses and loss adjustment expenses

     211        285   

Other operating expenses

     904        1,029   
   

Total noninterest expense

     1,545        1,685   

Income (loss) from continuing operations before income tax expense (benefit)

     168        (740

Income tax expense (benefit) from continuing operations

     39        (126
   

Net income (loss) from continuing operations

     129        (614
   

Income (loss) from discontinued operations, net of tax

     33        (61
   

Net income (loss)

   $ 162      $ (675
   

The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

 

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GMAC INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

 

($ in millions)    March 31, 2010     December 31, 2009  

Assets

    

Cash and cash equivalents

    

Noninterest bearing

   $ 781      $ 1,840   

Interest bearing

     13,889        12,948   
   

Total cash and cash equivalents

     14,670        14,788   

Trading securities

     144        739   

Investment securities

    

Available-for-sale

     11,651        12,155   

Held-to-maturity

            3   
   

Total investment securities

     11,651        12,158   

Loans held-for-sale ($3,316 and $5,545 fair value elected)

     13,998        20,625   

Finance receivables and loans, net of unearned income

    

Consumer ($2,572 and $1,303 fair value elected)

     51,928        42,849   

Commercial

     36,293        33,941   

Notes receivable from General Motors

     819        911   

Allowance for loan losses

     (2,480     (2,445
   

Total finance receivables and loans, net

     86,560        75,256   

Investment in operating leases, net

     14,003        15,995   

Mortgage servicing rights

     3,543        3,554   

Premiums receivable and other insurance assets

     2,676        2,720   

Other assets

     18,943        19,887   

Assets of operations held-for-sale

     13,239        6,584   
   

Total assets

   $ 179,427      $ 172,306   
   

Liabilities

    

Deposit liabilities

    

Noninterest bearing

   $ 1,927      $ 1,755   

Interest bearing

     30,933        30,001   
   

Total deposit liabilities

     32,860        31,756   

Debt

    

Short-term borrowings

     7,609        10,292   

Long-term debt ($2,384 and $1,293 fair value elected)

     90,276        88,021   
   

Total debt

     97,885        98,313   

Interest payable

     1,800        1,637   

Unearned insurance premiums and service revenue

     3,120        3,192   

Reserves for insurance losses and loss adjustment expenses

     1,091        1,215   

Accrued expenses and other liabilities

     9,914        10,456   

Liabilities of operations held-for-sale

     12,209        4,898   
   

Total liabilities

     158,879        151,467   

Equity

    

Common stock and paid-in capital

     13,829        13,829   

Preferred stock held by U.S. Department of Treasury

     10,893        10,893   

Preferred stock

     1,287        1,287   

Accumulated deficit

     (5,958     (5,630

Accumulated other comprehensive income

     497        460   
   

Total equity

     20,548        20,839   
   

Total liabilities and equity

   $ 179,427      $ 172,306   
   

 

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GMAC INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

The assets of consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit at March 31, 2010, were as follows.

 

($ in millions)        

Assets

  

Cash and cash equivalents

  

Noninterest bearing

   $ 3   

Interest bearing

     21   
   

Total cash and cash equivalents

     24   

Loans held-for-sale

     649   

Finance receivables and loans, net of unearned income

  

Consumer ($2,572 fair value elected)

     21,304   

Commercial

     13,625   

Allowance for loan losses

     (470
   

Total finance receivables and loans, net

     34,459   

Investment in operating leases, net

     4,393   

Other assets

     6,140   

Assets of operations held-for-sale

     11,571   
   

Total assets

   $ 57,236   
   

Liabilities

  

Debt

  

Short-term borrowings

   $ 2,345   

Long-term debt ($2,384 fair value elected)

     30,149   
   

Total debt

     32,494   

Interest payable

     29   

Accrued expenses and other liabilities

     1,288   

Liabilities of operations held-for-sale

     11,680   
   

Total liabilities

   $ 45,491   
   

The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

 

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GMAC INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Three Months Ended March 31, 2010 and 2009

 

($ in millions)   Members’
interests
 

Preferred
interests

held by
U.S.
Department
of Treasury

  Preferred
interests
  Retained
earnings
    Accumulated
other
comprehensive
loss
    Total
equity
    Comprehensive
loss
 

Balance at January 1, 2009

  $ 9,670   $ 5,000   $ 1,287   $ 6,286      $ (389   $ 21,854     

Capital contributions (a)

    1,247             1,247     

Net loss

          (675       (675   $ (675

Preferred interests dividends paid to the U.S. Department of Treasury

          (123       (123  

Dividends to members (a)

          (110       (110  

Other

          (4       (4  

Other comprehensive loss

            (168     (168     (168
   

Balance at March 31, 2009

  $ 10,917   $ 5,000   $ 1,287   $ 5,374      $ (557   $ 22,021      $ (843
   

 

($ in millions)   Common
stock
and
paid-in
capital
  Preferred
stock
held by
U.S.
Department
of Treasury
  Preferred
stock
 

Accumulated

deficit

    Accumulated
other
comprehensive
income
  Total
equity
    Comprehensive
income

Balance at January 1, 2010, before cumulative effect of adjustments (b)

  $ 13,829   $ 10,893   $ 1,287   $ (5,630   $ 460   $ 20,839     

Cumulative effect of a change in accounting principle, net of tax (c)

          (57     4     (53  
 

Balance at January 1, 2010, after cumulative effect of adjustments

  $ 13,829   $ 10,893   $ 1,287   $ (5,687   $ 464   $ 20,786     

Net income

          162          162      $ 162

Preferred stock dividends paid to the U.S. Department of Treasury (d)

          (386       (386  

Preferred stock dividends (a) (e)

          (116       (116  

Dividends to shareholders (a)

          (5       (5  

Other comprehensive income

            33     33        33

Other (f)

          74          74     
 

Balance at March 31, 2010

  $ 13,829   $ 10,893   $ 1,287   $ (5,958   $ 497   $ 20,548      $ 195
 
(a) Refer to Note 17 to the Condensed Consolidated Financial Statements for further details.
(b) Effective June 30, 2009, GMAC LLC was converted from a Delaware limited liability company into a Delaware corporation and renamed GMAC Inc. Each unit of each class of common membership interest issued and outstanding by GMAC LLC immediately prior to the conversion was converted into an equivalent number of shares of common stock of GMAC Inc. with substantially the same rights and preferences as the common membership interests. Upon conversion, holders of GMAC LLC preferred interests also received an equivalent number of GMAC Inc. preferred stock with substantially the same rights and preferences as the former preferred interests.
(c) Cumulative effect of change in accounting principle, net of tax, due to adoption of ASU 2009-16, Accounting for Transfers of Financial Assets, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to Note 1 for additional information.
(d) Includes quarterly cash dividend payments declared on January 8, 2010, of $0.56 per share, or a total of $129 million, and quarterly cash dividend payments declared on March 25, 2010, of $1.125 per share, or a total of $257 million, on Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series F-2. Dividend payments declared January 8, 2010, were paid on February 15, 2010. Dividend payments declared on March 25, 2010, are payable on May 17, 2010.
(e) Includes quarterly cash dividend payments declared on January 8, 2010, of $17.31 per share, or a total of approximately $45 million, and quarterly cash dividend payments declared on March 25, 2010, of $17.89 per share, or a total of approximately $46 million, on Fixed Rate Cumulative Perpetual Preferred Stock, Series G. Dividend payments declared January 8, 2010, were paid on February 15, 2010. Dividend payments declared on March 25, 2010, are payable on May 17, 2010. Also includes $26 million in dividends to the holders of Fixed Rate Perpetual Preferred Stock, Series A.
(f) Pursuant to the operating agreement with our shareholders, our shareholders are permitted distributions to pay the taxes they incurred from ownership of their GMAC interests prior to our conversion from a tax partnership to a corporation. This amount represents a reduction of the estimated payment accrued for tax distributions as a result of the completion of the GMAC LLC U.S. Return of Partnership Income for the tax period January 1, 2009, through June 30, 2009.

The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

 

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GMAC INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

Three Months Ended March 31, 2010 and 2009

 

($ in millions)    2010     2009  

Operating activities

    

Net cash provided by (used in) by operating activities

   $ 7,373      $ (1,654

Investing activities

    

Purchases of available-for-sale securities

     (4,735     (2,759

Proceeds from sales of available-for-sale securities

     2,664        1,298   

Proceeds from maturities of available-for-sale securities

     2,873        1,101   

Net (increase) decrease in finance receivables and loans

     (3,571     3,816   

Proceeds from sales of finance receivables and loans

     1,187        871   

Change in notes receivable from GM

     71        463   

Purchases of operating lease assets

     (845     (340

Disposals of operating lease assets

     2,278        1,784   

Sale of business unit, net (a)

     (526       

Other, net

     535        204   
   

Net cash (used in) provided by investing activities

     (69     6,438   

Financing activities

    

Net change in short-term debt

     (2,629     (1,633

Net increase in bank deposits

     752        2,688   

Proceeds from issuance of long-term debt

     12,187        5,218   

Repayments of long-term debt

     (18,761     (15,097

Proceeds from issuance of common members’ interests

            1,247   

Dividends paid

     (199     (233

Other, net

     294        698   
   

Net cash used in financing activities

     (8,356     (7,112

Effect of exchange-rate changes on cash and cash equivalents

     378        510   
   

Net decrease in cash and cash equivalents

     (674     (1,818

Adjustment for change in cash and cash equivalents of operations held-for-sale (a) (b)

     556          

Cash and cash equivalents at beginning of year

     14,788        15,151   
   

Cash and cash equivalents at March 31,

   $ 14,670      $ 13,333   
   
(a) Net of cash and cash equivalents of $745 million of the business unit at the time of disposition.
(b) Cash flows of operations held-for-sale are reflected within operating, investing, and financing activities in the Condensed Consolidated Statement of Cash Flows. The cash balance of these operations are reported as assets of operations held-for-sale on the Condensed Consolidated Balance Sheet.

The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies

GMAC Inc. (referred to herein as GMAC, we, our, or us) was founded in 1919 as a wholly owned subsidiary of General Motors Corporation (currently General Motors Company or GM). We are one of the world’s largest automotive financial services companies. On December 24, 2008, we became a bank holding company under the Bank Holding Company Act of 1956, as amended (the BHC Act). Our primary banking subsidiary is Ally Bank, which is an indirect wholly owned subsidiary of GMAC Inc.

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes.

The Condensed Consolidated Financial Statements as of March 31, 2010, and for the three months ended March 31, 2010 and 2009, are unaudited but reflect all adjustments that are, in management’s opinion, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements (and the related notes) included in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the U.S. Securities and Exchange Commission.

Residential Capital, LLC

Residential Capital, LLC (ResCap), one of our mortgage subsidiaries, has been negatively impacted by the events and conditions in the mortgage banking industry and the broader economy. The market deterioration has led to fewer sources of, and significantly reduced levels of, liquidity available to finance ResCap’s operations. ResCap is highly leveraged relative to its cash flow and has recognized credit and valuation losses resulting in a significant deterioration in capital. ResCap’s consolidated tangible net worth, as defined, was $426 million as of March 31, 2010, and ResCap remained in compliance with all of its consolidated tangible net worth covenants. For this purpose, consolidated tangible net worth is defined as ResCap’s consolidated equity excluding intangible assets. There continues to be a risk that ResCap will not be able to meet its debt service obligations, will default on its financial debt covenants due to insufficient capital, and/or will be in a negative liquidity position in 2010 or future periods.

ResCap actively manages its liquidity and capital positions and is continually working on initiatives to address its debt covenant compliance and liquidity needs including debt maturing in the next twelve months and other risks and uncertainties. ResCap’s initiatives include, but are not limited to, the following: continuing to work with key credit providers to optimize all available liquidity options; continued reduction of assets and other restructuring activities; focusing production on government and prime conforming products; exploring strategic alternatives such as alliances, joint ventures, and other transactions with third parties; and continued exploration of opportunities for funding and capital support from GMAC and its affiliates. The outcomes of most of these initiatives are to a great extent outside of ResCap’s control resulting in increased uncertainty as to their successful execution.

On December 30, 2009, we announced that as a result of our ongoing strategic review of how to best deploy GMAC’s current and future capital liquidity, we decided to pursue strategic alternatives with respect to ResCap. In order to maximize value, we will consider a variety of options including one or more sales, spin-offs, or other potential transactions. The timing and form of execution of any such transactions will depend on market conditions.

Coincident with this announcement, ResCap announced in 2009 its decision to commit to a plan to sell its U.K. and continental Europe platforms. On April 12, 2010, we reached agreements to sell our mortgage assets and businesses in the United Kingdom and continental Europe. We classified the U.K. and continental Europe operations as held-for-sale during the three months ended December 31, 2009. Refer to Note 2 and Note 21 for additional information.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

In the future, GMAC and ResCap may take additional actions with respect to ResCap as each party deems appropriate. These actions may include GMAC providing or declining to provide additional liquidity and capital support for ResCap; refinancing or restructuring some or all of ResCap’s existing debt; the purchase or sale of ResCap debt securities in the public or private markets for cash or other consideration; entering into derivative or other hedging or similar transactions with respect to ResCap or its debt securities; GMAC purchasing assets from ResCap; or undertaking corporate transactions such as a tender offer or exchange offer for some or all of ResCap’s outstanding debt securities, a merger, sale, asset sales, consolidation, spin-off, distribution, or other business combination or reorganization or similar action with respect to all or part of ResCap and/or its affiliates. In this context, GMAC and ResCap typically consider a number of factors to the extent applicable and appropriate including, without limitation, the financial condition, results of operations, and prospects of GMAC and ResCap; ResCap’s ability to obtain third-party financing; tax considerations; the current and anticipated future trading price levels of ResCap’s debt instruments; conditions in the mortgage banking industry and general economic conditions; other investment and business opportunities available to GMAC and/or ResCap; and any nonpublic information that ResCap may possess or that GMAC receives from ResCap.

ResCap remains heavily dependent on GMAC and its affiliates for funding and capital support, and there can be no assurance that GMAC or its affiliates will continue such actions or that GMAC will be successful in executing one or more sales, spin-offs, or other potential transactions with respect to ResCap.

Although our continued actions through various funding and capital initiatives demonstrate support for ResCap, other than as described above, there are currently no commitments or assurances for future funding and/or capital support. Consequently, there remains substantial doubt about ResCap’s ability to continue as a going concern. Should we no longer continue to support the capital or liquidity needs of ResCap or should ResCap be unable to successfully execute other initiatives, it would have a material adverse effect on ResCap’s business, results of operations, and financial position.

GMAC has extensive financing and hedging arrangements with ResCap that could be at risk of nonpayment if ResCap were to file for bankruptcy. As of March 31, 2010, we had approximately $2.5 billion in secured financing arrangements with ResCap of which approximately $1.5 billion in loans had been utilized. Amounts outstanding under the secured financing and hedging arrangements fluctuate. If ResCap were to file for bankruptcy, ResCap’s repayments of its financing facilities, including those with us, could be slower than if ResCap had not filed for bankruptcy. In addition, we could be an unsecured creditor of ResCap to the extent that the proceeds from the sale of our collateral are insufficient to repay ResCap’s obligations to us. It is possible that other ResCap creditors would seek to recharacterize our loans to ResCap as equity contributions or to seek equitable subordination of our claims so that the claims of other creditors would have priority over our claims. As a holder of unsecured notes, we would not receive any distributions for the benefit of creditors in a ResCap bankruptcy before secured creditors are repaid. In addition, should ResCap file for bankruptcy, our $426 million investment related to ResCap’s equity position would likely be reduced to zero. If a ResCap bankruptcy were to occur and a substantial amount of our credit exposure is not repaid to us, it would have an adverse impact on our near-term net income and capital position, but we do not believe it would have a materially adverse impact on GMAC’s consolidated financial position over the longer term.

GMAC Conversion

Effective June 30, 2009, GMAC converted (the Conversion) from a Delaware limited liability company to a Delaware corporation pursuant to Section 18-216 of the Delaware Limited Liability Company Act and Section 265 of the Delaware General Corporation Law and was renamed “GMAC Inc.” In connection with the Conversion, each unit of each class of membership interest issued and outstanding immediately prior to the Conversion was converted into shares of capital stock of GMAC with substantially the same rights and preferences as such membership interests. Refer to Note 16 for additional information regarding the tax impact of the conversion.

Recently Adopted Accounting Standards

Accounting for Transfers of Financial Assets (Accounting Standards Update (ASU) 2009-16)

As of January 1, 2010, we adopted ASU 2009-16 (formerly SFAS No. 166), which amended Accounting Standards Codification (ASC) Topic 860, Transfers and Servicing. This standard removed the concept of a qualifying special-purpose entity (QSPE) and created more stringent conditions for reporting a sale when a portion of a financial asset is transferred. To

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

determine if a transfer is to be accounted for as a sale, the transferor must assess whether it and all of the entities included in its consolidated financial statements have surrendered control of the assets. For partial asset transfers, the transferred portion must represent a pro rata component of the entire asset with no form of subordination. This standard is applied prospectively for transfers that occur on or after the effective date; however, the elimination of the QSPE concept required us to retrospectively assess all current off-balance sheet QSPE structures for consolidation under ASC Topic 810, Consolidation, and record a cumulative-effect adjustment to retained earnings for any consolidation change. Retrospective application of ASU 2009-16, specifically the QSPE removal, was assessed as part of the analysis required by ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to the section below for further information related to ASU 2009-17.

Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17)

As of January 1, 2010, we adopted ASU 2009-17 (formerly SFAS No. 167), which amended ASC Topic 810, Consolidation. This standard addresses the primary beneficiary assessment criteria for determining whether an entity is required to consolidate a variable interest entity (VIE). This standard requires an entity to determine whether it is the primary beneficiary by performing a qualitative assessment rather than using the quantitative-based model that was required under the previous accounting guidance. The qualitative assessment consists of determining whether the entity has both the power to direct the activities that most significantly impact the VIE’s economic performance and the right to receive benefits or obligation to absorb losses that could potentially be significant to the VIE. As a result of the implementation of ASU 2009-16 and ASU 2009-17, several of our securitization structures previously held off-balance sheet were recognized as consolidated entities resulting in a day-one net increase of $17.6 billion to assets and liabilities on our Condensed Consolidated Balance Sheet ($10.1 billion of the increase related to operations classified as held-for-sale). As part of the day-one entry, there was an immaterial adjustment to our opening equity balance.

Expanded Disclosures about Fair Value Measurements (ASU 2010-06)

As of March 31, 2010, we adopted ASU 2010-06, which amends ASC Topic 820, Fair Value Measurements. This standard requires expanded disclosures related to asset and liability classes, Level 2 and Level 3 valuation methods and inputs, significant transfers between Levels 1 and 2, and the gross presentation of significant transfers into or out of Level 3 within the Level 3 rollforward. The standard also requires the gross presentation of purchases, sales, issuances, and settlements within the Level 3 rollforward; however, this specific requirement will not be effective for us until the three months ended March 31, 2011. While the adoption of ASU 2010-06 expanded our disclosures related to fair value measurements, it did not modify the accounting treatment or measurement of items at fair value and, as such, did not have a material impact on our financial statements.

Recently Issued Accounting Standards

Revenue Arrangements with Multiple Deliverables (ASU 2009-13)

In October 2009, the Financial Accounting Standards Board (FASB) issued ASU 2009-13, which amends ASC Topic 605, Revenue Recognition. The guidance significantly changes the accounting for revenue recognition in arrangements with multiple deliverables and eliminates the residual method, which allocated the discount of a multiple deliverable arrangement among the delivered items. Under the guidance, entities will be required to allocate the total consideration to all deliverables at inception using the relative selling price and to allocate any discount in the arrangement proportionally to each deliverable based on each deliverable’s selling price. ASU 2009-13 is effective for revenue arrangements that we enter into or materially modify on or after January 1, 2011. We do not expect the adoption to have a material impact to our consolidated financial condition or results of operation.

Derivatives and Hedging — Scope Exception Related to Embedded Credit Derivatives (ASU 2010-11)

In March 2010, the FASB issued ASU 2010-11, which clarifies that the transfer of credit risk that is only in the form of subordination of one financial instrument to another financial instrument (such as the subordination of one beneficial interest to another tranche of a securitization) is an embedded derivative feature. The embedded derivative feature should not be subject to potential bifurcation or separate accounting under ASC 815, Derivatives and Hedging. In addition, the ASU provides guidance on whether other embedded credit derivatives in financial instruments are subject to bifurcation and separate accounting. ASU 2010-11 will be effective for us on July 1, 2010, and we do not expect the adoption to have a material impact on our consolidated condition or results of operation.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

2. Discontinued and Held-for-sale Operations

Discontinued Operations

During 2009, we committed to sell the U.S. consumer property and casualty insurance business of our Insurance operations. These operations provided vehicle and home insurance in the United States through a number of distribution channels, including independent agents, affinity groups, and the internet. Additionally, during 2009, we committed to sell the U.K. consumer property and casualty insurance business. During the first quarter of 2010, the sale of our U.S. consumer property and casualty insurance business was completed. We expect to complete the sale of our U.K. consumer property and casualty insurance business during 2010.

During 2009, we committed to sell the continental Europe operations of ResCap’s International Business Group (IBG). These operations include residential mortgage loan origination, acquisition, servicing, asset management, sale, and securitizations in the Netherlands and Germany. On April 12, 2010, we announced we had reached an agreement to sell our continental Europe operations. Refer to Note 21 for additional information.

During 2009, we committed to sell certain operations of our International Automotive Finance operations. These include the sale of our Argentina, Poland, and Ecuador operations and our Masterlease operations in Australia, Belgium, France, Italy, Mexico, the Netherlands, Poland, and the United Kingdom. Our Masterlease operations provide full-service individual leasing and fleet leasing products, including maintenance, fleet, and accident management services as well as fuel programs, short-term vehicle rental, and title and licensing services. As of December 31, 2009, the sales of the Masterlease operations in Italy, Mexico, and the Netherlands were completed. In April 2010, we completed the sale of the Masterlease operations in Australia and Poland. We expect to complete the remaining sales of these operations during 2010.

During 2009, we committed to sell the North American-based factoring business of our Commercial Finance Group. On April 30, 2010, the sale of the North American-based factoring business was completed.

We classified the assets and liabilities of these operations as discontinued operations held-for-sale using generally accepted accounting principles in the United States of America, as the associated operations and cash flows will be eliminated from our ongoing operations and we will not have any significant continuing involvement in their operations after the respective sale transactions. For all periods presented, all of the operating results for these operations have been removed from continuing operations and are presented separately as discontinued operations, net of tax. The Notes to the Condensed Consolidated Financial Statements have been adjusted to exclude discontinued operations unless otherwise noted.

The pretax losses for the discontinued operations recognized through March 31, 2010, including the direct costs to transact a sale, could differ from the ultimate sales price due to the fluidity of ongoing negotiations, price volatility, changing interest rates, changing foreign currency rates, and future economic conditions.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Selected financial information of discontinued operations held-for-sale is summarized below.

 

     Three months ended
March 31,
 
($ in millions)        2010             2009      

Select Mortgage operations

    

Total net (loss)

   $ (5   $ (14

Pretax (loss) including direct costs to transact a sale

     (6     (66

Tax expense

            2   

Select Insurance operations

    

Total net revenue

   $ 239      $ 402   

Pretax income including direct costs to transact a sale

            23   

Tax expense

     4        3   

Select International operations

    

Total net revenue

   $ 66      $ 63   

Pretax income (loss) including direct costs to transact a sale

     42        (7

Tax expense

     5          

Select Commercial Finance operations

    

Total net revenue

   $ 8      $ 7   

Pretax income (loss) including direct costs to transact a sale

     10        (6

Tax expense

     4          
   

Held-for-sale Operations

As discussed in the previous section, all of our discontinued operations were classified as held-for-sale. In addition to the discontinued operations, we classified the U.K.-based operations of ResCap’s IBG operations as held-for-sale. Since the operations did not qualify as discontinued operations, the results are reflected as a component of continuing operations. The U.K.-based operations of IBG include residential mortgage loan origination, acquisition, servicing, asset management, sale, and securitizations. The pretax losses for the held-for-sale operations recognized through March 31, 2010, including the direct costs to transact a sale, could differ from the ultimate sales price due to the fluidity of the negotiations, price volatility, changing interest rates, changing foreign currency rates, and future economic conditions. On April 12, 2010, we announced we had reached an agreement to sell IBG’s U.K.-based operations. Refer to Note 21 for additional information.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The assets and liabilities of held-for-sale operations at March 31, 2010, are summarized below.

 

($ in millions)   Select
Mortgage
operations (a)
    Select
Insurance
operations (b)
    Select
International
operations (c)
    Select
Commercial
Finance
Group
operations (d)
    Total
held-for-sale
operations
 

Assets

         

Cash and cash equivalents

         

Noninterest bearing

  $ 6      $      $ 24      $      $ 30   

Interest bearing

    186               5               191   
   

Total cash and cash equivalents

    192               29               221   

Investment securities — available-for-sale

           464                      464   

Loans held-for-sale

    196                             196   

Finance receivables and loans, net of unearned income

         

Consumer

    11,395               363               11,758   

Commercial

                  205        248        453   

Allowance for loan losses

    (55            (10            (65
   

Total finance receivables and loans, net

    11,340               558        248        12,146   

Investment in operating leases, net

                  807               807   

Premiums receivable and other insurance assets

           138                      138   

Other assets

    459        132        109               700   

Impairment on assets of held-for-sale operations

    (899     (209     (306     (19     (1,433
   

Total assets

  $ 11,288  (e)    $ 525      $ 1,197      $ 229      $ 13,239   
   

Liabilities

         

Debt

         

Short-term borrowings

  $      $      $ 45      $      $ 45   

Long-term debt

    10,364               194               10,558   
   

Total debt

    10,364               239               10,603   

Interest payable

    21               1               22   

Unearned insurance premiums and service revenue

           123                      123   

Reserves for insurance losses and loss adjustment expenses

           363                      363   

Accrued expenses and other liabilities

    764        23        97        214        1,098   
   

Total liabilities

  $ 11,149      $ 509      $ 337      $ 214      $ 12,209   
   
(a) Includes the operations of ResCap’s International Business Group in continental Europe and in the United Kingdom. Balances include assets and liabilities that were consolidated beginning on January 1, 2010, due to the adoption of ASU 2009-16 and ASU 2009-17. Refer to Note 1 for additional information.
(b) Includes the U.K. consumer property and casualty insurance business.
(c) Includes the International Automotive Finance operations of Argentina, Ecuador, and Poland and Masterlease in Australia, Belgium, France, Poland, and the United Kingdom.
(d) Includes the North American-based factoring business of our Commercial Finance Group.
(e) Includes assets of $1.1 billion related to the U.K.-based operations, which did not qualify as discontinued operations.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The assets and liabilities of held-for-sale operations at December 31, 2009, are summarized below.

 

($ in millions)   Select
Mortgage
operations (a)
    Select
Insurance
operations (b)
    Select
International
operations (c)
    Select
Commercial
Finance Group
operations (d)
    Total
held-for-sale
operations
 

Assets

         

Cash and cash equivalents

         

Noninterest bearing

  $ 4      $ 578      $ 33      $      $ 615   

Interest bearing

    151               11               162   
   

Total cash and cash equivalents

    155        578        44               777   

Trading securities

    36                             36   

Investment securities — available-for-sale

           794                      794   

Loans held-for-sale

    214                             214   

Finance receivables and loans, net of unearned income

         

Consumer

    2,650               400               3,050   

Commercial

                  246        233        479   

Notes receivable from General Motors

                  14               14   

Allowance for loan losses

    (89            (11            (100
   

Total finance receivables and loans, net

    2,561               649        233        3,443   

Investment in operating leases, net

                  885               885   

Mortgage servicing rights

    (26                          (26

Premiums receivable and other insurance assets

           1,126                      1,126   

Other assets

    512        176        135               823   

Impairment on assets of held-for-sale operations

    (903     (231     (324     (30     (1,488
   

Total assets

  $ 2,549  (e)    $ 2,443      $ 1,389      $ 203      $ 6,584   
   

Liabilities

         

Debt

         

Short-term borrowings

  $      $ 34      $ 57      $      $ 91   

Long-term debt

    1,749               237               1,986   
   

Total debt

    1,749        34        294               2,077   

Interest payable

    3               1               4   

Unearned insurance premiums and service revenue

           517                      517   

Reserves for insurance losses and loss adjustment expenses

           1,471                      1,471   

Accrued expenses and other liabilities

    430        84        128        187        829   
   

Total liabilities

  $ 2,182      $ 2,106      $ 423      $ 187      $ 4,898   
   
(a) Includes the operations of ResCap’s International Business Group in continental Europe and in the United Kingdom.
(b) Includes the U.S. and U.K. consumer property and casualty insurance businesses.
(c) Includes the International Automotive Finance operations of Argentina, Ecuador, and Poland and Masterlease in Australia, Belgium, France, Poland, and the United Kingdom.
(d) Includes the North American-based factoring business of our Commercial Finance Group.
(e) Includes assets of $991 million related to the U.K.-based operations, which did not qualify as discontinued operations.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

3. Other Income, Net of Losses

Details of other income, net of losses, were as follows.

 

     Three months ended
March 31,
 
($ in millions)        2010             2009      

Mortgage processing fees and other mortgage income

   $ 53      $ 6   

Late charges and other administrative fees (a)

     38        41   

Remarketing fees

     31        33   

Full-service leasing fees

     28        31   

Other equity method investments

     12        4   

Real estate services, net

     6        (34

Fair value adjustment on certain derivatives (b)

     (55     (157

Change due to fair value option elections, net (c)

     (73     (30

Other, net

     48        (105
   

Total other income, net of losses

   $ 88      $ (211
   
(a) Includes nonmortgage securitization fees.
(b) Refer to Note 15 for a description of derivative instruments and hedging activities.
(c) Refer to Note 18 for a description of fair value option elections.

 

4. Other Operating Expenses

Details of other operating expenses were as follows.

 

     Three months ended
March 31,
($ in millions)        2010            2009    

Insurance commissions

   $ 146    $ 159

Technology and communications expense

     140      152

Professional services

     58      87

Vehicle remarketing and repossession

     55      48

Mortgage representation and warranty expense, net

     50      176

Restructuring expenses

     43      1

Lease and loan administration

     31      39

Regulatory and licensing fees

     31      19

Full-service leasing vehicle maintenance costs

     29      32

State and local non-income taxes

     25      18

Advertising and marketing

     24      38

Rent and storage

     23      29

Premises and equipment depreciation

     19      25

Other

     230      206
 

Total other operating expenses

   $ 904    $ 1,029
 

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

5. Trading Securities

The fair value for our portfolio of trading securities by type was as follows.

 

($ in millions)    March 31, 2010    December 31, 2009

Trading securities

     

Mortgage-backed

     

Residential

   $ 55    $ 143

Asset-backed

     89      596
 

Total trading securities

   $ 144    $ 739
 

 

6. Investment Securities

Our portfolio of securities includes bonds, equity securities, asset-and mortgage-backed securities, notes, interests in securitization trusts, and other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale and held-to-maturity securities were as follows.

 

    March 31, 2010   December 31, 2009
    Cost   Gross unrealized     Fair
value
  Cost   Gross unrealized     Fair
value
($ in millions)     gains   losses         gains   losses    

Available-for-sale securities

               

Debt securities

               

U.S. Treasury and federal agencies

  $ 3,665   $ 22   $ (4   $ 3,683   $ 3,501   $ 15   $ (6   $ 3,510

States and political subdivisions

    414     20     (4     430     779     36     (4     811

Foreign government

    1,244     23     (6     1,261     1,161     20     (8     1,173

Mortgage-backed

               

Residential (a)

    2,896     87     (8     2,975     3,404     76     (19     3,461

Asset-backed

    1,338     12            1,350     1,000     7     (2     1,005

Corporate debt

    1,053     45     (3     1,095     1,408     74     (9     1,473

Other

    1                1     47                47
 

Total debt securities (b)

    10,611     209     (25     10,795     11,300     228     (48     11,480

Equity securities

    816     48     (8     856     631     52     (8     675
 

Total available-for-sale securities

  $ 11,427   $ 257   $ (33   $ 11,651   $ 11,931   $ 280   $ (56   $ 12,155
 

Held-to-maturity securities

               

Total held-to-maturity securities

  $   $   $      $   $ 3   $   $      $ 3
 
(a) Residential mortgage-backed securities include agency-backed bonds totaling $1,807 million and $2,248 million at March 31, 2010, and December 31, 2009, respectively.
(b) In connection with certain borrowings and letters of credit relating to certain assumed reinsurance contracts, $150 million and $164 million of primarily U.K. Treasury securities were pledged as collateral as of March 31, 2010, and December 31, 2009, respectively.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The maturity distribution of available-for-sale debt securities outstanding is summarized in the following tables. Prepayments may cause actual maturities to differ from scheduled maturities.

 

    Total     Due in
one year
or less
    Due after
one year
through

five years
    Due after
five years
through

ten years
    Due after
ten years (a)
 
March 31, 2010 ($ in millions)   Amount   Yield     Amount   Yield     Amount   Yield     Amount   Yield     Amount   Yield  

Fair value of available-for-sale debt securities (b)

                   

U.S. Treasury and federal agencies

  $ 3,683   1.6   $ 179   1.4   $ 3,446   1.6   $ 58   3.8   $  

States and political subdivisions

    430   7.6        4   7.8        74   8.5        89   7.2        263   7.5   

Foreign government

    1,261   3.9        97   0.7        929   4.2        235   4.3            

Mortgage-backed

                   

Residential

    2,975   4.5                 2   6.5        32   4.5        2,941   4.5   

Asset-backed

    1,350   2.5        27   5.0        913   2.3        310   2.5        100   3.3   

Corporate debt

    1,095   5.0        231   3.2        418   5.5        416   5.5        30   6.0   

Other

    1   0.5        1   0.5                              
   

Total available-for-sale debt securities

  $ 10,795   3.4   $ 539   2.3   $ 5,782   2.5   $ 1,140   4.4   $ 3,334   4.7
   

Amortized cost of available-for-sale debt securities

  $ 10,611     $ 535     $ 5,723     $ 1,106     $ 3,247  
   
(a) Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment options.
(b) Yields on tax-exempt obligations have been computed on a tax-equivalent basis.

 

    Total     Due in
one year
or less
    Due after
one year
through

five years
    Due after
five years
through

ten years
    Due after
ten years (a)
 
December 31, 2009 ($ in millions)   Amount   Yield     Amount   Yield     Amount   Yield     Amount   Yield     Amount   Yield  

Fair value of available-for-sale debt securities (b)

                   

U.S. Treasury and federal agencies

  $ 3,510   1.9   $ 103   1.1   $ 3,390   1.9   $ 17   4.1   $  

States and political subdivisions

    811   7.0        9   7.0        175   7.2        147   7.0        480   6.9   

Foreign government

    1,173   3.8        66   1.7        872   3.8        229   4.5        6   5.3   

Mortgage-backed

                   

Residential

    3,461   6.5                 2   6.5        36   13.0        3,423   6.4   

Asset-backed

    1,005   2.5        34   5.2        735   2.3        186   2.6        50   3.9   

Corporate debt

    1,473   5.2        283   3.4        575   5.8        570   5.4        45   6.9   

Other

    47   3.6                 32   3.4        15   4.0            
   

Total available-for-sale debt securities

  $ 11,480   4.3   $ 495   2.8   $ 5,781   2.8   $ 1,200   5.2   $ 4,004   6.5
   

Amortized cost of available-for-sale debt securities

  $ 11,300     $ 473     $ 5,728     $ 1,169     $ 3,930  
   
(a) Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment options.
(b) Yields on tax-exempt obligations have been computed on a tax-equivalent basis.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table presents gross gains and losses realized upon the sales of available-for-sale securities and other-than-temporary impairment.

 

     Three months ended
March 31,
 
($ in millions)        2010             2009      

Gross realized gains

   $ 151      $ 49   

Gross realized losses

     (8     (29

Other-than-temporary impairment

            (46
   

Net realized gains (losses)

   $ 143      $ (26
   

The following table presents interest and dividends on available-for-sale securities.

 

     Three months ended
March 31,
($ in millions)        2010            2009    

Taxable interest

   $ 90    $ 46

Taxable dividends

     3     

Interest and dividends exempt from U.S. federal income tax

     7      11
 

Total interest and dividends

   $ 100    $ 57
 

The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology described below that has been applied to these securities, we believe that the unrealized losses relate to factors other than credit losses in the current market environment. As of March 31, 2010, we do not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. Also, as of March 31, 2010, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income. As a result, we believe that the securities with an unrealized loss in accumulated other comprehensive income are not considered to be other-than-temporarily impaired as of March 31, 2010.

 

    March 31, 2010     December 31, 2009  
    Less than
12 months
    12 months
or longer
    Less than
12 months
    12 months
or longer
 
($ in millions)   Fair
value
  Unrealized
loss
    Fair
value
  Unrealized
loss
    Fair
value
  Unrealized
loss
    Fair
value
  Unrealized
loss
 

Available-for-sale securities

               

Debt securities

               

U.S. Treasury and federal agencies

  $ 529   $ (4   $   $      $ 1,430   $ (6   $   $   

States and political subdivisions

    75     (2     8     (2     82     (2     8     (2

Foreign government securities

    536     (6     2            536     (8           

Mortgage-backed securities

    657     (7     3     (1     811     (14     6     (5

Asset-backed securities

    27                       202     (1     22     (1

Corporate debt securities

    66            42     (3     47     (1     120     (8

Other

                          7                  
   

Total temporarily impaired debt securities

    1,890     (19     55     (6     3,115     (32     156     (16

Equity securities

    149     (5     24     (3     115     (5     52     (3
   

Total temporarily impaired available-for-sale securities

  $ 2,039   $ (24   $ 79   $ (9   $ 3,230   $ (37   $ 208   $ (19
   

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

We employ a systematic methodology that considers available evidence in evaluating potential other-than-temporary impairment of our investments classified as available-for-sale. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and duration of the decline in fair value, the financial health of and business outlook for the issuer, changes to the rating of the security by a rating agency, the performance of the underlying assets for interests in securitized assets, whether we intend to sell the investment, and whether it is more likely than not we will be required to sell the debt security before recovery of its amortized cost basis. We had other-than-temporary impairment write-downs of $0 million and $46 million for the three months ended March 31, 2010 and 2009, respectively.

 

7. Loans Held-for-sale

The composition of loans held-for-sale was as follows.

 

     March 31, 2010    December 31, 2009
($ in millions)    Domestic    Foreign    Total    Domestic    Foreign    Total

Consumer

                 

Automobile

   $ 4,424    $ 971    $ 5,395    $ 9,417    $ 184    $ 9,601

1st Mortgage

     7,081      476      7,557      9,269      530      9,799

Home equity

     1,012           1,012      1,068           1,068
 

Total consumer (a)

     12,517      1,447      13,964      19,754      714      20,468
 

Commercial

                 

Commercial and industrial

                 

Other

          34      34           157      157
 

Total loans held-for-sale

   $ 12,517    $ 1,481    $ 13,998    $ 19,754    $ 871    $ 20,625
 
(a) Domestic residential mortgages include $3.3 billion and $5.5 billion at fair value as a result of fair value option elections as of March 31, 2010, and December 31, 2009, respectively. Refer to Note 18 for additional information.

 

8. Finance Receivables and Loans, Net of Unearned Income

The composition of finance receivables and loans, net of unearned income outstanding, before allowance for loans losses, was as follows.

 

     March 31, 2010    December 31, 2009
($ in millions)    Domestic    Foreign    Total    Domestic    Foreign    Total

Consumer

                 

Automobile

   $ 22,109    $ 16,005    $ 38,114    $ 12,514    $ 17,731    $ 30,245

1st Mortgage

     8,424      1,026      9,450      7,960      405      8,365

Home equity

     4,364           4,364      4,238      1      4,239
 

Total consumer (a)

     34,897      17,031      51,928      24,712      18,137      42,849
 

Commercial

                 

Commercial and industrial

                 

Automobile

     21,745      7,795      29,540      19,601      7,035      26,636

Mortgage

     1,260      86      1,346      1,572      96      1,668

Resort finance

     769           769      843           843

Other

     1,828      331      2,159      1,845      437      2,282

Commercial real estate

                 

Automobile

     2,088      195      2,283      2,008      221      2,229

Mortgage

     53      143      196      121      162      283
 

Total commercial

     27,743      8,550      36,293      25,990      7,951      33,941
 

Notes receivable from General Motors

          819      819      3      908      911
 

Total finance receivables and loans (b)

   $ 62,640    $ 26,400    $ 89,040    $ 50,705    $ 26,996    $ 77,701
 
(a) Residential mortgages include $2.6 billion and $1.3 billion at fair value as a result of fair value option elections as of March 31, 2010, and December 31, 2009, respectively. Refer to Note 18 for additional information.
(b) Totals are net of unearned income of $2.7 billion and $2.5 billion at March 31, 2010, and December 31, 2009, respectively.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table presents an analysis of the activity in the allowance for loan losses on finance receivables and loans, net of unearned income.

 

     Three months ended March 31,  
     2010     2009  
($ in millions)    Consumer     Commercial     Total     Consumer     Commercial     Total  

Allowance at January 1,

   $ 1,664      $ 781      $ 2,445      $ 2,536      $ 897      $ 3,433   

Provision for loan losses

     127        18        145        613        182        795   

Charge-offs

            

Domestic

     (321     (61     (382     (402     (188     (590

Foreign

     (58     (4     (62     (73     (12     (85
   

Total charge-offs

     (379     (65     (444     (475     (200     (675
   

Recoveries

            

Domestic

     109        4        113        52        3        55   

Foreign

     15               15        15        1        16   
   

Total recoveries

     124        4        128        67        4        71   
   

Net charge-offs

     (255     (61     (316     (408     (196     (604

Addition of allowance due to change in accounting principle (a)

     222               222                        

Other

     (4     (12     (16     17        4        21   
   

Allowance at March 31,

   $ 1,754      $ 726      $ 2,480      $ 2,758      $ 887      $ 3,645   
   
(a) Effect of change in accounting principle due to adoption of ASU 2009-16, Accounting for Transfers of Financial Assets, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to Note 1 for additional information.

The following tables present information about our impaired finance receivables and loans.

 

     March 31, 2010    December 31, 2009
($ in millions)    Consumer    Commercial    Total    Consumer    Commercial    Total

Impaired finance receivables and loans

                 

With an allowance

   $ 319    $ 1,586    $ 1,905    $ 252    $ 1,760    $ 2,012

Without an allowance

     18      274      292      16      296      312
 

Total impaired loans

   $ 337    $ 1,860    $ 2,197    $ 268    $ 2,056    $ 2,324
 

Allowance for impaired loans

   $ 94    $ 439    $ 533    $ 80    $ 488    $ 568
 

 

     Three months ended March 31,
     2010    2009
($ in millions)    Consumer    Commercial    Total    Consumer    Commercial    Total

Average balance of impaired loans

   $ 290    $ 1,774    $ 2,064    $ 701    $ 2,421    $ 3,122

Interest income recognized on impaired loans

   $ 3    $ 1    $ 4    $ 8    $ 9    $ 17
 

At March 31, 2010, and December 31, 2009, commercial commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructuring were $20 million and $12 million, respectively.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

9. Off-balance Sheet Securitizations

We sell pools of automotive and residential mortgage loans via securitization transactions, which provide permanent funding and asset and liability management. In executing the securitization transactions, we typically sell the pools to wholly owned special-purpose entities (SPEs), which then sell the loans to a separate, transaction-specific, bankruptcy-remote SPE (a securitization trust) for cash, servicing rights, and in some transactions, retained interests. The securitization trust issues and sells interests to investors that are collateralized by the secured loans and entitle the investors to specified cash flows generated from the securitized loans.

Our securitization transactions are accounted for under the requirements of ASC 810, Consolidation, and ASC 860, Transfers and Servicing. ASU 2009-16, Accounting for Transfers of Financial Assets, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which amended ASC 810 and ASC 860, became effective on January 1, 2010, and required the prospective consolidation of certain securitization assets and liabilities that were previously held off-balance sheet. We reflected our economic interest in these newly consolidated structures primarily through loans and secured debt rather than as interests held in off-balance sheet securitization trusts. Refer to Note 1 for additional information related to the adoption of ASU 2009-16 and ASU 2009-17. Refer to Note 19 for additional information related to the consolidation of certain securitization trusts due to the adoption of the new standards.

The following discussion and related information is only applicable to the transfers of finance receivables and loans that qualify for off-balance sheet treatment.

Each securitization is governed by various legal documents that limit and specify the activities of the securitization vehicle. The securitization vehicle is generally allowed to acquire the loans being sold to it, to issue interests to investors to fund the acquisition of the loans, and to enter into derivatives or other yield maintenance contracts to hedge or mitigate certain risks related to the asset pool or debt securities. Additionally, the securitization vehicle is required to service the assets it holds and the debt or interest it has issued. A servicer appointed within the underlying legal documents performs these functions. Servicing functions include, but are not limited to, collecting payments from borrowers, performing escrow functions, monitoring delinquencies, liquidating assets, investing funds until distribution, remitting payments to investors, and accounting for and reporting information to investors.

As part of our off-balance sheet securitizations, we typically retain servicing responsibilities and, in some cases, other insignificant senior retained interests. Accordingly, our servicing responsibilities result in continued involvement in the form of servicing the underlying asset (primary servicing) and/or servicing the bonds resulting from the securitization transactions (master servicing) through servicing platforms. Certain securitizations require the servicer to advance scheduled principal and interest payments due on the pool regardless of whether they are received from borrowers. Accordingly, we are required to provide these servicing advances when applicable. Typically, we conclude that the fee we are paid for servicing retail automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. Refer to Note 1 to the Consolidated Financial Statements in our 2009 Annual Report on Form 10-K regarding the valuation of servicing rights.

Subsequent to the adoption of ASU 2009-16 and ASU 2009-17 as of January 1, 2010, we generally do not hold significant or potentially significant retained interests in our securitization trusts that qualify for off-balance sheet treatment under ASU 2009-17.

Generally, the assets initially transferred into the securitization vehicle are the sole funding source to the investors in the securitization trust and the various other parties that perform services for the transaction, such as the servicer or the trustee. In certain transactions, a liquidity provider or facility may exist to provide temporary liquidity to the structure. The liquidity provider generally is reimbursed prior to other parties in subsequent distribution periods. Bond insurance may also exist to cover certain shortfalls to certain investors. As noted above, in certain securitizations, the servicer is required to advance scheduled principal and interest payments due on the pool regardless of whether they have been received from the borrowers. The servicer is allowed to reimburse itself for these servicing advances. Additionally, certain securitization transactions may allow for the acquisition of additional loans subsequent to the initial loan. Principal collections on other loans and/or the

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

issuance of new interests, such as variable funding notes, generally fund these loans; we are often contractually required to invest in these new interests. Lastly, we provide certain guarantees as discussed in Note 30 to the Consolidated Financial Statements in our 2009 Annual Report on Form 10-K.

The investors and/or securitization trusts have no recourse to us with the exception of market customary representation and warranty repurchase provisions and, in certain transactions, early payment default provisions. Representation and warranty repurchase provisions generally require us to repurchase loans to the extent it is subsequently determined that the loans were ineligible or were otherwise defective at the time of sale. Due to market conditions, early payment default provisions were included in certain securitization transactions that require us to repurchase loans if the borrower is delinquent in making certain specific payments subsequent to the sale.

We generally hold certain conditional repurchase options that allow us to repurchase assets from the securitization. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining assets or outstanding debt once the asset pool reaches a predefined level, which represents the point where servicing is burdensome rather than beneficial. Such an option is referred to as a clean-up call. As servicer, we are able to exercise this option at our discretion anytime after the asset pool size falls below the predefined level. The repurchase price for the loans is typically par plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to repurchase the asset if certain events, outside our control, are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives us the option to purchase the loan if it exceeds a certain prespecified delinquency level. We have complete discretion regarding when or if we will exercise these options, but generally, we will do so when it is in our best interest.

The loans sold into off-balance sheet securitization transactions are removed from our balance sheet. The assets obtained from the securitization are primarily reported as cash, servicing rights, or (if retained) retained interests. We have elected fair value treatment for our existing mortgage servicing rights portfolio. Liabilities incurred as part of the transaction, such as representation and warranty provisions, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet. Upon the sale of the loans, we recognize a gain or loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction.

The following summarizes the pretax gains and losses recognized on the types of loans sold into off-balance sheet securitization transactions.

 

     Three months ended
March 31,
 
($ in millions)        2010            2009      

Retail finance receivables

   $    $   

Automotive wholesale loans

          64   

Mortgage loans

     3      (4
   

Total pretax gain on off-balance sheet activities

   $ 3    $ 60   
   

The following summarizes the type and amount of loans held by the securitization trusts in transactions that qualified for off-balance sheet treatment.

 

($ in billions)    March 31, 2010    December 31, 2009

Retail finance receivables

   $    $ 7.5

Automotive wholesale loans

         

Mortgage loans (a)

     83.8      99.6
 

Total off-balance sheet activities

   $ 83.8    $ 107.1
 
(a) Excludes $192 million and $237 million of delinquent loans held by securitization trusts as of March 31, 2010, and December 31, 2009, respectively, that we have the option to repurchase as they are included in consumer finance receivables and loans and mortgage loans held-for-sale.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

10. Mortgage Servicing Rights

We define our classes of mortgage servicing rights (MSRs) based on both the availability of market inputs and the manner in which we manage our risks of our servicing assets and liabilities. Sufficient market inputs exist to determine the fair value of our recognized servicing assets and servicing liabilities.

The following tables summarize activity related to MSRs carried at fair value.

 

     Three months ended
March 31,
 
($ in millions)        2010             2009      

Estimated fair value at January 1,

   $ 3,554      $ 2,848   

Additions obtained from sales of financial assets

     202        119   

Additions from purchases of servicing assets

     1          

Changes in fair value

    

Due to changes in valuation inputs or assumptions used in the valuation model

     49        (40

Other changes in fair value (a)

     (244     (340

Decrease due to change in accounting principle (b)

     (19       
   

Estimated fair value at March 31,

   $ 3,543      $ 2,587   
   
(a) Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic runoff of the portfolio.
(b) The effect of change in accounting principle was due to the adoption of ASU 2009-16, Accounting for Transfers of Financial Assets, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to Note 1 for additional information.

We pledged MSRs of $1.4 billion and $1.5 billion as collateral for borrowings at March 31, 2010, and December 31, 2009, respectively.

Changes in fair value due to changes in valuation inputs or assumptions used in the valuation models include all changes due to revaluation by a model or by a benchmarking exercise. Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic runoff of the portfolio, foreign currency translation adjustments, and the extinguishment of MSRs related to the exercise of clean-up calls of securitization transactions.

Key assumptions we use in valuing our MSRs are as follows.

 

     March 31,  
      2010     2009  

Range of prepayment speeds

   2.3–46.5   0.7–50.2

Range of discount rates

   7.3–15.8   2.7–130.3
   

The primary risk of our servicing rights is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments, which could reduce the value of the MSRs. Historically, we have economically hedged the income statement impact of these risks with both derivative and nonderivative financial instruments. These instruments include interest rate swaps, caps and floors, options to purchase these items, futures, and forward contracts and/or purchasing or selling U.S. Treasury and principal-only securities. The fair value of derivative financial instruments used to mitigate these risks amounted to $188 million and $845 million at March 31, 2010 and 2009, respectively. The changes in fair value of the derivative financial instruments amounted to a gain of $63 million and a loss of $20 million for the three months ended March 31, 2010 and 2009, respectively, and were included in servicing asset valuation and hedge activities, net, in the Condensed Consolidated Statement of Income.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The components of mortgage servicing fees were as follows.

 

     Three months ended
March 31,
($ in millions)    2010    2009

Contractual servicing fees, net of guarantee fees and including subservicing

   $ 259    $ 281

Late fees

     20      24

Ancillary fees

     47      36
 

Total

   $ 326    $ 341
 

Our Mortgage operations that conduct primary and master servicing activities are required to maintain certain servicer ratings in accordance with master agreements entered into with government-sponsored entities. At March 31, 2010, our Mortgage operations were in compliance with the servicer-rating requirements of the master agreements.

 

11. Other Assets

The components of other assets were as follows.

 

($ in millions)    March 31, 2010     December 31, 2009  

Property and equipment at cost

   $ 1,294      $ 1,416   

Accumulated depreciation

     (946     (1,080
   

Net property and equipment

     348        336   

Restricted cash collections for securitization trusts (a)

     3,688        3,654   

Fair value of derivative contracts in receivable position

     2,195        2,654   

Servicer advances

     2,128        2,180   

Cash reserve deposits held-for-securitization trusts (b)

     1,539        1,594   

Restricted cash and cash equivalents

     1,535        1,590   

Collateral placed with counterparties

     1,360        1,760   

Other accounts receivable

     956        573   

Debt issuance costs

     825        829   

Prepaid expenses and deposits

     707        749   

Goodwill

     526        526   

Investment in used vehicles held-for-sale

     488        522   

Interests retained in financial asset sales

     411        471   

Accrued interest and rent receivable

     322        326   

Repossessed and foreclosed assets, net, at lower of cost or fair value

     293        336   

Real estate and other investments (c)

     269        340   

Other assets

     1,353        1,447   
   

Total other assets

   $ 18,943      $ 19,887   
   
(a) Represents cash collection from customer payments on securitized receivables. These funds are distributed to investors as payments on the related secured debt.
(b) Represents credit enhancement in the form of cash reserves for various securitization transactions we have executed.
(c) Includes residential real estate investments of $35 million and $50 million and related accumulated depreciation of $1 million and $1 million at March 31, 2010, and December 31, 2009, respectively.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

12. Deposit Liabilities

Deposit liabilities consisted of the following.

 

($ in millions)    March 31, 2010    December 31, 2009

Domestic deposits

     

Noninterest-bearing deposits

   $ 1,920    $ 1,755

NOW and money market checking accounts

     7,755      7,213

Certificates of deposit

     19,673      19,861

Dealer deposits

     1,178      1,041
 

Total domestic deposits

     30,526      29,870
 

Foreign deposits

     

Noninterest-bearing deposits

     7     

NOW and money market checking accounts

     327      165

Certificates of deposit

     1,792      1,555

Dealer deposits

     208      166
 

Total foreign deposits

     2,334      1,886
 

Total deposit liabilities

   $ 32,860    $ 31,756
 

Noninterest bearing deposits primarily represent third-party escrows associated with our Mortgage operations’ loan servicing portfolio. The escrow deposits are not subject to an executed agreement and can be withdrawn without penalty at any time. At both March 31, 2010, and December 31, 2009, certificates of deposit included $4.8 billion of domestic certificates of deposit in denominations of $100 thousand or more.

 

13. Debt

The following table presents the composition of our debt portfolio at March 31, 2010, and December 31, 2009.

 

     March 31, 2010    December 31, 2009
($ in millions)    Unsecured    Secured    Total    Unsecured    Secured    Total

Short-term debt

                 

Commercial paper

   $ 2    $    $ 2    $ 8    $    $ 8

Demand notes

     1,406           1,406      1,311           1,311

Bank loans and overdrafts

     1,367           1,367      1,598           1,598

Repurchase agreements and other (a)

     322      4,512      4,834      348      7,027      7,375
 

Total short-term debt

     3,097      4,512      7,609      3,265      7,027      10,292
 

Long-term debt

                 

Due within one year

     6,171      18,960      25,131      7,429      18,898      26,327

Due after one year (b)

     40,244      24,350      64,594      38,331      22,834      61,165
 

Total long-term debt (c)

     46,415      43,310      89,725      45,760      41,732      87,492
 

Fair value adjustment (d)

     551           551      529           529
 

Total debt

   $ 50,063    $ 47,822    $ 97,885    $ 49,554    $ 48,759    $ 98,313
 
(a) Repurchase agreements consist of secured financing arrangements with third parties at our Mortgage operations. Other primarily includes nonbank secured borrowings and notes payable to GM. Refer to Note 17 for additional information.
(b) Includes $7.4 billion at both March 31, 2010, and December 31, 2009, guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program (TLGP).
(c) Secured long-term debt includes $2.4 billion and $1.3 billion at fair value as of March 31, 2010, and December 31, 2009, respectively, as a result of fair value option elections. Refer to Note 18 for additional information.
(d) Amount represents the hedge accounting adjustment on fixed rate debt.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table presents the scheduled maturity of long-term debt at March 31, 2010, assuming that no early redemptions occur. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.

 

Year ended December 31, ($ in millions)    Unsecured (a)     Secured (b)    Total  

2010

   $ 4,429      $ 16,425    $ 20,854   

2011

     9,467        10,561      20,028   

2012

     12,467        5,250      17,717   

2013

     1,880        5,017      6,897   

2014

     1,979        1,596      3,575   

2015 and thereafter

     20,214        1,451      21,665   

Original issue discount (c)

     (4,021          (4,021

Troubled debt restructuring concession (d)

            425      425   
   

Long-term debt

     46,415        40,725      87,140   

Collateralized borrowings in securitization trusts (e)

            2,585      2,585   
   

Total long-term debt

   $ 46,415      $ 43,310    $ 89,725   
   
(a) Scheduled maturities of ResCap unsecured long-term debt are as follows: $1,284 million in 2010; $209 million in 2011; $357 million in 2012; $527 million in 2013; $96 million in 2014; and $112 million in 2015 and thereafter. These maturities exclude ResCap debt held by GMAC.
(b) Scheduled maturities of ResCap secured long-term debt are as follows: $1,539 million in 2010; $0 million in 2011; $0 million in 2012; $707 million in 2013; $707 million in 2014; and $919 million in 2015 and thereafter. These maturities exclude ResCap debt held by GMAC and collateralized borrowings in securitization trusts.
(c) Scheduled remaining amortization of original issue discount is as follows: $904 million in 2010; $967 million in 2011; $342 million in 2012; $255 million in 2013; $183 million in 2014; and $1,370 million in 2015 and thereafter.
(d) In the second quarter of 2008, ResCap executed an exchange offer that resulted in a concession being recognized as an adjustment to the carrying value of certain new secured notes. This concession is being amortized over the life of the new notes through a reduction to interest expense using an effective yield methodology. Scheduled remaining amortization of the troubled debt restructuring concession is as follows: $78 million in 2010; $101 million in 2011; $105 million in 2012; $82 million in 2013; $46 million in 2014; and $13 million in 2015 and thereafter.
(e) Collateralized borrowings in securitization trusts represent mortgage-lending-related debt that is repaid on the principal payments of the underlying assets.

The following summarizes assets restricted as collateral for the payment of the related debt obligation primarily arising from secured financing arrangements, securitization transactions accounted for as secured borrowings, and repurchase agreements.

 

     March 31, 2010    December 31, 2009
($ in millions)    Assets    Related secured
debt (a)
   Assets    Related secured
debt (a)

Loans held-for-sale

   $ 3,019    $ 846    $ 1,420    $ 454

Mortgage assets held-for-investment and lending receivables

     3,177      2,738      1,946      1,673

Retail automotive finance receivables (b)

     22,184      18,464      19,203      13,597

Wholesale automotive finance receivables

     22,103      9,167      16,352      8,565

Investment securities

     44           63     

Investment in operating leases, net

     9,088      5,053      13,323      9,208

Real estate investments and other assets

     4,244      4,987      4,468      5,129

Ally Bank (c)

     20,440      6,567      24,276      10,133
 

Total

   $ 84,299    $ 47,822    $ 81,051    $ 48,759
 
(a) Included as part of secured debt are repurchase agreements of $0 million and $26 million where we have pledged assets as collateral for approximately the same amount of debt at March 31, 2010, and December 31, 2009, respectively.
(b) Included as part of retail automotive finance receivables are $8.0 billion of assets and $4.5 billion of secured debt related to Ally Bank.
(c) Ally Bank has an advance agreement with the Federal Home Loan Bank of Pittsburgh (FHLB) and access to the Federal Reserve Bank Discount Window and Term Auction Facility program. Ally Bank had assets pledged and restricted as collateral to the FHLB and Federal Reserve Bank totaling $18.0 billion and $22.4 billion as of March 31, 2010, and December 31, 2009, respectively. Furthermore, under the advance agreement, the FHLB has a blanket lien on certain Ally Bank assets including approximately $10.9 billion and $11.5 billion in real estate-related finance receivables and loans and $3.6 billion and $2.7 billion in other assets as of March 31, 2010, and December 31, 2009, respectively. Availability under these programs is generally only for the operations of Ally Bank and cannot be used to fund the operations or liabilities of GMAC or its subsidiaries.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Funding Facilities

The following table highlights credit capacity under our secured and unsecured funding facilities as of March 31, 2010, and December 31, 2009. We utilize both committed and uncommitted credit facilities. The financial institutions providing the uncommitted facilities are not legally obligated to advance funds under them. The amounts in the outstanding column in the table below are generally included on our Condensed Consolidated Balance.

 

     Total
capacity
   Unused
capacity (a)
   Outstanding
($ in billions)    Mar 31,
2010
   Dec 31,
2009
   Mar 31,
2010
   Dec 31,
2009
   Mar 31,
2010
   Dec 31,
2009

Committed unsecured

                 

Automotive Finance operations

   $ 0.8    $ 0.8    $ 0.1    $ 0.1    $ 0.7    $ 0.7

Committed secured

                 

Automotive Finance operations and other

     29.6      36.0      14.0      12.2      15.6      23.8

Mortgage operations

     1.8      2.1      0.2      0.4      1.6      1.7
 

Total committed facilities

     32.2      38.9      14.3      12.7      17.9      26.2
 

Uncommitted unsecured

                 

Automotive Finance operations

     0.8      0.9      0.1      0.1      0.7      0.8

Uncommitted secured

                 

Automotive Finance operations (b)

     4.9      5.7      3.8      2.0      1.1      3.7

Mortgage operations (c) (d)

     7.8      8.6      1.9      1.9      5.9      6.7
 

Total uncommitted facilities

     13.5      15.2      5.8      4.0      7.7      11.2
 

Total facilities

     45.7      54.1      20.1      16.7      25.6      37.4
 

Whole-loan forward flow agreements (e)

     4.5      9.4      4.5      9.4          
 

Total commitments

   $ 50.2    $ 63.5    $ 24.6    $ 26.1    $ 25.6    $ 37.4
 
(a) Funding is generally available on request as excess collateral resides in certain facilities or to the extent incremental collateral is available and contributed to the facilities.
(b) Included $4.2 billion and $5.3 billion of capacity from Federal Reserve Bank advances with $0.6 billion and $3.4 billion outstanding as of March 31, 2010, and December 31, 2009, respectively.
(c) Included $0.8 billion and $2.5 billion of capacity from Federal Reserve Bank advances with $0.1 billion and $1.6 billion outstanding as of March 31, 2010, and December 31, 2009, respectively.
(d) Included $5.8 billion and $5.9 billion of capacity from FHLB advances with $4.8 billion and $5.1 billion outstanding as of March 31, 2010, and December 31, 2009, respectively.
(e) Represents commitments of financial institutions to purchase U.S. automotive retail assets. One of these arrangements expires in June 2010 while the other expires in October 2010.

In April 2010, Ally Bank entered into a $7.0 billion secured revolving credit facility with a syndicate of lenders. Refer to Note 21 for additional information.

 

14. Regulatory Capital

As a bank holding company, we and our wholly owned banking subsidiary, Ally Bank, are subject to risk-based capital and leverage guidelines by federal regulators that require that our capital-to-assets ratios meet certain minimum standards. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

The risk-based capital ratio is determined by allocating assets and specified off-balance sheet financial instruments into several broad risk categories with higher levels of capital being required for the categories perceived as representing greater

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

risk. Under the guidelines, total capital is divided into two tiers: Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common equity, minority interests, and qualifying preferred stock (including fixed-rate cumulative preferred stock issued and sold to the Treasury) less goodwill and other adjustments. Tier 2 capital generally consists of preferred stock not qualifying as Tier 1 capital, limited amounts of subordinated debt and the allowance for loan losses, and other adjustments. The amount of Tier 2 capital may not exceed the amount of Tier 1 capital.

Total risk-based capital is the sum of Tier 1 capital and Tier 2 capital. Under the guidelines, banking organizations are required to maintain a minimum Total risk-based capital ratio (total capital to risk-weighted assets) of 8% and a Tier 1 risk-based capital ratio of 4%.

The federal banking regulators also have established minimum leverage ratio guidelines. The leverage ratio is defined as Tier 1 capital divided by adjusted average total assets (which reflect adjustments for disallowed goodwill and certain intangible assets). The minimum Tier 1 leverage ratio is 3% or 4% depending on factors specified in the regulations.

A banking institution is considered “well-capitalized” when its Total risk-based capital ratio equals or exceeds 10% and its Tier 1 risk-based capital ratio equals or exceeds 6% unless subject to regulatory directive to maintain higher capital levels and for insured depository institutions, a leverage ratio that equals or exceeds 5%.

In conjunction with the conclusion of the Supervising Capital Assessment Program (S-CAP), the banking regulators developed a new measure of capital called “Tier 1 common” defined as Tier 1 capital less noncommon elements including qualified perpetual preferred stock, qualifying minority interest in subsidiaries and qualifying trust preferred securities.

On July 21, 2008, GMAC, FIM Holdings, IB Finance Holding Company, LLC, Ally Bank, and the FDIC entered into a Capital and Liquidity Maintenance Agreement (CLMA). The CLMA requires capital at Ally Bank to be maintained at a level such that Ally Bank’s leverage ratio is at least 11% for a three-year period and thereafter, remain “well-capitalized.” For this purpose, the leverage ratio is determined in accordance with the FDIC’s regulations related to capital maintenance.

Additionally, on May 21, 2009, the Federal Reserve Board (FRB) granted Ally Bank an expanded exemption from Section 23A of the Federal Reserve Act. The exemption enables Ally Bank to make certain extensions of credit for the purchase of GM vehicles or vehicles floorplanned by GMAC. The exemption requires GMAC to maintain a Total risk-based capital ratio of 15% and Ally Bank to maintain a Tier 1 leverage ratio of 15%.

The minimum risk-based capital requirements adopted by the federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision. Currently all U.S. banks are subject to the Basel I capital rules. The Basel Committee issued Basel II Capital Rules, and the U.S. regulators issued companion rules applicable to certain U.S. domiciled institutions. GMAC qualifies as a “mandatory” bank holding company that must comply with the U.S. Basel II rules. The Basel Committee on Banking Supervision issued additional guidance regarding market risk capital rules and Basel II capital rules for securitizations. U.S. banking regulators have not yet issued any companion guidance. We continue to monitor developments with respect to Basel II requirements and are working to ensure successful execution within the required time.

On January 28, 2010, the federal banking agencies published a final rule amending the risk-based capital guidelines associated with the implementation of ASU 2009-16 and ASU 2009-17. The rule permits banking organizations to phase in the effects of the consolidation on risk-weighted assets and also makes provisions associated with the impact of allowance for loan and lease losses effects on Tier 2 capital, over the next four quarters. GMAC has elected to utilize this optional phase-in approach. Refer to Note 1 for additional information related to the adoption of ASU 2009-16 and ASU 2009-17.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table summarizes our capital ratios.

 

     March 31, 2010     December 31, 2009     Required
minimum
  Well-
capitalized

minimum
        
($ in millions)    Amount    Ratio     Amount    Ratio      

Risk-based capital

              

Tier 1 (to risk-weighted assets)

              

GMAC Inc.

   $ 22,088    14.88   $ 22,398    14.15   4.00%   6.00%

Ally Bank

     8,032    24.04     7,768    20.85   (a)   6.00%

Total (to risk-weighted assets)

              

GMAC Inc.

   $ 24,370    16.42   $ 24,623    15.55   15.00% (b)   10.00%

Ally Bank

     8,453    25.30     8,237    22.10   (a)   10.00%

Tier 1 leverage (to adjusted average assets) (c)

              

GMAC Inc.

   $ 22,088    12.49   $ 22,398    12.70   3.00–4.00%   (d)

Ally Bank

     8,032    16.41     7,768    15.42   15.00% (a)   5.00%

Tier 1 common (to risk-weighted assets)

              

GMAC Inc.

   $ 7,368    4.96   $ 7,678    4.85   n/a   n/a

Ally Bank

     n/a    n/a        n/a    n/a      n/a   n/a
 

n/a = not applicable

(a) Ally Bank, in accordance with the FRB exemption from Section 23A, is required to maintain a Tier 1 leverage ratio of 15%. Ally Bank is also required to maintain well-capitalized levels for Tier 1 risk-based capital and total risk-based ratios pursuant to the CLMA.
(b) GMAC, in accordance with the FRB exemption from Section 23A, is required to maintain a Total risk-based capital ratio of 15%.
(c) Federal regulatory reporting guidelines require the calculation of adjusted average assets using a daily average methodology. We currently calculate using a combination of monthly and daily average methodologies. We are in the process of modifying information systems to address the daily average requirement.
(d) There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company.

At March 31, 2010, GMAC and Ally Bank met all required minimum ratios and exceeded “well-capitalized” requirements under the federal regulatory agencies’ definitions as summarized in the table above.

 

15. Derivative Instruments and Hedging Activities

We enter into interest rate and foreign currency swaps, futures, forwards, options, swaptions, and credit default swaps in connection with our market risk management activities. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities, including investment securities, loans held-for-sale, mortgage servicing rights, debt, and deposits. In addition, we use foreign exchange contracts to mitigate foreign currency risk associated with foreign-currency-denominated debt and foreign exchange transactions. Our primary objective for utilizing derivative financial instruments is to manage market risk volatility associated with interest rate and foreign currency risks related to the assets and liabilities of our automotive finance and mortgage operations.

Interest Rate Risk

We execute interest rate swaps to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable rate. We have applied hedge accounting for certain derivative instruments used to hedge fixed-rate debt. We monitor our mix of fixed- and variable-rate debt in relationship to the rate profile of our assets. When it is cost effective to do so, we may enter into interest rate swaps to achieve our desired mix of fixed- and variable-rate debt. Our qualifying accounting hedges consist of hedges of fixed-rate debt obligations where individual swaps are designated as one-for-one hedges of specific fixed-rate debt obligations.

We enter into economic hedges to mitigate exposure for the following categories:

 

   

MSRs and retained interests — Our MSRs and retained interest portfolios are generally subject to loss in value when mortgage rates decline. Declining mortgage rates generally result in an increase in refinancing activity that increases prepayments and results in a decline in the value of MSRs and retained interests. To mitigate the impact of

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

this risk, we maintain a portfolio of financial instruments, primarily derivatives that increase in value when interest rates decline. The primary objective is to minimize the overall risk of loss in the value of mortgage servicing rights due to the change in fair value caused by interest rate changes and their interrelated impact to prepayments.

We use a multitude of derivative instruments to manage the interest rate risk related to MSRs and retained interests. They include, but are not limited to, interest rate futures contracts, call or put options on U.S. Treasuries, swaptions, MBS futures, U.S. Treasury futures, interest rate swaps, interest rate floors, and interest rate caps. While we do not utilize nonderivative instruments (e.g., U.S. Treasuries) to hedge this portfolio, we have utilized them previously and may utilize them again in the future. We monitor and actively manage our risk on a daily basis, and therefore trading volume can be large.

 

   

Mortgage loan commitments and mortgage and automotive loans held-for-sale — We are exposed to interest rate risk from the time an interest rate lock commitment (IRLC) is made until the time the mortgage loan is sold. Changes in interest rates impact the market price for our loans; as market interest rates decline, the value of existing IRLCs and loans held-for-sale go up and vice versa. Our primary objective in risk management activities related to IRLCs and mortgage and automotive loans held-for-sale is to eliminate or greatly reduce any interest rate risk associated with these items.

The primary derivative instrument we use to accomplish this objective for mortgage loans and IRLCs is forward sales of mortgage-backed securities, primarily Fannie Mae or Freddie Mac to-be-announced securities. These instruments typically are entered into at the time the IRLC is made. The value of the forward sales contracts moves in the opposite direction of the value of our IRLCs and mortgage loans held-for-sale. We also use other derivatives, such as interest rate swaps, options, and futures, to hedge automotive loans held-for-sale and certain portions of the mortgage portfolio. Nonderivative instruments may also be periodically used to economically hedge the mortgage portfolio, such as short positions on U.S. Treasuries. We monitor and actively manage our risk on a daily basis. We do not apply hedge accounting to our derivative portfolio held to economically hedge the IRLCs and mortgage and automotive loans held-for-sale.

 

   

Debt — As part of our previous on-balance sheet securitizations and/or secured aggregation facilities, certain interest rate swaps or interest rate caps have been included within consolidated variable interest entities; these swaps or caps were generally required to meet certain rating agency requirements or were required by the facility lender or provider. The interest rate swaps and/or caps are generally entered into when the debt is issued; accordingly, current trading activity on this particular derivative portfolio is minimal. Additionally, effective January 1, 2010, the derivatives that were hedging off-balance sheet securitization activities are now hedging these securitizations as on-balance sheet securitization activities. We consolidated the off-balance sheet securitizations on January 1, 2010, due to accounting principle changes associated with ASU 2009-16 and ASU 2009-17. Refer to Note 1 for additional information related to the recent adoption.

With the exception of a portion of our fixed-rate debt, we have not applied hedge accounting to our derivative portfolio held to economically hedge our debt portfolio. Typically, the significant terms of the interest rate swaps match the significant terms of the underlying debt resulting in an effective conversion of the rate of the related debt.

 

   

Other — We enter into futures, options, swaptions, and credit default swaps to economically hedge our net fixed versus variable interest rate exposure.

Foreign Currency Risk

We enter into derivative financial instrument contracts to hedge exposure to variability in cash flows related to foreign currency financial instruments. Currency swaps and forwards are used to hedge foreign exchange exposure on foreign-currency-denominated debt by converting the funding currency to the same currency of the assets being financed. Similar to our interest rate hedges, the swaps are generally entered into or traded concurrent with the debt issuance with the terms of the swap matching the terms of the underlying debt.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Our non-U.S. subsidiaries maintain both assets and liabilities in local currencies; these local currencies are generally the subsidiaries’ functional currencies for accounting purposes. Foreign currency exchange rate gains and losses arise when the assets or liabilities of our subsidiaries are denominated in currencies that differ from its functional currency. In addition, our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our other comprehensive income (loss). We enter into foreign currency forwards with external counterparties to hedge foreign exchange exposure on our net investments in foreign subsidiaries. Our net investment hedges are recorded at fair value with changes recorded to other comprehensive income (loss) with the exception of the spot to forward difference that is recorded in current period earnings.

In addition, we have a centralized lending program to manage liquidity for all of our subsidiary businesses. Foreign-currency-denominated loan agreements are executed with our foreign subsidiaries in their local currencies. We evaluate our foreign currency exposure resulting from intercompany lending and manage our currency risk exposure by entering into foreign currency derivatives with external counterparties. Our foreign currency derivatives are recorded at fair value with changes recorded as income offsetting the gains and losses on the hedged foreign currency transactions.

With limited exceptions, we have elected not to treat any foreign currency derivatives as hedges for accounting purposes principally because the changes in the fair values of the foreign currency swaps are substantially offset by the foreign currency revaluation gains and losses of the underlying assets and liabilities.

Credit Risk

Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe us under the contract completely fail to perform under the terms of those contracts, assuming no recoveries of underlying collateral as measured by the market value of the derivative financial instrument.

To further mitigate the risk of counterparty default, we maintain collateral agreements with certain counterparties. The agreements require both parties to maintain collateral in the event the fair values of the derivative financial instruments meet established thresholds. In the event that either party defaults on the obligation, the secured party may seize the collateral. Generally, our collateral arrangements are bilateral such that we and the counterparty post collateral for the value of their total obligation to each other. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. The securing party posts additional collateral when their obligation has risen or removes collateral when it has fallen. We also have unilateral collateral agreements whereby we are the only entity required to post collateral. We have placed collateral totaling $1.4 billion and $1.8 billon at March 31, 2010, and December 31, 2009, respectively, in accounts maintained by counterparties. We have received cash collateral from counterparties totaling $452 million and $432 million at March 31, 2010, and December 31, 2009, respectively. The collateral placed and received are included on our Condensed Consolidated Balance Sheet in other assets and accrued expenses and other liabilities, respectively. In certain circumstances, we receive or post securities as collateral with counterparties. In accordance with ASC 860-30-25-5, Secured Borrowing and Collateral, we do not record such collateral received on our consolidated balance sheet unless certain conditions have been met.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Balance Sheet Presentation

The following table summarizes the fair value amounts of derivative instruments reported on our Condensed Consolidated Balance Sheet. The fair value amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories.

 

     Fair value of
derivative contracts in
    
March 31, 2010 ($ in millions)    receivable
position (a)
   liability
position (b)
   Notional
amount

Qualifying accounting hedges

        

Interest rate risk

        

Fair value accounting hedges

   $ 461    $ 30    $ 17,347

Foreign exchange risk

        

Net investment accounting hedges

     3      62      2,380

Cash flow accounting hedges

          146      452
 

Total foreign exchange risk

     3      208      2,832
 

Total qualifying accounting hedges

     464      238      20,179
 

Economic hedges

        

Interest rate risk

        

MSRs and retained interests

     916      728      177,169

Mortgage loan commitments and mortgage and automotive loans held-for-sale

     75      86      31,873

Debt

     382      425      44,053

Other

     23      39      12,151
 

Total interest rate risk

     1,396      1,278      265,246

Foreign exchange risk

     335      215      21,859
 

Total economic hedges

     1,731      1,493      287,105
 

Total derivatives

   $ 2,195    $ 1,731    $ 307,284
 
(a) Reported as other assets on the Condensed Consolidated Balance Sheet. Includes accrued interest of $268 million.
(b) Reported as accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet. Includes accrued interest of $50 million.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

     Fair value of
derivative contracts in
    
December 31, 2009 ($ in millions)    receivable
position (a)
   liability
position (b)
   Notional
amount

Qualifying accounting hedges

        

Interest rate risk

        

Fair value accounting hedges

   $ 478    $ 47    $ 16,938

Foreign exchange risk

        

Net investment accounting hedges

     10      41      2,414

Cash flow accounting hedges

          112      334
 

Total foreign exchange risk

     10      153      2,748
 

Total qualifying accounting hedges

     488      200      19,686
 

Economic hedges

        

Interest rate risk

        

MSRs and retained interests

     805      816      153,818

Mortgage loan commitments and mortgage and automotive loans held-for-sale

     225      132      45,470

Off-balance sheet securitization activities

     139           4,440

Debt

     392      548      53,501

Other

     50      24      12,629
 

Total interest rate risk

     1,611      1,520      269,858

Foreign exchange risk

     555      175      22,927
 

Total economic hedges

     2,166      1,695      292,785
 

Total derivatives

   $ 2,654    $ 1,895    $ 312,471
 
(a) Reported as other assets on the Condensed Consolidated Balance Sheet. Includes accrued interest of $314 million.
(b) Reported as accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet. Includes accrued interest of $91 million.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Statement of Income Presentation and Accumulated Other Comprehensive Information

The following tables summarize the location and amounts of gains and losses reported in our Condensed Consolidated Statement of Income on derivative instruments and related hedge items and amounts flowing through accumulated other comprehensive income.

 

     Three months ended
March 31,
 
($ in millions)        2010             2009      

Qualifying accounting hedges

    

Gain (loss) recognized in earnings on derivatives

    

Interest rate contracts

    

Interest on long-term debt

   $ 82      $ (196

(Loss) gain recognized in earnings on hedged items

    

Interest rate contracts

    

Interest on long-term debt

     (62     165   
   

Total qualifying accounting hedges

     20        (31

Economic hedges

    

Gain (loss) recognized in earnings on derivatives

    

Interest rate contracts

    

Interest on long-term debt

            (7

Servicing asset valuation and hedge activities, net

     63        20   

Loss on mortgage and automotive loans, net

     (144     (229

Other gain (loss) on investments, net

            (1

Other income, net of losses

     (53     (6

Other operating expenses

     (3     (2
   

Total interest rate contracts

     (137     (225

Foreign exchange contracts (a)

    

Interest on long-term debt

     (33     (16

Other income, net of losses

     (2     (205
   

Total foreign exchange contracts

     (35     (221
   

Loss recognized in earnings on derivatives

   $ (152   $ (477
   
(a) Amount represents the difference between the changes in the fair values of the currency hedge, net of the revaluation of the related foreign denominated debt or foreign denominated receivable.

 

     Three months ended
March 31,
($ in millions)        2010            2009    

Derivatives in cash flow hedging relationships

     

Gain recognized in other comprehensive income

     

Foreign exchange contracts (a)

     

Other comprehensive income

   $ 1    $ 10
 

Gain recognized in other comprehensive loss

   $ 1    $ 10
 
(a) Amount represents the effective portion, net of the revaluation of the related foreign denominated debt or net investment.

 

16. Income Taxes

Effective June 30, 2009, GMAC LLC converted (the Conversion) from a limited liability company (LLC) treated as a pass-through entity for U.S. federal income tax purposes to a corporation and was renamed GMAC Inc. As a result of the Conversion, GMAC Inc. became subject to corporate U.S. federal, state, and local taxes beginning in the third quarter of 2009.

Prior to the Conversion, GMAC LLC and certain U.S. subsidiaries were pass-through entities for U.S. federal income tax purposes. U.S. federal, state, and local income taxes were generally not provided for these entities as they were not taxable

 

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NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

entities except in a few local jurisdictions that tax LLCs or partnerships. LLC members were required to report their share of GMAC taxable income on their respective income tax returns. In addition, GMAC LLC’s banking, insurance, and foreign subsidiaries generally were and continue to be corporations that are subject to, and required to provide for U.S. and foreign income taxes. The Conversion did not change the tax status of these subsidiaries.

We recognized total income tax expense from continuing operations of $39 million during the three months ended March 31, 2010, and total income tax benefit from continuing operations of $126 million during the three months ended March 31, 2009. A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate for continuing operations is shown in the following table.

 

     Three months ended
March 31,
 
      2010     2009  

Statutory U.S. federal tax rate

   35.0   35.0

Change in tax rate resulting from

    

Effect of valuation allowance change

   (27.2   0.4   

Active Finance Exception-expiration

   26.8        

Taxes on unremitted earnings of subsidiaries

   (13.6     

State and local income taxes, net of federal income tax benefit

   4.0      0.4   

Foreign income tax rate differential

   2.5      (0.6

Tax-exempt income

   (1.7   0.4   

LLC results not subject to federal or state income taxes

        (18.9

Other, net

   (2.6   0.3   
   

Effective tax rate

   23.2   17.0
   

The valuation allowances that were previously established against our domestic net deferred tax assets and certain international net deferred tax assets declined by approximately $532 million during the quarter as a result of profitability of our operations in various tax jurisdictions in combination with an election made by the company to treat the U.S. consumer property and casualty insurance business disposition as an asset sale versus a stock sale for U.S. tax purposes. This election resulted in a smaller ordinary loss than the capital loss that had been previously recorded.

As of December 31, 2009, the Active Financing Exception (AFE) to Subpart F of the Internal Revenue Code deemed dividend income inclusion expired. The expiration of this exception means that foreign earnings that previously would not have been subject to tax in the United States unless repatriated are now currently taxable even though the earnings have not been distributed to the United States. Congress is currently considering an extension of the AFE. However, until the extension becomes law, we are required to report these foreign earnings as subject to incremental U.S. tax.

The amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate is approximately $150 million as of March 31, 2010, compared to $157 million at December 31, 2009. We do not expect a significant change in the unrecognized tax benefits within the next 12 months.

 

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17. Related Party Transactions

The related party activities represent transactions with GM, FIM Holdings, and affiliated companies. GM and FIM Holdings have both a direct and indirect ownership interest in GMAC.

Balance Sheet

A summary of the balance sheet effect of transactions with GM, FIM Holdings, and affiliated companies follows.

 

($ in millions)    March 31, 2010    December 31, 2009

Assets

     

Available-for-sale investment in asset-backed security — GM (a)

   $ 13    $ 20

Secured

     

Finance receivables and loans, net of unearned income

     

Wholesale automotive financing — GM (b)

     282      280

Term loans to dealers — GM (b)

     69      71

Lending receivables — affiliates of FIM Holdings

     45      54

Investment in operating leases, net — GM (c)

     65      69

Notes receivable from GM (d)

     802      884

Other assets

     

Other — GM

     82      102
 

Total secured

     1,345      1,460

Unsecured

     

Notes receivable from GM (d)

     17      27

Other assets

     

Subvention receivables (rate and residual support) — GM

     93      165

Lease pull-ahead receivable — GM

     23      21

Other — GM

     29      26
 

Total unsecured

     162      239

Liabilities

     

Unsecured debt

     

Notes payable to GM

     31      154

Accrued expenses and other liabilities

     

Wholesale payable — GM

     467      161

Other payables — GM

     35      18
 
(a) In November 2006, GMAC retained an investment in a note secured by operating lease assets transferred to GM. As part of the transfer, GMAC provided a note to a trust, a wholly owned subsidiary of GM. The note was classified in investment securities on the Condensed Consolidated Balance Sheet.
(b) Represents wholesale financing and term loans to certain dealerships wholly owned by GM or in which GM has an interest. The loans are generally secured by the underlying vehicles or assets of the dealerships.
(c) Includes vehicles, buildings, and other equipment classified as operating lease assets that are leased to GM-affiliated entities. These leases are secured by the underlying assets.
(d) Represents wholesale financing we provide to GM for vehicles, parts, and accessories in which GM retains title while consigned to us or dealers primarily in the United Kingdom and Italy. The financing to GM remains outstanding until the title is transferred to GMAC or the dealers. The amount of financing provided to GM under this arrangement varies based on inventory levels. These loans are secured by the underlying vehicles or other assets (except loans relating to parts and accessories in Italy).

 

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CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Statement of Income

A summary of the statement of income effect of transactions with GM, FIM Holdings, and affiliated companies follows.

 

     Three months ended
March 31,
 
($ in millions)    2010     2009  

Net financing revenue

    

GM and affiliates lease residual value support — North American operations (a)

   $ 8      $ 84   

GM and affiliates rate support — North American operations

     166        189   

Wholesale subvention and service fees from GM

     46        60   

Interest earned on wholesale automotive financing

     2        5   

Interest earned on term loans to dealers

            1   

Interest expense on loans with GM

     (3     (11

Interest on notes receivable from GM and affiliates

     9        21   

Interest on wholesale settlements (b)

     46        21   

Interest income on loans with FIM Holdings affiliates, net

     1        1   

Consumer lease payments from GM (c)

     11        39   

Other revenue

    

Insurance premiums earned from GM

     39        39   

Service fees on transactions with GM

     1        2   

Revenues from GM-leased properties, net

     2        3   

Other (d)

            (5

Servicing fees

    

U.S. automotive operating leases (e)

     1        10   

Expense

    

Off-lease vehicle selling expense reimbursement (f)

     (4     (8

Payments to GM for services, rent, and marketing expenses (g)

     33        23   
   
(a) Represents total amount of residual support and risk sharing earned under the residual support and risk-sharing programs.
(b) The settlement terms related to the wholesale financing of certain GM products are at shipment date. To the extent that wholesale settlements with GM are made before the expiration of transit, we receive interest from GM.
(c) GM sponsors lease pull-ahead programs whereby consumers are encouraged to terminate lease contracts early in conjunction with the acquisition of a new GM vehicle with the customer’s remaining payment obligation waived. For certain programs, GM compensates us for the waived payments adjusted based on remarketing results associated with the underlying vehicle.
(d) Includes income or (expense) related to derivative transactions that we enter into with GM as counterparty.
(e) Represents servicing income related to automotive leases distributed as a dividend to GM on November 22, 2006.
(f) An agreement with GM provides for the reimbursement of certain selling expenses incurred by us on off-lease vehicles sold by GM at auction.
(g) We reimburse GM for certain services provided to us. This amount includes rental payments for our primary executive and administrative offices located in the Renaissance Center in Detroit, Michigan, and exclusivity and royalty fees.

 

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CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Statement of Changes in Equity

A summary of the changes to the statement of changes in equity related to transactions with GM, FIM Holdings, and affiliated companies follows.

 

($ in millions)    Three months ended
March 31, 2010
    Year ended
December 31, 2009

Equity

    

Capital contributions received (a)

   $      $ 1,280

Dividends to shareholders/members (b)

     5        393

Preferred interest dividends — GM

     26        128

Other (c)

     (74    
 
(a) On January 16, 2009, we completed a $1.25 billion rights offering pursuant to which we issued additional common membership interests to FIM Holdings and a subsidiary of GM.
(b) Pursuant to the operating agreement with our shareholders, our shareholders are permitted distributions to pay the taxes they incurred from ownership of their GMAC interests prior to our conversion from a tax partnership to a corporation. In March 2009, we executed a transaction that had 2008 tax-reporting implications for our shareholders. In accordance with the operating agreement, the approval of both our GMAC Board of Directors and the Treasury was obtained in advance for the payment of tax distributions to our shareholders. In 2010, the amount distributed to GM was $5 million. This represented an accrual for GM tax settlements and refunds received related to tax periods prior to the November 30, 2006, sale by GM of a 51% interest in GMAC (Sale Transactions). Amounts distributed to GM and FIM Holdings were $220 million and $173 million, respectively, for the year ended December 31, 2009. Included in the 2009 amount is $55 million of remittances to GM for tax settlements and refunds received related to tax periods prior to the Sale Transactions as required by the terms of the Purchase and Sale Agreement between GM and FIM Holdings.
(c) The $74 million represents a reduction of the estimated payment accrued for tax distributions as a result of the completion of the GMAC LLC U.S. Return of Partnership Income for the tax period January 1, 2009, through June 30, 2009.

GM, GM dealers, and GM-related employees compose a significant portion of our customer base, and our Global Automotive Services operations are highly dependent on GM production and sales volume. As a result, a significant adverse change in GM’s business, including significant adverse changes in GM’s liquidity position and access to the capital markets, the production or sale of GM vehicles, the quality or resale value of GM vehicles, the use of GM marketing incentives, GM’s relationships with its key suppliers, GM’s relationship with the United Auto Workers and other labor unions, and other factors impacting GM or its employees could have a significant adverse effect on our profitability and financial condition.

We provide vehicle financing through purchases of retail automotive and lease contracts with retail customers of primarily GM dealers. We also finance the purchase of new and used vehicles by GM dealers through wholesale financing, extend other financing to GM dealers, provide fleet financing for GM dealers to buy vehicles they rent or lease to others, provide wholesale vehicle inventory insurance to GM dealers, provide automotive extended service contracts through GM dealers, and offer other services to GM dealers. As a result, GM’s level of automobile production and sales directly impacts our financing and leasing volume; the premium revenue for wholesale vehicle inventory insurance; the volume of automotive extended service contracts; and the profitability and financial condition of the GM dealers to whom we provide wholesale financing, term loans, and fleet financing. In addition, the quality of GM vehicles affects our obligations under automotive extended service contracts relating to such vehicles. Further, the resale value of GM vehicles, which may be impacted by various factors relating to GM’s business such as brand image, the number of new GM vehicles produced, the number of used vehicles remarketed, or reduction in core brands, affects the remarketing proceeds we receive upon the sale of repossessed vehicles and off-lease vehicles at lease termination.

As of March 31, 2010, we had an estimated $1.3 billion in secured credit exposure, which included primarily wholesale vehicle financing to GM-owned dealerships, notes receivable from GM, and vehicles leased directly to GM. We further had approximately $1.4 billion in unsecured credit exposure, which included estimates of payments from GM related to residual support and risk-sharing agreements. Under the terms of certain agreements between GMAC and GM, GMAC has the right to offset certain of its exposures to GM against amounts GMAC owes to GM.

 

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CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Retail and Lease Programs

GM may elect to sponsor incentive programs (on both retail contracts and operating leases) by supporting financing rates below the standard market rates at which we purchase retail contracts and leases. These marketing incentives are also referred to as rate support or subvention. When GM utilizes these marketing incentives, they pay us the present value of the difference between the customer rate and our standard rate at contract inception, which we defer and recognize as a yield adjustment over the life of the contract.

GM may also sponsor residual support programs as a way to lower customer monthly payments. Under residual support programs, the customer’s contractual residual value is adjusted above our standard residual values. In addition, under risk-sharing programs and eligible contracts, GM shares equally in residual losses at the time of the vehicle’s disposal to the extent that remarketing proceeds are below our standard residual values (limited to a floor).

For North American lease originations and balloon retail contract originations occurring in the United States after April 30, 2006, and in Canada after November 30, 2006, that remained with us after the consummation of the Sale Transactions, GM agreed to begin payment of the present value of the expected residual support owed to us at contract origination as opposed to after contract termination at the time of sale of the related vehicle. The residual support amount GM actually owes us is finalized as the leases actually terminate. Under the terms of the residual support program, in cases where the estimate was incorrect, GM may be obligated to pay us, or we may be obligated to reimburse GM.

Based on the March 31, 2010, outstanding North American operating lease and retail balloon portfolios, the additional maximum amount that could be paid by GM under the residual support programs is approximately $1.0 billion and would be paid only in the unlikely event that the proceeds from the entire portfolio of lease assets were lower than both the contractual residual value and our standard residual rates.

Based on the March 31, 2010, outstanding North American operating lease portfolio, the maximum amount that could be paid under the risk-sharing arrangements is approximately $1.2 billion and would be paid only in the unlikely event that the proceeds from all outstanding lease vehicles were lower than our standard residual rates and no higher than the contractual risk-sharing floor.

Retail and lease contracts acquired by us that included rate and residual subvention from GM, payable directly or indirectly to GM dealers as a percentage of total new retail and lease contracts acquired, were as follows.

 

     Three months ended
March 31,
 
      2010     2009  

GM and affiliates subvented contracts acquired

    

North American operations

   52   77

International operations

   34   35
   

Other

We have entered into various services agreements with GM that are designed to document and maintain our current and historical relationship. We are required to pay GM fees in connection with certain of these agreements related to our financing of GM consumers and dealers in certain parts of the world.

GM also provides payment guarantees on certain commercial assets we have outstanding with certain third-party customers. As of March 31, 2010, and December 31, 2009, commercial obligations guaranteed by GM were $58 million and $68 million, respectively. Additionally, GM is bound by repurchase obligations to repurchase new vehicle inventory under certain circumstances, such as dealer franchise termination.

 

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CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

18. Fair Value

Fair Value Measurements

For purposes of this disclosure, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, entities are required to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring the fair value of a liability.

A three-level hierarchy is to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels:

 

  Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date. Additionally, the entity must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.

 

  Level 2 Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full term of the assets or liabilities.

 

  Level 3 Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management’s best assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized:

 

   

Trading securities — Trading securities are recorded at fair value and may be asset-or mortgage-backed securities (including senior and subordinated interests) and may be investment grade, noninvestment grade, or unrated securities. We base our valuation of trading securities on observable market prices when available; however, observable market prices are not available for a significant portion of these assets due to illiquidity in the markets. When observable market prices are not available, valuations are primarily based on internally developed discounted cash flow models (an income approach) that use assumptions consistent with current market conditions. The valuation considers recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses). We classified 99% and 94% of the trading securities reported at fair value as Level 3 at March 31, 2010, and December 31, 2009, respectively. Trading securities account for 1% and 2% of all assets reported at fair value at March 31, 2010, and December 31, 2009, respectively.

 

   

Available-for-sale securities — Available-for-sale securities are carried at fair value primarily based on observable market prices. If observable market prices are not available, our valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate and consider recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we are required to utilize various significant assumptions including

 

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CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

market observable inputs (e.g., forward interest rates) and internally developed inputs (including prepayment speeds, delinquency levels, and credit losses). We classified less than 1% of the available-for-sale securities reported at fair value as Level 3 at both March 31, 2010, and December 31, 2009. Available-for-sale securities account for 41% and 37% of all assets reported at fair value at March 31, 2010, and December 31, 2009, respectively.

 

   

Loans held-for-sale — We elected the fair value option for certain mortgage loans held-for-sale. The loans elected were government- and agency-eligible residential loans funded after July 31, 2009. These loans are presented in the table of recurring fair value measurements. Refer to the section within this Note titled Fair Value Option of Financial Assets and Financial Liabilities for additional information. The loans not elected under the fair value option are accounted for at the lower of cost or fair value. The loans not elected under the fair value option are only loans carried at fair value that are accounted for at the lower of cost or fair value. We classified 34% and 49% of the loans held-for-sale reported at fair value as Level 3 at March 31, 2010, and December 31, 2009, respectively. Loans held-for-sale account for 19% and 32% of all assets reported at fair value at March 31, 2010, and December 31, 2009, respectively.

Approximately 21% and 4% of the total loans held-for-sale carried at fair value are automotive loans at March 31, 2010, and December 31, 2009, respectively. These automotive loans are presented in the nonrecurring fair value measurement table. We based our valuation of automotive loans held-for-sale on internally developed discounted cash flow models (an income approach) or terms established under fixed-pricing forward flow agreements and classified all these loans as Level 3. These valuation models estimate the exit price we expect to receive in the loan’s principal market, which depending on characteristics of the loans may be the whole-loan market, the securitization market, or committed prices contained in forward flow agreements. Although we utilize and give priority to market observable inputs, such as interest rates and market spreads within these models, we are typically required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates. While numerous controls exist to calibrate, corroborate, and validate these internal inputs, these internal inputs require the use of judgment and can have a significant impact on the determination of the loan’s value. Accordingly, we classified all automotive loans held-for-sale as Level 3.

Approximately 79% and 96% of the total loans held-for-sale carried at fair value are mortgage loans at March 31, 2010, and December 31, 2009, respectively. We originate or purchase mortgage loans in the United States that we intend to sell to Fannie Mae, Freddie Mac, and Ginnie Mae (collectively, the Agencies). Mortgage loans held-for-sale are typically pooled together and sold into certain exit markets depending on underlying attributes of the loan, such as agency eligibility (domestic only), product type, interest rate, and credit quality. Two valuation methodologies are used to determine the fair value of loans held-for-sale. The methodology used depends on the exit market as described below.

Loans valued using observable market prices for identical or similar assets — This includes all domestic loans that can be sold to the Agencies, which are valued predominantly by published forward agency prices. This will also include all nonagency domestic loans or international loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value) or quoted market prices for similar loans are available. As these valuations are derived from quoted market prices, we classify these valuations as Level 2 in the fair value disclosures. As of March 31, 2010, and December 31, 2009, 83% and 52%, respectively, of the mortgage loans held-for-sale currently being carried at fair value were classified as Level 2.

Loans valued using internal models — To the extent observable market prices are not available, we will determine the fair value of loans held-for-sale using internally developed valuation models. These valuation models estimate the exit price we expect to receive in the loan’s principal market, which depending on characteristics of the loan may be the whole-loan or securitization market. Although we utilize and give priority to market observable inputs such as interest rates and market spreads within these models, we are typically required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates. While

 

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numerous controls exist to calibrate, corroborate, and validate these internal inputs, the generation of these internal inputs requires the use of judgment and can have a significant impact on the determination of the loan’s fair value. Accordingly, we classify these valuations as Level 3 in the fair value disclosures. As of March 31, 2010, and December 31, 2009, 17% and 48%, respectively, of the mortgage loans held-for-sale currently being carried at fair value are classified as Level 3.

Due to limited sales activity and periodically unobservable prices in certain markets, certain loans held-for-sale may transfer between Level 2 and Level 3 in future periods.

 

   

Consumer mortgage finance receivables and loans, net of unearned income — We elected the fair value option for certain consumer mortgage finance receivables and loans. The elected loans collateralized on-balance sheet securitization debt in which we estimated credit reserves pertaining to securitized assets that could have, or already had, exceeded our economic exposure. The elected loans represent a portion of the consumer finance receivable and loans on the Condensed Consolidated Balance Sheet. The balance that was not elected was reported on the balance sheet at the principal amount outstanding, net of charge-offs, allowance for loan losses, and premiums or discounts.

The mortgage loans that collateralized securitization debt are legally isolated from us and are beyond the reach of our creditors. The loans are measured at fair value using a portfolio approach or an in-use premise. Values of loans held on an in-use basis may differ considerably from loans held-for-sale that can be sold in the whole-loan market. This difference arises primarily due to the liquidity of the asset- and mortgage-backed securitization market and is evident in the fact that spreads applied to lower rated asset-and mortgage-backed securities are considerably wider than spreads observed on senior bonds classes and in the whole-loan market. The objective in fair valuing the loans and related securitization debt is to account properly for our retained economic interest in the securitizations. As a result of reduced liquidity in capital markets, values of both these loans and the securitized bonds are expected to be volatile. Since this approach involves the use of significant unobservable inputs, we classified all the mortgage loans elected under the fair value option as Level 3, as of March 31, 2010, and December 31, 2009. Consumer finance receivables and loans accounted for 9% and 4% of all assets reported at fair value at March 31, 2010, and December 31, 2009, respectively. Refer to the section within this Note titled Fair Value Option of Financial Assets and Financial Liabilities for additional information.

 

   

Commercial finance receivables and loans, net of unearned income — We evaluate our commercial finance receivables and loans, net of unearned income, for impairment. We generally base the evaluation on the fair value of the underlying collateral supporting the loans when expected to be the sole source of repayment. When the carrying value exceeds the fair value of the collateral, an impairment loss is recognized and reflected as a nonrecurring fair value measurement. As of March 31, 2010, 8% and 92% of the impaired commercial finance receivables and loans were classified as Level 2 and Level 3, respectively. As of December 31, 2009, 6% and 94% of the impaired commercial finance receivables and loans were classified as Level 2 and Level 3, respectively. Commercial finance receivables and loans accounted for 4% of all assets reported at fair value at both March 31, 2010, and December 31, 2009.

 

   

Mortgage servicing rights — We typically retain MSRs when we sell assets into the secondary market. MSRs do not trade in an active market with observable prices; therefore, we use internally developed discounted cash flow models (an income approach) to estimate the fair value of MSRs. These internal valuation models estimate net cash flows based on internal operating assumptions that we believe would be used by market participants combined with market-based assumptions for loan prepayment rates, interest rates, and discount rates that we believe approximate yields required by investors in this asset. Cash flows primarily include servicing fees, float income, and late fees, in each case less operating costs to service the loans. The estimated cash flows are discounted using an option-adjusted spread-derived discount rate. All MSRs were classified as Level 3 at March 31, 2010, and December 31, 2009. MSRs accounted for 13% and 10% of all assets reported at fair value at March 31, 2010, and December 31, 2009, respectively.

 

   

Interests retained in financial asset sales — Interests retained in financial asset sales are carried at fair value. The interests retained are in securitization trusts and deferred purchase prices on the sale of wholesale loans. Due to

 

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CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

inactivity in the market, valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate. The valuation considers recent market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses). All interests retained were classified as Level 3 at March 31, 2010, and December 31, 2009. Interests retained in financial assets sales accounted for 1% and less than 1% of all assets reported at fair value at March 31, 2010, and December 31, 2009, respectively.

 

   

Derivative instruments — We manage risk through our balance of loan production and servicing businesses while using portfolios of financial instruments (including derivatives) to manage risk related specifically to the value of loans held-for-sale, loans held-for-investment, MSRs, foreign currency debt; and we enter into interest rate swaps to facilitate transactions where the underlying receivables are sold to a nonconsolidated entity. Refer to Note 15 for additional information regarding the gains and losses recognized on the fair value of economic hedges within the Condensed Consolidated Statement of Income.

We enter into a variety of derivative financial instruments as part of our hedging strategies. Certain of these derivatives are exchange traded, such as Eurodollar futures, or traded within highly active dealer markets, such as agency to-be-announced securities. To determine the fair value of these instruments, we utilize the exchange price or dealer market price for the particular derivative contract; therefore, we classified these contracts as Level 1. We classified 2% of the derivative assets and 5% of the derivative liabilities reported at fair value as Level 1 at March 31, 2010. We classified 7% of the derivative assets and 9% of the derivative liabilities reported at fair value as Level 1 at December 31, 2009.

We also execute over-the-counter derivative contracts, such as interest rate swaps, floors, caps, corridors, and swaptions. We utilize third-party-developed valuation models that are widely accepted in the market to value these over-the-counter derivative contracts. The specific terms of the contract and market observable inputs (such as interest rate forward curves and interpolated volatility assumptions) are entered into the model. We classified these over-the-counter derivative contracts as Level 2 because all significant inputs into these models were market observable. We classified 86% of the derivative assets and 80% of the derivative liabilities reported at fair value as Level 2 at March 31, 2010. We classified 77% of the derivative assets and 73% of the derivative liabilities reported at fair value as Level 2 at December 31, 2009.

We also hold certain derivative contracts that are structured specifically to meet a particular hedging objective. These derivative contracts often are utilized to hedge risks inherent within certain on-balance sheet securitizations. To hedge risks on particular bond classes or securitization collateral, the derivative’s notional amount is often indexed to the hedged item. As a result, we typically are required to use internally developed prepayment assumptions as an input into the model to forecast future notional amounts on these structured derivative contracts. Accordingly, we classified these derivative contracts as Level 3. We classified 12% of the derivative assets and 15% of the derivative liabilities reported at fair value as Level 3 at March 31, 2010. We classified 16% of the derivative assets and 18% of the derivative liabilities reported at fair value as Level 3 at December 31, 2009.

We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value of a liability. We consider our credit risk and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA). The CVA calculation utilizes our credit default swap spreads and the spreads of the counterparty. The CVA calculates the probable or potential future exposure on the derivative under different interest and currency exchange rate environments using simulation tools. For each simulation, a CVA is calculated using either our credit default spread or the default spread of the counterparty and, in both cases, the potential exposure of the simulation.

Derivative assets accounted for 8% of all assets reported at fair value at both March 31, 2010, and December 31, 2009. Derivative liabilities accounted for 42% and 59% of all liabilities reported at fair value at March 31, 2010, and December 31, 2009, respectively.

 

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CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

   

Derivative collateral placed with counterparties — Collateral in the form of investment securities are primarily carried at fair value using quoted prices in active markets for similar assets. We classified 86% and 96% of securities posted as collateral as Level 1 at March 31, 2010, and December 31, 2009, respectively. Securities posted as collateral accounted for 3% and 2% of all assets reported at fair value at March 31, 2010, and December 31, 2009, respectively.

 

   

Repossessed and foreclosed assets — Foreclosed on or repossessed assets resulting from loan defaults are carried at the lower of either cost or fair value less costs to sell and are included in other assets on the Condensed Consolidated Balance Sheet. The fair value disclosures include only assets carried at fair value less costs to sell.

The majority of assets acquired due to default are foreclosed assets. We revalue foreclosed assets on a periodic basis. We classified properties that are valued by independent third-party appraisals less costs to sell as Level 2. When third-party appraisals are not obtained, valuations are typically obtained from third-party broker price opinion; however, depending on the circumstances, the property list price or other sales price information may be used in lieu of a broker price opinion. Based on historical experience, we adjust these values downward to take into account damage and other factors that typically cause the actual liquidation value of foreclosed properties to be less than broker price opinion or other price sources. This valuation adjustment is necessary to ensure the valuation ascribed to these assets considers unique factors and circumstances surrounding the foreclosed asset. As a result of applying internally developed adjustments to the third-party-provided valuation of the foreclosed property, we classified these assets as Level 3 in the fair value disclosures. As of March 31, 2010, we classified 48% and 52% of foreclosed and repossessed properties carried at fair value less costs to sell as Level 2 and Level 3, respectively. As of December 31, 2009, we classified 51% and 49% of foreclosed and repossessed properties carried at fair value less costs to sell as Level 2 and Level 3, respectively. Repossessed and foreclosed assets account for 1% and less than 1% of all assets reported at fair value at March 31, 2010, and December 31, 2009, respectively.

 

   

On-balance sheet securitization debt — We elected the fair value option for certain mortgage loans held-for-investment and on-balance sheet securitization debt. In particular, we elected the fair value option on securitization debt issued by domestic on-balance sheet securitization vehicles as of January 1, 2008, in which we estimated credit reserves pertaining to securitized assets could have, or already had, exceeded our economic exposure. The objective in measuring the loans and related securitization debt at fair value was to approximate our retained economic interest and economic exposure to the collateral securing the securitization debt. The remaining on-balance sheet securitization debt that was not elected under the fair value option is reported on the balance sheet at cost, net of premiums or discounts and issuance costs.

We value securitization debt that was elected pursuant to the fair value option and any economically retained positions using market observable prices whenever possible. The securitization debt is principally in the form of asset- and mortgage-backed securities collateralized by the underlying mortgage loans held-for-investment. Due to the attributes of the underlying collateral and current market conditions, observable prices for these instruments are typically not available. In these situations, we consider observed transactions as Level 2 inputs in our discounted cash flow models. Additionally, the discounted cash flow models utilize other market observable inputs, such as interest rates, and internally derived inputs including prepayment speeds, credit losses, and discount rates. Fair value option elected financing securitization debt is classified as Level 3 as a result of the reliance on significant assumptions and estimates for model inputs. On-balance sheet securitization debt accounted for 58% and 41% of all liabilities reported at fair value at March 31, 2010, and December 31, 2009, respectively. Refer to the section within this Note titled Fair Value Option for Financial Assets and Financial Liabilities for a complete description of these securitizations.

 

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GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited) </