Buffett poised to pick up GM’s mortgage business

Warren Buffett is understood to be in talks to buy Residential Capital, the troubled mortgage business owned by GMAC, General Motor’s finance division. 

Berkshire Hathaway, the investor’s company is, along with Appaloosa Management and Avenue Capital, the hedge funds, a big holder of Res Cap’s debt. 

Res Cap was America’s fifth-largest mortgage origination and servicing company, but many of its loans were sold on interest-only terms to low income buyers, which meant that it was hit badly by the housing market crash. 

Mr Buffett could be interested in Res Cap’s servicing portfolio, the part of the business that collects mortgage payments, levies late payment fees and handles foreclosures.
This month, Berkadia Commercial Mortgage, Berkshire Hathaway’s part-owned subsidiary, bought a commercial mortgage servicing business from Capmark Financial Group for $468 million (£293 million). 

A GMAC spokesman declined to comment on the future of Res Cap. 

Appaloosa made headlines this week when it emerged that the fund manager had made a $7 billion profit this year by betting on the recovery of the US economy, putting David Tepper, its founder, in line for a $2.5 billion payday. 

Mr Tepper, a former Goldman Sachs bond trader, bought bank shares when they were cheap in February and March, gambling that the financial sector would recover from the credit crisis.

More recently he has bought into commercial mortgage-backed securities, despite fears elsewhere that the sector is going to make further losses next year. 

Michael Carpenter, GMAC’s new chief executive, said in an interview last month that his top priority was deciding the future of Res Cap, which has lost $9.2 billion over the past eight quarters.

Res Cap’s losses were one of the main drivers behind GMAC’s $12.5 billion government bailout. 

Mr Carpenter told American Banker, the newspaper, that he was looking at “every conceivable alternative” for Res Cap, including bankruptcy.

“What we want to do, to the best we’re able to, is draw a box around [Res Cap] and say that’s it contained,” he said. 

Meanwhile, Berkshire Hathaway has sparked fresh excitement over a successor for Mr Buffett by announcing Stephen Burke, Comcast’s chief operating officer, as a new director.

Berkshire’s board has been criticised in the past for being made of up too many elderly insiders — half of the board’s members are older than 70 and four are older than 80. 

Mr Burke, 51, has a long family connection to Mr Buffett. His father, Daniel, was one of the founders of Capital Cities/ABC, of which Berkshire was the biggest shareholder.