General Motors stock sinks on mortgage losses

Deepening concerns about deteriorating credit-market conditions helped send shares of General Motors Corp. to their lowest level in about 17 months on Monday.
The automaker, in the midst of a restructuring aimed at restoring profitability, has been stung in recent months by the weak performance at GMAC Financial Services, which has struggled due to losses at its residential-mortgage business even as auto loans continue to be profitable.

News on Monday that Goldman Sachs had downgraded shares of Citigroup Inc. (Charts, Fortune 500) to sell, citing concerns of more write-downs for the bank and mortgage-related exposures, revived concerns that the crisis could worsen for companies that have links to the mortgage market.

Adding fuel to the fire for GM investors, Lehman Brothers analyst Brian Johnson said in a research note Monday that GMAC is experiencing a "sharp" increase in delinquency rates among its auto-loan customers since July.

"The precursor of credit loss is delinquency – and the 60-day delinquency rate is on the rise for recent issues of GMAC auto (asset-backed securities)," Johnson said. He noted that, with unemployment low, "the deterioration in auto ABS credit conditions may be evidence of a likely spill-over of the mortgage woes onto the auto credit world."

GMAC spokeswoman Gina Proia said the company saw a "small to modest uptick in (auto loan) delinquencies" in the third quarter, but said credit trends remain consistent and that GMAC is closely monitoring the portfolio.

"We have taken some steps such as reducing the production of non-prime loans in auto finance. We have also expanded the collection force and we have placed an increased emphasis on the initial verification of applicants, especially those in the lower tier," Proia added.