Mortgage rates begin to rise

Kristine Owram The Canadian Press

Mortgage rates in Canada are heading higher as fears of inflation resonate through the bond market while U.S. legislators struggle toward agreement on a $700 billion US bailout plan for Wall Street banks.

TD Canada Trust and Bank of Montreal said last night they have raised mortgage rates by more than a third of a percentage point on three, four and five-year loans.

The changes reflect the rising cost of borrowing in the bond market, an inflation-sensitive financial marketplace where banks finance their mortgage lending.

Effective today, a five-year mortgage at both banks increases by 0.35 of a percentage point to 7.2 per cent, while a three-year closed term rises by the same amount to 7.05 per cent.

A one-year closed mortgage loan at TD Canada Trust falls by .3 of a percentage point to 6.35 per cent.

The changes suggest bond markets are worried about the future inflationary pressures from the proposed U.S. bailout of Wall Street banks, said TD Bank chief economist Don Drummond.

"We always did figure that adding $700 billion to the deficit of the United States would probably cause something like a 25 basis point (quarter point) increase in the longer-term interest rates and that seems to have already happened,'' said Drummond.

"(The bailout) does increase the risk to bonds. In just plain good old demand and supply that means there has to be an awful lot of bond issuance and there's a limited supply of people that want to buy them so it's natural that the price goes up,'' he added.

The interest rates on mortgages and other short-term borrowing are set based on the price of bonds. With lower demand for bonds and fears of inflation, rates have to rise to lure investors willing to part with their money.

Other interest rates in the economy -- from consumer and car loans to mortgage rates tied to the prime rate -- are affected by the Bank of Canada trend-setting rate, which is expected to fall or remain stable over the next few months at least.

A bailout is expected to push up inflation and force the U.S. Federal Reserve Board to raise rates in the future.

Bush issues dire economic warning

WASHINGTON, (AFP) - Warning "our entire economy is in danger," US President George W. Bush called unprecedented crisis talks for Thursday with White House rivals John McCain and Barack Obama and congressional leaders.

Bush announced the summit in a prime-time televised speech Wednesday seeking public support for his 700-billion-dollar Wall Street rescue plan and to pile pressure on angry lawmakers who declared the shock proposal dead on arrival.

"We're in the midst of a serious financial crisis," Bush said in his 13-minute speech from the White House.

"Without immediate action by Congress , America could slip into a financial panic," the vastly unpopular president said. "Ultimately, our country could experience a long and painful recession."

Six weeks before US elections and four months before he hands the battered US economy to a new steward, Bush said inaction could wipe out banks, threaten retirement nest eggs, send home values into freefall, foreclosures skyrocketing and create millions of new jobless.

"We must not let this happen," urged the president, who said a rare "spirit of cooperation" in Washington in the face of the crisis had led him to invite McCain, Obama, and top House and Senate leaders of both parties to the White House.

Bush had invited Obama in a personal telephone call 90 minutes before his speech, the White House said. The Democrat's chief spokesman, Bill Burton, confirmed in a statement that the Illinois senator would attend.

Obama has worked all week with top lawmakers, Treasury Secretary Henry Paulson, and Federal Reserve chairman Ben Bernanke and "will continue to work in a bipartisan spirit and do whatever is necessary to come up with a final solution," said Burton.

"We will discuss the progress we have made to improve the administration's deeply flawed plan to address this unprecedented crisis," Democratic Senate Majority Leader Harry Reid said in a statement.

"As I have said throughout, tomorrow's meeting and future deliberations must be focused on solutions, not photo ops," Reid said, after other Democrats mocked McCain's decision to suspend his campaign over the crisis as a gimmick.

Opinion polls show the US public is angry at Wall Street but deeply divided about a remedy, with many ready to blame Bush and his Republican party -- which itself has fissured over the plan amid fierce objections from conservatives.

They have expressed dismay over the massive government involvement in the economy, while Bush's Democratic foes have pushed for more government oversight and stronger consumer protections, and both sides have balked at the price tag.

Speaking to his angry allies, Bush explained: "I faced a choice, to step in with dramatic government action or to stand back and allow the irresponsible actions of some to undermine the financial security of all."

Addressing suspicious Democrats, he promised that the plan must ensure that reckless executives do not reap a "windfall" from taxpayer funds.

He also said he recognized the package would "present a tough vote for many members of Congress," acknowledging "it is difficult to pass a bill that commits so much of the taxpayers' hard-earned money."

But lawmakers "must ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow," he warned.

It was not clear how much impact what is arguably the president's most potent political weapons -- the ability to command national attention -- would have with just four months left in his term.

"At this point, there are real doubts about the president's ability to be seen as a trusted and credible source on the economy by the American public," a conservative Republican congressional aide told AFP on condition of anonymity.

But public remarks from all sides suggested that Bush could count on a consensus that inaction could trigger a global financial meltdown.

"Now is a time to come together -- Democrats and Republicans -- in a spirit of cooperation for the sake of the American people," McCain and Obama said in an unusual joint statement.

"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said.

Merrill Lynch bearish on housing

Email the author

September 25, 2008 Eric Shackleton The Canadian Press

Merrill Lynch is challenging the prevailing view that Canada's housing and mortgage markets are more stable than their U.S. counterparts, warning that households in this country are so indebted that it's only a matter of time before we see a major downturn here as well.

In a report issued yesterday, Merrill Lynch Canada economists said many Canadian households are more financially overextended than their counterparts in the United States or Britain.

They said it's only a matter of time before the "tipping point'' is reached and the housing and credit markets crack in Canada.

The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledges that the analysis is more pessimistic than the prevailing view.

Prime Minister Stephen Harper, in British Columbia for the federal election, responded to the investment firm's warnings by repeating his assurances that Canada's economy is in good shape.

"I think our housing market is in a strong position (and) consumer markets, as well, are stronger in Canada than the U.S. and the position taken by our financial institutions.''

"Of course, we have seen that this market has somewhat weakened in the last 12 months but we will not see such a situation here as in the U.S.''

The National Association of Realtors reported yesterday that the U.S. median sales price in August fell 9.5 per cent to $203,100 US, the largest decline on records dating to 1999.

Many economists have said repeatedly that Canada's housing and banking sector is much more stable than its American counterparts and unlikely to crash -- since it didn't spike in recent years because of many differences between the two countries.

Benjamin Tal, an economist with CIBC who has been closely following the ups and downs of the housing industry, said yesterday he sees no "trigger'' threatening Canada's housing and mortgage market.

"To see a crash in the housing market you need a trigger.

"The trigger in 1989-1990 was extremely high interest rates.

"The trigger in the U.S. was subprime mortgages. We're still missing the trigger for Canada,'' Tal said.

However, Merrill Lynch -- whose U.S. parent is one of the biggest victims of a crisis in financial markets that is rooted in the American housing and mortgage meltdown -- said Canadians should be wary.

Household net borrowing in Canada amounted to 6.3 per cent of disposable income in 2007 -- meaning they're carrying more debt than households in the United Kingdom and not far off the peak U.S. shortfall in 2005 -- just before the subprime mortgage crisis erupted.

Gregory Klump, chief economist with the Canada Mortgage and Housing Corp., said there would need to be a spike in interest rates or massive layoffs before the housing market would take a tumble.

Right now, Klump said, "we have a stable labour market'' and interest rates are low.

"There's no distress sales in Canada, not like in the States.''

The Merrill report says housing prices are now falling and inventories of unsold homes are rising sharply.

Wal-Mart applies to enter banking

Seeks licence Hollie Shaw, Financial Post

As worldwide markets plunge, Wal-Mart Canada is vowing to carry its low-cost credo into the financial sector.

The biggest mass merchant in Canada has applied for a banking licence, joining the ranks of retailers such as Canadian Tire, Sears and Loblaw.

Two years after luring a former American Express Canada executive to head up its financial services department and expand into nonbank financial products, the giant retailer posted mandatory public notice on Saturday of its official bank application to the Office of the Superintendent of Financial Institutions.

"A licence would allow us to get into banking products and the obvious one would be a credit card, but if you look at other retailers the breadth of [potential] products is huge," said WalMart Canada spokesman Kevin Groh.

"Services common to some other retailers [include] savings accounts, loans, mortgages, RSPs, GICs.... but at this point it would be premature for us to speculate" the breadth of its offering, he said.

One thing seems certain -- the price competition that Wal-Mart Canada has brought to the retail sector in the past decade, from Pampers to groceries, will likely be carried into the banking segment.

"Our approach in everything we have done to date is to be a price leader and eliminate costs that would pass on to customers," Mr. Groh said.

Keith Howlett, retailing analyst at Desjardins Securities, said getting into financial services is a valuable income stream for retailers.

"It is pretty lucrative for Loblaw and at Canadian Tire it was a big growth driver for them," he said. Credit cards are also a valuable source of information about its consumers, letting them see where and how they spend their money.

"I think Wal-Mart could have a huge opportunity there, and quite a different offering from ING or President's Choice Financial or Canadian Tire and something quite different from the banks. The traffic in their stores is enormous and is skewed to those least likely to get the value-added from banks," he said, noting that banks mostly try to court customers with high income or high savings. "Wal-Mart could design a business model that goes against the grain." One such business, he suggested, would be to offer a lower-fee option on payday loans and services provided by companies such as Money Mart. "It's a huge, fast-growing business, it covers a huge number of people," but no banks or retailers are tapping into it.

Close to two years ago, Wal-Mart Canada signalled its interest in the banking business when it hired Trudy Fahie, former vice-president of financial services for American Express Canada, to take on the same role -- a newly created position -- at Wal-Mart Canada. Wal-Mart currently has ATMs and offers extended warranties, wire transfers and emergency bill payments through Western Union.

It's a different story in the United States, where the retailer has met with resistance to efforts to get into banking. Its applications for bank charters in Oklahoma and California were turned down and it ended up withdrawing an application in Utah.

Financial Post

Fed sweeps in with $85B deal for AIG

Janet Whitman and Eoin Callan, Financial PostNEW YORK/TORONTO – In a scramble to avert what would have been the biggest casualty of the credit crisis to date, the United States government Tuesday night agreed to sweep in and bail out global insurance giant American International Group

The dramatic U-turn puts AIG in the government's control in exchange for an emergency loan after the group at the heart of the financial system failed in a drive to raise about $85-billion from a private consortium, according to people familiar with the deal.

Leaders on Capitol Hill were briefed on the package last night, according to a Congressional aide who confirmed the broad outlines of the agreement to the National Post, which comes after regulatory officials earlier this week rebuffed the cash-starved company's requests for financing.

Hank Paulson, the U.S. Treasury Secretary, had steadfastly rejected the idea of a government bailout for Manhattan-based AIG, the largest insurer in the world with US$1-trillion in assets. He and other federal officials had been pushing AIG and Wall Street banks to come up with a private sector solution for the billions in emergency financing.

But those attempts came up dry after two days of searching for funds and with a potentially catastrophic bankruptcy looming as early as today, Washington was backed into a corner.

After meeting with George W. Bush, the U.S. President, on Tuesday, it was agreed that consequences of letting AIG fail were too catastrophic for the financial system.

The Congressional aide said political leaders on both sides of the aisle were focused on what a collapse of AIG would have meant for Americans, but did not discount the possibility that the deepening crisis could slow the drive of Republican presidential candidate John McCain for the White House.

An AIG bankruptcy would have been a much greater financial calamity than the relatively orderly liquidation of Lehman Brothers Holdings, the fourth-largest Wall Street investment bank, which filed for bankruptcy Monday after the U.S. government refused to come to its rescue.

"I don't know of a major bank that doesn't have some significant exposure to AIG," Kenneth Lewis, chief executive officer of Bank of America, told CNBC in an interview. "An AIG collapse would be a much bigger problem than most that we've looked at."

A implosion of AIG, which offers insurance protection to companies around the globe, could have slammed financial institutions with US$180 billion in losses, Hank Calenti, an analyst with RBC Capital Markets estimated in a report on Tuesday. Canadian banks could have been hard hit.

Still, the U.S. government was loath to step in with a bailout. After coming to the rescue of Bear Stearns Cos. and government-sponsored mortgage behemoths Fannie Mae and Freddie Mac, Mr. Paulson and others from the Bush administration had been growing increasingly worried about the issue of "moral hazard" – essentially encouraging risky behavior on the part of financial institutions by providing them with a safety net when things go bad.

But with AIG unable to round up the multi-billion dollar lifeline it needed from private sources, the government officials felt they had no other choice, people familiar with the negotiations said.

With time fast running out for the company, the government bailout option got put on the table Tuesday afternoon as executives and officials huddled in meetings in the New York Federal Reserve building in downtown Manhattan.

New York Governor David Paterson, who on Monday agreed to bend rules that would allow AIG to borrow US$20-billion from its subsidiaries to cover its day-to-day operations, told CNBC business channel Tuesday morning that the company only had a day to find the US$75-billion in emergency financing it was then seeking to survive.

The bailout comes as the credit crisis, now in its fourteenth month, appears to be deepening, rather than abating as regulators had hoped.

Soon after it was clear over the weekend that Lehman would have no choice but to file for bankruptcy protection, Merrill Lynch & Co. opted to agree to a takeover by Bank of America to avoid the same fate.

As with Lehman and Merrill, AIG's shares started to nosedive last week as investors grew increasingly spooked about the company's massive exposure to toxic mortgage loans.

As word of a possible Fed bailout leaked on Tuesday, AIG's shares went on a roller-coaster ride, dragging the broader stock market along with it.

Its shares closed yesterday down 21% at US$3.75 – about 95% off from its peak value of in late 2006 when the company ranked among the top five financial companies around the globe.

Hank Greenberg, who was ousted as chief executive of AIG three years ago amid an accounting scandal, hinted in a government filing yesterday that he's considering making a bid for the company as its – and his – fortunes tumble.

Now, with a government bailout and the likelihood that shareholders will see their investments all but wiped out, Mr. Greenberg, the largest individual shareholder in AIG, is poised to end up a big loser.

Even before last night's developments, he had seen has seen his wealth shrink by an estimated US$6-billion amid the stock's swoon.

In a letter to current AIG CEO Robert Willumstad dated on Tuesday, Mr. Greenberg complained that his many offers to help the ailing company were rebuffed because of fears he would "overshadow" the current management.

"I respectfully suggest to you, and to the board, that the continuing refusal to work together to save this great company is far more important than any concern over personal matters or perceptions," he wrote.

Financial Post

Wall Street crisis may force BoC to cut rates next month

Paul Vieira, Financial Post Published: Monday, September 15, 2008 OTTAWA -- The turmoil in U.S. banking circles may prompt Mark Carney, the Bank of Canada governor, to change course and cut interest rates next month, analysts said Monday.

As traders looked to the central bank for clues as to its next move, the Prime Minister, Stephen Harper, tried to brush off warnings of "doom and gloom" sparked by one of the biggest shakeups on Wall Street. He told reporters in a campaign stop in Ottawa that Canada's economic fundaments, especially those in the financial system, remain "solid."

While the Prime Minister tried to allay fears, market strategists say financial markets have started to price in a cut to lending rates the next time the Bank of Canada governors meet and unveil its next move on rates, on Oct. 21.

New home prices rise — but not by much

Jamie Sturgeon, Financial Post

Price increases on new homes eased for the sixth month in a row in July, increasing by a meagre 0.1% as the national market continues to soften, Statistics Canada reported on Thursday.

Contractors' selling prices were up 2.7% from July of last year but below the year-over-year rise of 3.5% seen between 2007 and 2006. The tapering off in the growth of home prices continues a two-year trend dating to September 2006, the federal agency said.

Slowing demand in Western Canada is leading the country-wide slowdown StatsCan said. The latest evidence came from Edmonton, where prices dipped by 5.3% on an annual basis in July - the sharpest drop in 23 years. In Calgary, prices declined 0.3% annualized - a 12-year low.

"Markets in these cities continue to adjust after experiencing record price increases in the last two and a half years," Statscan said.

Yet further east in booming Saskatchewan, prices grew by a sizable 29.6% in Regina, while Saskatoon saw an annual increase of 13.1%, as a result of higher material and labour costs.

In contrast, Vancouver saw prices tick up a modest 1.6% in July. Canada's largest city, Toronto, saw an increase of 3.7% while Montreal recorded a rise of 5.7%, StatsCan said.

"This is yet further evidence that the housing market in Canada continues to cool," said Charmaine Buskas, economic strategist with TD Securities in a research note

House prices overvalued in Canada

Eric Beauchesne, Canwest News Service

OTTAWA -- Canadian homeowners should be prepared for a fall in housing prices, warns a study that estimates homes in most cities are overvalued, and by as much as 25%.

With the exception of Toronto and Edmonton, houses in Canada's major cities are overvalued by anywhere from $32,000 to $87,000, says the study of prices in nine cities by researchers at the Sauder School of Business at the University of British Columbia.

The study, released Monday, looked at prices for single-family homes in the second quarter of this year in nine major Canadian cities, and compared prices in those cities with what they would be in a balanced market based on the relationship between house prices and rents.

Only in Toronto are prices in balance with rents, the study concluded. In Halifax, Montreal, Ottawa, Regina and Winnipeg prices would need to drop by at least 20% to be in balance and in Calgary by 7% and in Vancouver by 11%.

In contrast, Edmonton prices are actually below equilibrium, and would have to rise by 8% to be in balance, it said.

"The decade long boom in Canadian markets is over," Tsur Somerville, the study's lead author.

Housing affordability is a severe problem in some Canadian cities, limiting the ability of markets to continue to rise, says the report titled "Are Canadian Housing Markets Overpriced?"

The rapid price increases in many Canadian cities since 2001 along with the downturn in the U.S. housing market has raised concerns about the future of housing markets here, it noted.

"There are parallels between the path of house prices in Canadian and U.S. markets," it said. During the U.S. housing boom, which ran from 1997 to 2006, prices rose 132%, while in Canada over the 2001-08 boom prices in the nine cities rose by an average of 87%.

While Canada's more conservative lending practices have prevented the speculative excess and severe downturn experienced in U.S. markets, they haven't prevented homes from becoming overpriced, it said.

The assessment of whether a housing market is in balance or equilibrium takes into account the ratio of rent to prices, mortgage rates and the cost of owning a house, and the expected long-term price appreciation.

In dollar terms, the amount by which house prices would have to fall to bring them back into balance in each of the overpriced cities was: Calgary $32,000, Halifax $58,000, Montreal $68,000, Ottawa $81,000, Regina $87,000, Vancouver $85,000 and Winnipeg $74,000.

That houses are overpriced doesn't, however, guarantee that they will fall, it said.

"Instead the market could return to equilibrium through an extended period of housing price appreciation that is above zero, but below the long run rate," it said.

The potential for price declines is greatest in cities that have a large supply of unsold inventory or a mismatch between the number of units and the number of households ready to occupy them, it says, adding that by that criteria Vancouver is the most at risk of a housing price correction, though compared with most of the other cities the decline would be relatively moderate.

While the study looked at prices for single-family homes, it noted that a concern in some housing markets is that the buyers of units are not living in them, it added.

"If markets turn, these investor-buyers might behave in a manner akin to other asset markets, dumping their units to avoid future greater perceived price declines," it said. "In contrast, owner occupiers, unless forced to sell, can remain in their units and wait out a weak market."

In contrast, prices in Edmonton would have to rise by $32,000 to bring them back into balance, and that's despite what has been an annual increase in prices of 13.4% during the 2001-08 housing boom.

Annual price increases during the 2001-08 housing boom for the other cities studied were 14.5% in Regina, 12.4% in Calgary, 10.6% in Vancouver, 10.2% in Winnipeg, 8.1% in Montreal, 5.7% in Halifax, 5.7% in Ottawa, and 7.2% in Toronto

The real reason commodities are tumbling

JOHN HEINZL Globe and Mail

To hear Donald Coxe tell it, the commodity selloff ripping through Canada's stock market is no accident. It is the result of a deliberate, brilliantly executed plan hatched at the highest levels of the U.S. Federal Reserve and Treasury.

Mr. Coxe is no paranoid conspiracy theorist. As the chairman and chief strategist of Harris Investment Management in Chicago, he is one of the most respected investment authorities in North America. He also happens to have lost about 10 per cent of his personal wealth in the commodity rout, which came at the worst possible time for his Coxe Commodity Strategy Fund that started trading in June.

“This has done more damage to my personal wealth than anything in the last 20 years,” he said in an interview yesterday. But he has too much respect for how the U.S. authorities engineered the collapse in commodities – a move he said was necessary to shore up the global financial system – to be bitter.

“My attitude is, goddamn it, they're good … it was brilliant.”

To understand why commodities are plunging now – the S&P/TSX plummeted another 488 points yesterday – you have to go back to mid-July, when the U.S. Federal Reserve and Treasury first announced steps to support mortgage giants Fannie Mae and Freddie Mac.

The move, which ultimately led to the Treasury taking control of Fannie and Freddie this week, touched off a chain-reaction of market events that culminated with the wrenching decline in commodities.

According to Mr. Coxe, the Fed's ultimate goal was to trigger a rally in financial stocks, which would, in theory, help banks hammered by the credit crisis raise fresh capital and repair their balance sheets. To accomplish this, the decision to support Fannie and Freddie was deliberately announced on a Sunday, which had the effect of maximizing the reaction from thinly traded financial stocks on overseas markets.

Because many hedge funds were using massive leverage to short financials and go long on commodities, when North American markets opened and banks initially rallied, the funds were forced to cover their short positions.

At the same time, the U.S. dollar was rallying because the risk of holding Fannie and Freddie paper had diminished. The rising dollar, in turn, made commodities less attractive, giving funds that were already scrambling to cover their financial shorts another reason to dump oil, grains and other commodities.

The losses were swift and dramatic. On the Friday before the July 11 announcement, crude oil closed at $145.18 a barrel. Over the following five days, it plunged 11 per cent. “Leverage was being unwound dramatically,” Mr. Coxe said on a conference call last week. “We had a true panic.”

As oil and other commodities were tumbling, fears about the slowing global economy were mounting, giving resources another push downhill. This was also in keeping with the Fed's wishes, because lower commodity prices would help quell fears about inflation.

Mr. Coxe has no proof that the Fed and Treasury acted in concert to boost financials and sink commodities. He is basing his assertions on conversations with hedge fund managers and on years of watching financial markets. “There's no doubt whatever in my mind” about what happened, he says.

The future is less certain, however. Now that Freddie and Fannie have been nationalized, the credit crisis is still very much alive and financial stocks are looking as shaky as ever. As for commodities, once the current storm passes, Mr. Coxe is confident they will recover.

Dollar rises on Bank of Canada decision to shelve interest rate cut

· TSX -161.82pts (CP)A move away from commodities sent the Toronto stock market tumbling, pushed down by a retreat from oil and mining stocks and jitters about the health of the global economy. With 47% of the TSX related to commodities like oil and mining, this is a 6% drop in 2 days

· Dow +15.96pts

· Dollar +.67c to $94.25US .

· Oil -$.36 to $109.35US per barrel

· Gold -$2.30 to $802.70US per ounce

By Julian Beltrame, The Canadian Press OTTAWA - The Bank of Canada stuck to its guns on interest rates Wednesday, holding the overnight rate at 3% despite acknowledging that both inflation and the economy are weaker than previously projected. The central bank's decision to stay on the sidelines for the third consecutive announcement date had been widely predicted, but many economists were surprised governor Mark Carney didn't have a more "dovish" tone in his accompanying statement.

"He gave only the barest of scraps to the doves ... given the fact we've had one of the weakest half years for the economy since the (early) 1990s," said Douglas Porter, deputy chief economist with BMO Capital Markets. "There is absolutely no signal here whatsoever they are preparing to cut rates (in the future)."

GMAC to cut 5,000 jobs at mortgage unit

The Globe and Mail

NEW YORK — — GMAC LLC [GOM-N] said Wednesday it plans to cut 5,000 jobs at its Residential Capital LLC mortgage unit, or 60 per cent of that work force, and shut its 200 GMAC Mortgage retail offices to combat persistently weak housing and credit markets.

GMAC also plans to stop offering home loans through its Homecomings broker channel, and is evaluating strategic alternatives for its GMAC Home Services and non-core mortgage servicing businesses. It said it keep offering mortgages “where there is a secondary market to sell the loans.”

The cutbacks suggest deepening problems for GMAC's owners. A group led by private equity firm Cerberus Capital Management LP bought a 51 per cent stake from General Motors Corp [GM-N] in 2006. The automaker owns the remaining 49 per cent.

ResCap was the seventh-largest U.S. mortgage lender from January to June, making $35.7-billion (U.S.) of loans, according to the newsletter Inside Mortgage Finance. It said the latest job cuts will leave it with roughly 3,000 employees, down from a reported 14,000 at the beginning of 2007.

“While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment,” ResCap chief executive Tom Marano said in a statement. “We need to respond aggressively by further reducing both operating costs and business risk.”

GMAC is based in Detroit, and ResCap in Minneapolis.

ResCap has had seven straight unprofitable quarters, losing $7.2-billion over that time. In the April-June period, it lost $1.86-billion, while GMAC overall lost $2.48-billion.

ResCap expects 3,000 of the job cuts to take place this month, and a majority of the remainder by year end. It expects a $90-million to $120-million charge, and an additional charge for the other job cuts.