Mortgage Operations

Results of Operations

The following table summarizes the operating results of our Mortgage operations for the periods indicated. The amounts presented are before the elimination of balances and transactions with our other operating segments.

($ in millions) Year ended December 31,   2005     2004   Change     %  
Revenue                        
Total financing revenue $ 5,937   $ 5,296   $ 641     12  
Interest and discount expense   (4,474 )   (2,782 )   (1,692 )   (61 )
Provision for credit losses   (666 )   (978 )   312     32  
Net financing revenue   797     1,536     (739 )   (48 )
Mortgage servicing fees   1,611     1,491     120     8  
MSR amortization and impairment   (869 )   (1,112 )   243     22  
MSR risk management activities   61     243     (182)     (75 )
Net loan servicing income   803     622     181     29  
Gains on sale of loans   1,201     788     413     52  
Other income   2,815     2,035     780     38  
Noninterest expense   (3,529 )   (3,199 )   (330 )   (10 )
Goodwill impairment   (64 )   –     (64 )   –  
Income tax expense   (712 )   (674 )   (38 )   (6 )
Net income $ 1,311   $ 1,108   $ 203     18  
Investment securities $ 7,264   $ 6,083   $ 1,181     19  
Loans held for sale   28,578     19,934     8,644     43  
Loans held investment, net   84,284     69,926     14,358     21  
Mortgage servicing rights, net   4,647     3,890     757     19  
Other assets   12,899     9,788     3,111     32  
Total assets $ 137,672   $ 109,621   $ 28,051     26  

 

Our Mortgage operations earned a record $1,352 million, excluding goodwill impairment charges of $41 million (after-tax), an increase of 22% from the $1,108 earned in 2004. These record results reflect increases in residential and commercial loan production, favorable credit provision, improved mortgage servicing results and higher gains on sales of mortgages.

Total financing revenue increased due to higher asset levels in both the residential and commercial portfolios. The higher asset levels also resulted in higher debt and an increase in interest expense. Interest expense was also negatively impacted by increases in short-term market interest rates. However, the increase in interest and discount expense was partially offset by a favorable change in the provision for credit losses. The lower provision for credit losses was primarily due to favorable severity and frequency of loss in the residential portfolio as compared to previous estimates primarily resulting from the effects of home price appreciation. Additionally, despite higher delinquency and non-accrual balances in the residential portfolio, the rate of increase in delinquency and non-accrual balances during 2005 slowed from the prior year, resulting in lower provision expense. The positive impact on the credit loss provision was partially offset by the higher credit loss provision required by Hurricane Katrina.

Net servicing results were favorable as a result of increased mortgage servicing fees due to the growth in GMAC’s residential servicing portfolio in 2005 as compared to 2004. In addition, net servicing income benefited from a reduction in amortization and impairment due to the favorable impact of slower than expected prepayments consistent with observed trends in the portfolio and rising interest rates.

Both the residential and commercial operations experienced increases in gains on sale of loans resulting from higher production levels and increased volume of off-balance sheet residential mortgage securitizations. The increase in other income was related to the favorable net impact on the valuation of retained interests from residential mortgage securitizations and higher gains on certain commercial mortgage real estate equity investment sales in 2005. In addition, other income benefited from higher investment income through our residential and commercial businesses. Noninterest expense was higher compared to the prior year, primarily due to salary and commission increases due to increases in loan production, number of employees and new location occupancy costs. The goodwill charge relates to impairment of the Commercial Mortgage affordable housing partnership business.