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MODELING: How GMAC Came Up With Its ResCap Asset Valuations
Yesterday, GMAC disclosed that it would take a $3.8 billion charge in the fourth quarter of 2009 to revalue “selected, higher-risk” mortgage loans. How did GMAC come up with its valuations? Here are the components of its financial model, according to company documents:
A thorough analysis was conducted, which utilized several assumptions to determine the adjusted carrying values for the ResCap and Ally Bank domestic mortgage loans: – Defaults, loss severity and prepayments: Projected based on loan level characteristics such as FICO, LTV and loan type
– Home price assumptions: Derived from Moody’s Economy.com baseline, portfolio-weighted results reflect current to trough decline of 6.1% and 8.4% for ResCap and Ally loans respectively, with troughs occurring in 1Q’11
– Delinquencies: Peak after 2010
– Discount rate: 20% applied to resulting cash flows
Click here for GMAC’s presentation on its 4Q09 earnings.
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