S-4 1 k96200sv4.htm REGISTRATION STATEMENT ON FORM S-4 sv4
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As filed with the Securities and Exchange Commission on July 15, 2005
Registration No. 333-          
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
RESIDENTIAL CAPITAL CORPORATION*
(Exact name of registrant as specified in its charter)
*Additional registrants shown on next page
 
         
Delaware   6162   20-1770738
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Number)
  (I.R.S. Employer
Identification Number)
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
(952) 857-8700
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
David A. Marple
Residential Capital Corporation
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
(952) 857-8700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
With a copy to:
Philip J. Niehoff
Mayer, Brown, Rowe & Maw LLP
71 South Wacker Drive
Chicago, Illinois 60606
(312) 782-0600
 
     Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
     If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o
     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
CALCULATION OF REGISTRATION FEE
                         
                         
                         
            Proposed Maximum     Proposed Maximum      
Title of Each Class of     Amount to     Offering Price     Aggregate     Amount of
Securities to Be Registered     Be Registered     Per Unit(1)     Offering Price(1)     Registration Fee
                         
Floating Rate Notes due 2007
    $1,000,000,000     100%     $1,000,000,000     $117,700
                         
6.375% Notes due 2010
    $2,500,000,000     100%     $2,500,000,000     $294,250
                         
6.875% Notes due 2015
    $ 500,000,000     100%     $ 500,000,000     $ 58,850
                         
Guarantees of notes
                —(2)
                         
Total
    $4,000,000,000     100%     $4,000,000,000     $470,800
                         
                         
(1)  Estimated solely for the purposes of calculating the registration fee.
 
(2)  Pursuant to Rule 457(n), no additional filing fee is required with respect to the guarantees.
     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 


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    State or Other   Primary Standard    
    Jurisdiction of   Industrial    
    Incorporation or   Classification Code   I.R.S. Employer
Name of Additional Registrant*   Formation   Number   Identification No.
             
GMAC Residential Holding Corp.
    Nevada       6162       91-1902190  
GMAC-RFC Holding Corp.
    Michigan       6162       23-2593763  
GMAC Mortgage Corporation
    Pennsylvania       6162       23-1694840  
Residential Funding Corporation
    Delaware       6162       93-0891336  
HomeComings Financial Network, Inc.
    Delaware       6162       51-0369458  
 
Address and telephone number of principal executive offices are the same as Residential Capital Corporation, except with respect to GMAC Residential Holding Corp. and GMAC Mortgage Corporation, whose principal executive offices are at 100 Witmer Road, Horsham, Pennsylvania 19044, telephone (215) 682-1000.


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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor is it an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

      SUBJECT TO COMPLETION, DATED JULY 15, 2005
$4,000,000,000
Offer to Exchange
$1,000,000,000 Floating Rate Notes due 2007,
$2,500,000,000 6.375% Notes due 2010
and
$500,000,000 6.875% Notes due 2015,
which have been registered under the Securities Act of 1933,
for any and all outstanding
$1,000,000,000 Floating Rate Notes due 2007,
$2,500,000,000 6.375% Notes due 2010
and
$500,000,000 6.875% Notes due 2015,
which have not been registered under the Securities Act of 1933
of
RESCAP
Residential Capital Corporation
 
       • The exchange offer expires at 5:00 p.m., New York City time, on                     , 2005, unless extended.
  •  All outstanding old notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer will be exchanged.
 
  •  We will not receive any proceeds from the exchange offer.
 
  •  The terms of the new notes to be issued are substantially identical to your old notes, except that the new notes will not have transfer restrictions, and you will not have registration rights.
 
  •  There is no established trading market for the new notes, and we do not intend to apply for listing of the new notes on any securities exchange other than the Euro MTF.
 
  •  All broker-dealers must comply with the registration and prospectus delivery requirements of the Securities Act of 1933. See “Plan of Distribution.”
 
      For a discussion of important factors that you should consider before you participate in the exchange offer, see “Risk Factors” beginning on page 11 of this prospectus.
      Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
      The date of this prospectus is                     , 2005.


SUMMARY
RISK FACTORS
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
RATIO OF EARNINGS TO FIXED CHARGES
SELECTED FINANCIAL INFORMATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
RELATED PARTY TRANSACTIONS
DESCRIPTION OF THE NOTES
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET March 31, 2005 and December 31, 2004
CONDENSED CONSOLIDATED STATEMENT OF INCOME
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY Three Months Ended March 31, 2005 and 2004
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended March 31, 2005 and 2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
COMBINED BALANCE SHEET December 31, 2004 and 2003
COMBINED STATEMENT OF INCOME Years Ended December 31, 2004, 2003, and 2002
COMBINED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY Years Ended December 31, 2004, 2003, and 2002
COMBINED STATEMENT OF CASH FLOWS Years Ended December 31, 2004, 2003, and 2002
Certificate of Incorporation of Residential Capital Corp
Bylaws of Residential Capital Corp
Indenture Among Residential Capital Corp
Indenture Among Residential Capital Corp
Opinion of Mayer, Brown, Rowe & Maw LLP
Operating Agreement
Statement Re: Computation of Ratio of Earnings to Fixed Charges
List of Subsidiaries of Residential Capital Corp
Consent of PricewaterhouseCoopers LLP
Statement of Eligibility of Trustee on Form T-1
Form of Letter of Transmittal
Form of Notice of Guaranteed Delivery


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TABLE OF CONTENTS
         
    Page
     
SUMMARY
    1  
RISK FACTORS
    11  
FORWARD-LOOKING STATEMENTS
    26  
USE OF PROCEEDS
    27  
RATIO OF EARNINGS TO FIXED CHARGES
    27  
SELECTED FINANCIAL INFORMATION
    28  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    29  
BUSINESS
    62  
MANAGEMENT
    98  
STOCKHOLDER
    103  
RELATED PARTY TRANSACTIONS
    104  
EXCHANGE OFFER
    111  
DESCRIPTION OF THE NOTES
    119  
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
    134  
PLAN OF DISTRIBUTION
    140  
LEGAL MATTERS
    141  
EXPERTS
    141  
WHERE CAN YOU FIND MORE INFORMATION
    141  
INDEX TO FINANCIAL STATEMENTS
    F-1  
APPENDIX A — FORM OF OPERATING AGREEMENT
    A-1  


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SUMMARY
      This summary contains basic information about this exchange offer. It does not contain all of the information that may be important to you in deciding to participate in the exchange offer. You should read this entire prospectus, including the financial statements and corresponding notes, before making a decision to participate in the exchange offer. As used in this prospectus, the terms “ResCap,” “the company,” “we,” “our” and “us” refer to Residential Capital Corporation and its subsidiaries as a combined entity, except in the discussion under the heading “Description of the Notes” and in other places where it is clear that the terms mean only Residential Capital Corporation. As used in this prospectus, the term “floating rate notes” refers to the Floating Rate Notes due 2007, the term “fixed-rate notes” refers to the 6.375% Notes due 2010 and the 6.875% Notes due 2015 collectively, and the term “notes” refers to the floating rate notes and fixed-rate notes, collectively.
      In this prospectus we describe our business as if it were our business for all historical periods described. However, Residential Capital Corporation is a newly formed entity that did not conduct any operations prior to the transfer of our wholly-owned subsidiaries GMAC Residential Holding Corp. and GMAC-RFC Holding Corp. to us in March 2005. We conduct our operations through four operating segments: GMAC Residential, which represents substantially all of the operations of GMAC Residential Holding, and the Residential Capital Group, Business Capital Group and International Business Group, representing substantially all of the operations of RFC Holding. References in this prospectus to our historical assets, liabilities, products, businesses or activities are generally intended to refer to the historical assets, liabilities, products, businesses or activities of GMAC Residential Holding and RFC Holding and their respective subsidiaries as they were conducted prior to their transfer to us.
Our Company
      We are a leading real estate finance company focused primarily on the residential real estate market. Our globally diversified businesses include:
  •  U.S. Residential Real Estate Finance — We are one of the largest participants in the U.S. residential real estate finance industry. We operate this business through two segments, GMAC Residential of GMAC Residential Holding and the Residential Capital Group of RFC Holding. Through these segments, we:
  —  Originate, purchase, sell and securitize residential mortgage loans throughout the United States. We are the sixth largest producer of residential mortgage loans in the United States, producing approximately $133 billion in residential mortgage loans in 2004, and the fourth largest non-agency issuer of mortgage- backed and mortgage-related asset-backed securities in the United States, issuing more than $51.0 billion of these securities in 2004. Overall, approximately 34% of our U.S. residential mortgage loan production in 2004 conformed to the underwriting standards established by Fannie Mae and Freddie Mac. We sold almost all of these mortgage loans to Fannie Mae and Freddie Mac through sales that take the form of agency-sponsored securitizations.
 
  —  Provide primary and master servicing to investors in our residential mortgage loans and securitizations. As of December 31, 2004, we were the seventh largest servicer of residential mortgage loans in the United States, with a primary servicing portfolio of approximately $304 billion.
 
  —  Provide collateralized lines of credit, which we refer to as warehouse lending facilities, to other originators of residential mortgage loans. We were the largest provider of such facilities in the United States in 2003, which is the latest date for which industry rankings are available.
 
  —  Hold a portfolio of residential mortgage loans for investment and retained interests from our securitization activities. This portfolio, which included approximately $53.1 billion in mortgage loans and retained interests as of March 31, 2005, provides us with a longer-term source of revenues.

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  —  Conduct limited banking activities through our federally chartered savings bank, GMAC Bank.
 
  —  Provide real estate closing services.
  •  Business Capital — Through our Business Capital Group, we provide financing and equity capital to residential land developers and homebuilders. We also provide financing to resort developers and healthcare-related enterprises.
 
  •  International — Through our International Business Group, we originate, purchase, sell and securitize residential mortgage loans in the United Kingdom, The Netherlands, Germany, Canada and Mexico. We also extend credit to companies involved in residential real estate development in Mexico and provide warehouse lending facilities to Mexican mortgage originators. We believe that we are the largest originator of nonprime residential mortgage loans in the United Kingdom, originating approximately $4.8 billion of such loans in 2004. We produced approximately $14 billion in residential mortgage loans outside the United States in 2004 and serviced approximately $20 billion in such loans as of March 31, 2005.
      We also provide complementary real estate services, including real estate brokerage and relocation services.
      We are a wholly-owned subsidiary of GMAC Mortgage Group, Inc., which is a wholly-owned subsidiary of General Motors Acceptance Corporation. GMAC is a wholly-owned subsidiary of General Motors Corporation.
      We employ approximately 13,600 people worldwide. Our headquarters are located at 8400 Normandale Lake Boulevard in Minneapolis, Minnesota and our telephone number is (952) 857-8700. We were incorporated in Delaware in August 2004.
Recapitalization
      Prior to the offering of the old notes, our subsidiaries funded their operations through a combination of sales and securitizations of mortgage loans and borrowings under secured and unsecured lines of credit. The lender under most of the unsecured lines of credit was GMAC. We and certain other GMAC subsidiaries were parties to a domestic line of credit with GMAC of up to $20 billion, of which our subsidiaries had borrowed approximately $8.6 billion as of March 31, 2005. In May 2005, GMAC contributed $2 billion to our capital by forgiving $2 billion of our indebtedness outstanding under the line of credit.
      Concurrently with the closing of the offering of the old notes, the domestic line of credit with GMAC was amended to remove us as a borrower, and our portion of the line of credit (and our indebtedness outstanding thereunder) was converted into:
  •  a subordinated note in an aggregate principal amount of $5 billion, maturing September 30, 2015;
 
  •  a new revolving line of credit, which ranks equally with the notes and expires in 2007, in an aggregate principal amount of up to $2.5 billion, under which we had no amounts outstanding as of the closing of the offering of the old notes; and
 
  •  a term loan in a principal amount of $1.5 billion, which ranks equally with the notes and matures in 2006.
We repaid the remaining amounts outstanding under the existing domestic GMAC line of credit with a portion of the proceeds from the offering of the old notes.
      We refer to these transactions (other than the offering of the old notes) in this prospectus as the recapitalization transactions. See “Management’s Discussion and Analysis of Financial Condition and Results — Liquidity and Capital Resources — Recapitalization” and “Related Party Transactions” for more information regarding these transactions and other transactions that we have entered into with GMAC and its affiliates.

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      We are seeking commitments from lenders to provide us with approximately $3 billion in credit facilities, which will rank equally with the notes. We anticipate that we will complete these negotiations and the credit facilities will become available to us in the third quarter of 2005. We intend to borrow sufficient amounts under the new credit facilities to repay any amounts then outstanding under the $1.5 billion term loan from GMAC.
      In connection with the recapitalization, we also entered into an operating agreement (attached to this prospectus as Appendix A) and certain other agreements with GM and GMAC at the closing of the offering of the old notes. The operating agreement requires that we have at least two independent directors, the affirmative vote of a majority of which will be required for certain actions, and restricts, among other things, our payment of dividends and our repayment of subordinated debt owed to GMAC. See “Related Party Transactions — Transactions in Connection with Our Recapitalization” for more information regarding these agreements.

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Summary of the Exchange Offer
Old Notes Floating rate notes due 2007
6.375% notes due 2010
6.875% notes due 2015
 
The old notes were issued in a transaction exempt from registration under the Securities Act of 1933 and are subject to transfer restrictions and entitled to registration rights.
 
New Notes Floating rate notes due 2007
6.375% notes due 2010
6.875% notes due 2015
 
The issuance of the new notes has been registered under the Securities Act. The form and terms of the new notes are identical in all material respects to those of the old notes, except that the transfer restrictions and registration rights provisions relating to the old notes do not apply to the new notes.
 
The Exchange Offer We are offering to issue up to:
 
• $1.0 billion of new floating rate notes due 2007 in exchange for the same principal amount of old floating rate notes due 2007,
 
• $2.5 billion of new 6.375% notes due 2010 in exchange for the same principal amount of old 6.375% notes due 2010, and
 
• $500 million of new 6.875% notes due 2015 in exchange for the same principal amount of old 6.875% notes due 2015,
 
to satisfy our obligations under the registration rights agreement that we entered into when the old notes were issued in a transaction exempt from registration under the Securities Act.
 
Tenders, Expiration Date The exchange offer will expire at 5:00 p.m., New York City time, on                     , 2005, unless extended in our sole and absolute discretion. By tendering your old notes, you represent that:
 
• you are not an “affiliate,” as defined in Rule 405 under the Securities Act;
 
• any new notes you receive in the exchange offer are being acquired by you in the ordinary course of your business;
 
• at the time of commencement of the exchange offer, neither you nor, to your knowledge, anyone receiving new notes from you, has any arrangement or understanding with any person to participate in the distribution, as defined in the Securities Act, of the new notes in violation of the Securities Act;
 
• if you are not a participating broker-dealer, you are not engaged in, and do not intend to engage in, the distribution of the new notes, as defined in the Securities Act; and
 
• if you are a broker-dealer, you will receive the new notes for your own account in exchange for old notes that were acquired by you as a result of your market-making or other trading activities and that you will deliver a prospectus in connection with any resale of the new notes you receive. For further information regarding resales of the new notes by participating

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broker-dealers, see the discussion below under the heading “Plan of Distribution.”
 
Withdrawal; Non-Acceptance You may withdraw any old notes tendered in the exchange offer at any time prior to 5:00 p.m., New York City time, on                                         , 2005. If we decide for any reason not to accept any old notes tendered for exchange, the old notes will be returned to the registered holder at our expense promptly after the expiration or termination of the exchange offer. In the case of old notes tendered by book-entry transfer into the exchange agent’s account at The Depository Trust Company, which we sometimes refer to in this prospectus as DTC, any withdrawn or unaccepted old notes will be credited to the tendering holder’s account at DTC. For further information regarding the withdrawal of tendered old notes, see the discussion below under the headings “The Exchange Offer — Terms of the Exchange Offer; Period for Tendering Old Notes” and “The Exchange Offer — Withdrawal Rights.”
 
Conditions to the Exchange Offer We are not required to accept for exchange or to issue new notes in exchange for any old notes and we may terminate or amend the exchange offer if any of the following events occur prior to our acceptance of the old notes:
 
• the exchange offer violates any applicable law or applicable interpretation of the staff of the Securities and Exchange Commission;
 
• an action or proceeding shall have been instituted or threatened in any court or by any governmental agency that might materially impair our ability to proceed with the exchange offer;
 
• we do not receive all governmental approvals that we believe are necessary to consummate the exchange offer; or
 
• there has been proposed, adopted, or enacted any law, statute, rule or regulation that, in our reasonable judgment, would materially impair our ability to consummate the exchange offer.
 
We may waive any of the above conditions in our reasonable discretion. All conditions to the exchange offer must be satisfied or waived prior to the expiration of the exchange offer. See the discussion under the heading “The Exchange Offer — Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer.
 
Procedures for Tendering Old Notes Unless you comply with the procedures described under the heading “The Exchange Offer — Guaranteed Delivery Procedures,” you must do one of the following on or prior to the expiration or termination of the exchange offer to participate in the exchange offer:
 
• tender your old notes by sending the certificates for your old notes, in proper form for transfer, a properly completed and duly executed letter of transmittal, with any required signature guarantees, and all other documents required by the letter of transmittal, to Deutsche Bank Trust Company Americas, as

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exchange agent, at the address listed below under the heading “The Exchange Offer — Exchange Agent;” or
 
• tender your old notes by using the book-entry transfer procedures described below and transmitting a properly completed and duly executed letter of transmittal, with any required signature guarantees, or an agent’s message instead of the letter of transmittal, to the exchange agent. In order for a book-entry transfer to constitute a valid tender of your old notes in the exchange offer, Deutsche Bank Trust Company Americas, as exchange agent, must receive a confirmation of book-entry transfer of your old notes into the exchange agent’s account at DTC prior to the expiration or termination of the exchange offer. For more information regarding the use of book-entry transfer procedures, including a description of the required agent’s message, see the discussion under the heading “The Exchange Offer — Book- Entry Transfers.”
 
Guaranteed Delivery Procedures If you are a registered holder of old notes and wish to tender your old notes in the exchange offer, but
 
• the old notes are not immediately available;
 
• time will not permit your old notes or other required documents to reach the exchange agent before the expiration or termination of the exchange offer; or
 
• the procedure for book-entry transfer cannot be completed prior to the expiration or termination of the exchange offer;
 
then you may tender old notes by following the procedures described under the heading “The Exchange Offer — Guaranteed Delivery Procedures.”
 
Special Procedures for Beneficial Owners If you are a beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your old notes in the exchange offer, you should promptly contact the person in whose name the old notes are registered and instruct that person to tender on your behalf. If you wish to tender in the exchange offer on your behalf, prior to completing and executing the letter of transmittal and delivering your old notes, you must either make appropriate arrangements to register ownership of the old notes in your name or obtain a properly completed bond power from the person in whose name the old notes are registered.
 
Material United States Federal Income Tax Considerations The exchange of the old notes for new notes in the exchange offer will not be a taxable transaction for United States federal income tax purposes. See the discussion under the heading “Certain U.S. Federal Income Tax Considerations” for more information regarding the United States federal income tax consequences of the exchange offer to you. You should consult your own tax advisor as to the tax consequences of the exchange to you.
 
Use of Proceeds We will not receive any cash proceeds from the exchange offer.

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Exchange Agent Deutsche Bank Trust Company Americas is serving as the exchange agent in connection with the exchange offer. You can find the address and telephone number of the exchange agent under the heading “The Exchange Offer — Exchange Agent.”
 
Resales Based on interpretations by the staff of the Securities and Exchange Commission, as set forth in interpretive letters issued to third parties, we believe that the new notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act as long as:
 
• you are acquiring the new notes in the ordinary course of your business;
 
• you are not a broker or dealer that purchased old notes from us to resell them in reliance on Rule 144A under the Securities Act or any other available exemption under the Securities Act;
 
• you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in a distribution of the new notes; and
 
• you are not an affiliate of ours.
 
If you are an affiliate of ours or are engaged in or intend to engage in or have any arrangement or understanding with any person to participate in the distribution of the new notes:
 
• you cannot rely on the applicable interpretations of the staff of the Securities and Exchange Commission; and
 
• you must comply with the registration requirements of the Securities Act in connection with any resale transaction.
 
Each broker or dealer that receives new notes for its own account in exchange for old notes that were acquired as a result of market-making or other trading activities must acknowledge that it will comply with the registration and prospectus delivery requirements of the Securities Act in connection with any offer, resale, or other transfer of the new notes issued in the exchange offer, including information with respect to any selling holder required by the Securities Act in connection with any resale of the new notes.
 
Furthermore, any broker-dealer that acquired any of its old notes directly from us must also be named as a selling noteholder in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction.
 
Broker-Dealers Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of new notes. The letter of transmittal states that by so acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes which were received by such broker-dealer as a result

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of market-making activities or other trading activities. See the discussion under the heading “Plan of Distribution” for more information.
 
Registration Rights When we issued the old notes in June 2005, we entered into a registration rights agreement with the initial purchasers of the old notes. Under the terms of the registration rights agreement, we agreed to file with the Securities and Exchange Commission and cause to become effective a registration statement relating to an offer to exchange the old notes for the new notes.
Consequences of Not Exchanging Old Notes
      If you do not exchange your old notes in the exchange offer, you will continue to be subject to the transfer restrictions described in the legend on the certificate for your old notes. In general, you may offer or sell your old notes only:
  •  if they are registered under the Securities Act and applicable state securities laws;
 
  •  if they are offered or sold under an exemption from registration under the Securities Act and applicable state securities laws; or
 
  •  if they are offered or sold in a transaction not subject to the Securities Act and applicable state securities laws.
      We do not intend to register the old notes under the Securities Act. For more information regarding the consequences of not tendering your old notes see the discussion under the heading “The Exchange Offer — Consequences of Exchanging or Failing to Exchange Old Notes.”
Summary Description of the New Notes
      The terms of the new notes and the old notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the old notes.
      The new notes will bear interest from the most recent date to which interest has been paid on the old notes or, if no interest has been paid on the old notes, from June 24, 2005, the date that the old notes were issued. Accordingly, registered holders of new notes on the relevant record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from June 24, 2005. Old notes accepted for exchange will cease to accrue interest from and after the date of consummation of the exchange offer. Holders of old notes whose old notes are accepted for exchange will not receive any payment in respect of interest on such old notes otherwise payable on any interest payment date which occurs on or after consummation of the exchange offer.

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The Notes
      The following is a brief summary of the terms of the notes. For a more complete description, see the discussion under the heading “Description of the Notes.”
Issuer Residential Capital Corporation
 
Notes Offered $1,000,000,000 aggregate principal amount of floating rate notes. $2,500,000,000 aggregate principal amount of 6.375% notes due 2010. $500,000,000 aggregate principal amount of 6.875% notes due 2015.
 
Maturity The floating rate notes will mature on June 29, 2007. The notes due 2010 will mature on June 30, 2010 unless redeemed earlier by us as described under the heading “Description of the Notes — Optional Redemption.” The notes due 2015 will mature on June 30, 2015 unless redeemed earlier by us as described under the heading “Description of the Notes — Optional Redemption.”
 
Interest Rate The floating rate notes will bear interest at a variable rate reset for each interest period based on three-month LIBOR plus 1.375% as described under the heading “Description of the Notes — Principal Amount; Maturity and Interest — Floating Rate Notes.” The notes due 2010 will bear interest at a rate of 6.375% per year. The notes due 2015 will bear interest at a rate of 6.875% per year. The interest rate applicable to the notes will adjust under the circumstances described under the headings “Description of the Notes — Principal Amount; Maturity and Interest — Interest Rate Adjustments” and “Description of the Notes — Registration Rights; Additional Interest.”
 
Interest Payment Dates We will pay interest on the floating rate notes on March 29, June 29, September 29 and December 29 each year, beginning on September 29, 2005. We will pay interest on the fixed-rate notes on June 30 and December 30 each year, beginning on December 30, 2005.
 
Optional Redemption The floating rate notes are not redeemable prior to maturity. We may redeem the fixed-rate notes, in whole at any time or in part from time to time, at our option on not less than 30 nor more than 60 days’ notice, subject to the payment of a make-whole premium, if any, as described under the heading “Description of the Notes — Optional Redemption.”
 
Guarantees Certain of our subsidiaries have unconditionally guaranteed the payment of principal, interest and premium, if any, on the notes, as described under the heading “Description of the Notes — Guarantees.”

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Ranking The notes will be our senior unsecured obligations and will rank equally with all of our existing and future unsecured and unsubordinated indebtedness. Similarly, the guarantees are the subsidiary guarantors’ senior unsecured obligations and will rank equally with all of the respective subsidiary guarantor’s other existing and future unsecured, unsubordinated obligations.
 
Additional Issues We may from time to time, without notice to or the consent of the holders of the notes, create and issue additional notes of a series ranking equally with the existing notes of that series in all respects. These additional notes may be consolidated and form a single series with the existing series of the notes and have the same terms as to status, redemption or otherwise as such series of notes.
 
Listing Application has been made to list the notes on the Euro MTF.

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RISK FACTORS
      You should carefully consider the following risk factors and all the other information contained in this prospectus before making an investment decision.
Risks Related to the Exchange Offer
You may not be able to sell your old notes if you do not exchange them for new notes in the exchange offer.
      If you do not exchange your old notes for new notes in the exchange offer, your old notes will continue to be subject to the restrictions on transfer as stated in the legend on the old notes. In general, you may not offer or sell the old notes unless they are:
  •  registered under the Securities Act;
 
  •  offered or sold pursuant to an exemption from the Securities Act and applicable state securities laws; or
 
  •  offered or sold in a transaction not subject to the Securities Act and applicable state securities laws.
      We do not intend to register the old notes under the Securities Act. In addition, holders who do not tender their old notes, except for certain instances involving the initial purchasers or holders of old notes who are not eligible to participate in the exchange offer or who do not receive freely transferable new notes pursuant to the exchange offer, will not have any further registration rights under the registration rights agreement or otherwise and will not have rights to receive additional interest.
The market for old notes may be significantly more limited after the exchange offer, which may make it more difficult for you to sell old notes and may adversely affect the price at which old notes are sold.
      If old notes are tendered and accepted for exchange pursuant to the exchange offer, the trading market for old notes that remain outstanding may be significantly more limited. As a result, the liquidity of the old notes not tendered for exchange may be adversely affected. The extent of the market for old notes and the availability of price quotations will depend upon a number of factors, including the number of holders of old notes remaining outstanding and the interest of securities firms in maintaining a market in the old notes. An issue of securities with less outstanding market value available for trading, which is called the “float,” may command a lower price than would an issue of securities with a greater float. As a result, the market price for old notes that are not exchanged in the exchange offer may be affected adversely as the exchange of old notes pursuant to the exchange offer reduces the float. The reduced float also may make the trading price of the old notes that are not exchanged more volatile.
An active trading market may not develop for the new notes, which may make it more difficult for you to sell the new notes or may adversely affect the prices at which you are able to sell your new notes.
      The new notes are new securities for which there is currently no market. We have applied to list the notes on the Euro MTF, but we do not intend to list the new notes on any other securities exchange or market. We are under no obligation to maintain the listing of the notes, and noteholders should be aware that if the maintenance of the listing of the notes becomes, in our opinion, unduly burdensome, we may delist the notes. We cannot assure you as to the liquidity of markets that may develop for the new notes, your ability to sell the new notes or the price at which you would be able to sell the new notes. If such markets were to exist, the new notes could trade at prices lower than their principal amount or purchase price depending on many factors, including prevailing interest rates and the markets for similar securities.
There are restrictions on the exchange offer and you bear the risk that your old notes may not be accepted in the exchange offer due to defaults in tenders of old notes.
      Issuance of new notes in exchange for old notes pursuant to the exchange offer will be made only after timely receipt by the exchange agent of a properly completed and duly executed letter of transmittal, or an agent’s message in lieu thereof, including all other documents required by such letter of transmittal. Therefore, holders of old notes desiring to tender such old notes in exchange for new notes should allow sufficient time to ensure timely delivery. We and the exchange agent are under no duty to give notification

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of defects or irregularities with respect to the tenders of old notes for exchange. Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See the discussion under the headings “The Exchange Offer — Resales of the New Notes” and “Plan of Distribution” for more information.
Risks Related to Our Business
Our business requires substantial capital, and if we are unable to maintain adequate financing sources our profitability and financial condition will suffer and jeopardize our ability to continue operations.
      We require substantial capital to support our operations and growth plans. Our primary sources of financing include our securitization activities, whole-loan sales, secured aggregation facilities, asset-backed commercial paper facilities, repurchase agreements and borrowings from GMAC. As of March 31, 2005, we had approximately $22 billion of liquidity commitments for asset-backed commercial paper facilities, secured aggregation facilities and repurchase agreements.
      Immediately following the restructuring transactions and the closing of the offering of the old notes, we had domestic lines of credit and term borrowings from GMAC totaling $9.0 billion and approximately $3.7 billion of credit facilities outside the United States from GMAC. We intend to replace most of our GMAC credit facilities with credit facilities from, and debt issuances to, third parties during the next several years. If we cannot maintain or replace any of our current facilities on comparable terms and conditions, we may incur substantially higher interest expense, which would reduce our profitability.
      In the past, the counterparties on some of our funding sources have relied on GMAC guarantees to support our obligations under those arrangements. We have terminated or replaced many of the GMAC guarantees with guarantees from ResCap in connection with the offering of the old notes and intend to terminate or replace the remainder of the GMAC guarantees over the next several months. If we are unable to replace these guarantees by maturity, those funding sources may not be available to us in the future.
      During volatile times in the capital and secondary markets, access to aggregation and other forms of financing, as well as access to securitization and secondary markets for the sale of our loans, has been severely constricted. If we are unable to maintain adequate financing or other sources of capital are not available, we could be forced to suspend, curtail or reduce our operations, which could harm our revenues, profitability, financial condition and business prospects.
Our earnings may decrease because of increases or decreases in interest rates.
      Our profitability may be directly affected by changes in interest rates. The following are some of the risks we face relating to an increase in interest rates:
  •  Rising interest rates generally reduce our residential mortgage loan production as borrowers become less likely to refinance and acquiring a new home becomes more expensive. Rising interest rates may also reduce demand for our other lending activities, including our warehouse lending and business capital activities. If demand for our loans decreases, our earnings may decrease.
 
  •  During periods of rising interest rates, the value and profitability of our mortgage loans may be harmed from the date of origination (or interest rate lock) or purchase commitment until the date we sell or securitize the mortgage loans. In addition, the spread between the interest we receive on our mortgage loans during this aggregation period and our funding costs may be reduced by increases in market interest rates.
 
  •  Rising interest rates will generally reduce the value of mortgage loans and retained interests held in our investment portfolio. For example, some of the interests we retain in connection with our securitizations are entitled to cash-flows that primarily represent the difference between the amount of interest collected on the underlying mortgage loans and the amount of interest payable to the holders of senior securities in the related securitization. In certain of these securitizations, the

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  underlying mortgage loans generally have fixed interest rates for the first two or three years while the interest rate payable to holders of the senior securities is generally based on an adjustable London Inter-Bank Offered Rate, or LIBOR. In other securitizations, the underlying mortgage loans have variable interest rates that are based on indices other than LIBOR while the interest rate payable to holders of securities is generally based on LIBOR. If LIBOR increases during the time that the mortgage loans are fixed, or increases at a faster rate than the rate at which the underlying loans adjust, the income and value of our retained interests from these securitizations will be reduced. This would reduce the amount of cash we receive over the life of the loans in securitizations structured as financings and from our retained interests, and could require us to reduce the carrying value of our retained interests.
 
  •  Rising interest rates will generally reduce the demand for residential real estate related services, including our brokerage, relocation and settlement services, which may reduce the income we receive from these services.

      We are also subject to risks from decreasing interest rates. For example, a significant decrease in interest rates could increase the rate at which loans are prepaid, which also could require us to write down the value of our retained interests. Moreover, if prepayments are greater than expected, the cash we receive over the life of our mortgage loans held for investment and our retained interests would be reduced. Higher-than-expected prepayments could also reduce the value of our mortgage servicing rights and, to the extent the borrower does not refinance with us, the size of our servicing portfolio. Therefore, any such changes in interest rates could harm our revenues, profitability, financial condition and business prospects.
Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates.
      We employ various economic hedging strategies to mitigate the interest rate and prepayment risk inherent in many of our assets, including our mortgage loan inventory, our mortgage servicing rights and our portfolio of mortgage loans held for investment and retained interests. We use various derivative and other financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. Our hedging activities may include entering into interest rate swaps, caps and floors, options to purchase these items, futures and forward contracts, and/or purchasing or selling U.S. Treasury securities. Our hedging decisions in the future will be determined in light of the facts and circumstances existing at the time and may differ from our current hedging strategy. Additionally, we maintain a cash margin account against some hedges, the amount of which fluctuates with changes in interest rates. Any significant change in interest rates could result in a significant margin call, which would require us to provide the counterparty with additional cash collateral. Any such margin call could harm our liquidity, profitability, financial condition and business prospects.
      We also seek to manage interest rate risk in our U.S. residential real estate finance business partially by monitoring and seeking to maintain an appropriate balance between our loan production volume and the size of our mortgage servicing portfolio. We do this because changes in interest rates can have opposite impacts on these business activities. For example, a decline in interest rates generally leads to accelerated prepayments in our mortgage servicing portfolio, which negatively affects the value of our mortgage servicing rights. However, this same decline in interest rates generally leads to an increase in the volume of our loan production and related earnings. Conversely, an increase in interest rates generally leads to a decrease in prepayments of mortgage loans we service, which positively affects the value of our mortgage servicing rights. This same interest rate increase, however, generally causes a decrease in the volume of our loan production and related earnings.
      Our hedging strategies may not be effective in mitigating the risks related to changes in interest rates. Poorly designed strategies or improperly executed transactions could actually increase our risk and losses. There have been periods, and it is likely that there will be periods in the future, during which we incur losses after accounting for our hedging strategies. The success of our interest rate risk management strategy is largely dependent on our ability to predict the earnings sensitivity of our loan servicing and loan production activities in various interest rate environments. Our hedging strategies also rely on assumptions and projections regarding our assets and general market factors. If these assumptions and projections prove

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to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates or prepayment speeds, we may incur losses that could adversely affect our profitability and financial condition.
We use estimates and various assumptions in determining the fair value of certain of our assets, and in determining our allowance for loan losses. If our estimates or assumptions prove to be incorrect, we may be required to write down the value of these assets or increase our allowance for loan losses, either of which could adversely affect our earnings and financial condition.
      We use estimates and various assumptions in determining the fair value of our mortgage servicing rights and retained interests from our securitizations, and in determining our allowance for loan losses on our portfolio of mortgage loans held for investment and our business lending receivables. As of March 31, 2005, the value on our balance sheet of our mortgage servicing rights was approximately $3.7 billion and of our retained interests was approximately $1.4 billion, and our allowance for loan losses on our mortgage loans held for investment was approximately $930.6 million and on our lending receivables was approximately $144.7 million. The value of these assets and the size of our loss allowances are functions of various estimates and assumptions we use, including delinquency, loss, prepayment speed and discount rate. It is difficult to validate our estimates and assumptions, and our actual experience may differ materially from these estimates and assumptions. A material difference between our estimates and assumptions and our actual experience may adversely affect our cash flow, profitability, financial condition and business prospects.
We remain exposed to credit risk associated with the assets held in our portfolio of mortgage loans held for investment and retained interests, and higher rates of delinquency and default rates could adversely affect our profitability and financial condition.
      We are exposed to delinquencies and losses through our portfolio of retained interests and mortgage loans held for investment. Many of the mortgage loans underlying these retained interests and the mortgage loans held for investment in our portfolio are nonprime, which generally have higher delinquency and loss rates than prime loans. Regardless of whether a mortgage loan is prime or nonprime, any delinquency interrupts the flow of projected interest income from a mortgage loan, and a default can ultimately lead to a loss if the net realizable value of the real property securing the mortgage loan is insufficient to cover the principal and interest due on the loan. Also, our cost of financing and servicing a delinquent or defaulted loan is generally higher than for a performing loan. In addition, if we experience higher-than-expected levels of delinquencies or losses in pools of mortgage loans that we service, we may lose our servicing rights, which would result in a loss of future servicing income and may damage our reputation as a loan servicer.
      We establish an allowance for loan loss on mortgage loans held for investment based on our anticipated delinquencies and losses, and seek to manage these risks with risk-based loan pricing and appropriate underwriting policies and loss mitigation strategies. Such policies may not be successful, however, and our profitability and financial condition could be adversely affected by higher-than-expected levels of delinquencies or losses.
Our profitability and financial condition could be adversely affected if the assumptions underlying our risk-based underwriting and pricing models prove to be incorrect.
      Our loan underwriting process, including our Assetwise DirectSM, Engenious® and other underwriting and pricing systems in each country and market in which we operate, depends heavily on risk-based pricing models. Because our risk-based pricing models are based primarily on standard industry loan loss data supplemented by our historical loan loss data and proprietary systems, and because the models cannot predict the effect of financial market and other economic performance factors, our risk-based pricing models may not be a complete and accurate reflection of the risks associated with our loan products. If our loan products prove to be more risky than our risk-based pricing models predict, we may have to write down the value of mortgage loans in our inventory as well as the mortgage loans and retained interests we hold in our portfolio, which could adversely affect our profitability and financial condition.

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Changes in existing U.S. government-sponsored mortgage programs, or disruptions in the secondary markets in the United States or in other countries in which we operate, could adversely affect our profitability and financial condition.
      Our ability to generate revenue through mortgage loan sales to institutional investors in the United States depends to a significant degree on programs administered by government-sponsored enterprises such as Fannie Mae, Freddie Mac, Ginnie Mae and others that facilitate the issuance of mortgage-backed securities in the secondary market. These government-sponsored enterprises play a powerful role in the residential mortgage industry and we have significant business relationships with them. Proposals are being considered in Congress and by various regulatory authorities that would affect the manner in which these government-sponsored enterprises conduct their business, including proposals to establish a new independent agency to regulate the government-sponsored enterprises, to require them to register their stock with the Securities and Exchange Commission, to reduce or limit certain business benefits that they receive from the U.S. government and to limit the size of the mortgage loan portfolios that they may hold. Any discontinuation of, or significant reduction in, the operation of these government-sponsored enterprises could adversely affect our revenues and profitability. Also, any significant adverse change in the level of activity in the secondary market or the underwriting criteria of these government-sponsored enterprises could adversely affect our business.
      We use three primary sales channels to sell our mortgage loans to the secondary market: whole-loan sales, sales to government-sponsored enterprises and securitizations. A decrease in demand from whole-loan purchasers or the government-sponsored enterprises, or for the securities issued in our securitizations, could adversely affect our revenues and profitability.
General business and economic conditions may significantly and adversely affect our revenues, profitability and financial condition.
      Our business and earnings are sensitive to general business and economic conditions in the United States and in the markets in which we operate outside the United States. These conditions include short-term and long-term interest rates, inflation, fluctuations in the debt capital markets, and the strength of national and local economies. If the rate of inflation were to increase, or if the debt capital markets or the economies of the United States or our markets outside the United States were to weaken, we could be adversely affected and it could become more expensive for us to conduct our business. For example, business and economic conditions that negatively impact household incomes or housing prices could decrease the demand for our mortgage loans and the value of the collateral underlying our portfolio of mortgage loans held for investment and retained interests, and increase the number of consumers who become delinquent or default on their mortgage loans. In addition, the rate of delinquencies, foreclosures and losses on our mortgage loans (especially our nonprime loans) could be higher during economic slowdowns. Any sustained period of increased delinquencies, foreclosures or losses could harm our ability to sell our mortgage loans, the prices we receive for our mortgage loans or the value of our portfolio of mortgage loans held for investment or retained interests, which could harm our revenues, profitability and financial condition. Further, adverse business and economic conditions could impact demand for housing, the cost of construction and other related factors that could harm the revenues and profitability of our business capital operations. For example, economic conditions that decrease demand for housing could adversely impact the success of a development project to which we have provided capital, which could adversely affect our return on that capital.
      In addition, our business and earnings are significantly affected by the fiscal and monetary policies of the U.S. government and its agencies and similar governmental authorities outside the United States. We are particularly affected by the policies of the Federal Reserve, which regulates the supply of money and credit in the United States. The Federal Reserve’s policies influence the size of the mortgage origination market, which significantly impacts the earnings of our U.S. residential real estate finance business, and, to the extent such policies affect the residential construction and development market, impacts the earnings of our business capital activities. The Federal Reserve’s policies also influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. Changes in those policies are beyond our control and difficult to predict, and could adversely affect our revenues, profitability and financial condition.

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We face intense competition that could harm our market share, revenues and profitability.
      We operate in a highly competitive industry. Competition for mortgage loans and business lending in each country in which we operate comes primarily from financial service companies, including large commercial banks and savings institutions. Many of our competitors have fewer regulatory constraints than we have. For example, national banks and federal savings and loan institutions in the United States are not subject to certain state laws and regulations targeted at so-called predatory lending practices and we could be at a competitive disadvantage with respect to legitimate nonprime lending opportunities. Some of our competitors also have lower cost structures, lower cost of capital and are less reliant on selling mortgage loans into the secondary market due to their greater portfolio lending capacity. We face competition in such areas as mortgage product offerings, rates and fees, and customer service, both at the retail and institutional level. In addition, establishing relationships with mortgage brokers requires a relatively small commitment of capital and personnel, and this low barrier to entry permits new competitors to enter our markets quickly and compete for our mortgage loan production through this channel.
      Certain government-sponsored enterprises, such as Fannie Mae and Freddie Mac, are expanding their participation in the nonprime mortgage industry. These government-sponsored enterprises have a size and cost-of-funds advantage that allows them to purchase loans with lower rates or fees than we are willing to offer. While the government-sponsored enterprises presently do not have the legal authority to originate mortgage loans, they do have the authority to buy loans. A material expansion of their involvement in the market to purchase nonprime loans could change the dynamics of the industry by virtue of their sheer size, pricing power and the inherent advantages of a government charter. In addition, if as a result of their purchasing practices, these government-sponsored enterprises experience significantly higher-than-expected losses, such experience could harm the overall investor perception of the nonprime mortgage industry.
      The internet mortgage financing industry, of which we are a part, is characterized by rapidly changing technologies, frequent new products and evolving industry standards. We may incur substantial costs to modify our services or infrastructure to adapt to these changes and to maintain and improve performance, features and reliability of our services. These technological advances and heightened internet commerce activities have also increased consumers’ accessibility to products and services generally. This has intensified competition among banking as well as non-banking companies in offering financial products and services. We may not be able to compete successfully in this changing market, which could reduce our market share and adversely impact our profitability and financial condition.
Increasing competition in the acquisition of mortgage loans from correspondent lenders in the secondary market and the origination of loans through mortgage brokers, and recent consolidation in the mortgage loan industry, may harm our profitability.
      In the United States and in several other countries in which we operate, we depend on mortgage brokers and correspondent lenders for the origination and purchase of many of our mortgage loans. These mortgage brokers have relationships with multiple lenders and are not obligated to do business with us. We compete with these lenders for the brokers’ business on pricing, service, fees, costs and other factors. Competition from other lenders and purchasers of mortgage loans could negatively affect the volume and pricing of our mortgage loans, which could harm our profitability.
      In addition, significant consolidation has occurred in recent years in the U.S. residential mortgage loan origination market. The largest 30 mortgage lenders combined had an 84% share of the residential mortgage loan origination market as of December 31, 2004, up from 61% as of December 31, 1999. Continued consolidation in the residential mortgage loan origination market may adversely impact our business in several respects, including increased pressure on pricing or a reduction in our sources of mortgage loan production if originators are purchased by our competitors, any of which could adversely impact our profitability.

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Changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect our reported revenues, profitability and financial condition.
      Our financial statements are subject to the application of U.S. generally accepted accounting principles, which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by recognized authoritative bodies, including the Financial Accounting Standards Board and the Securities and Exchange Commission. Those changes could adversely affect our reported revenues, profitability or financial condition. In addition, new or revised accounting standards may impact certain of our business lending products, which could adversely affect our profitability.
An interruption in or breach of our information systems may result in lost business, regulatory actions or litigation or otherwise harm our reputation.
      We rely heavily upon communications and information systems to conduct our business in each country and market in which we operate. Any failure or interruption of our information systems or the third-party information systems on which we rely could cause underwriting or other delays and could result in fewer loan applications being received, slower processing of applications and reduced efficiency in loan servicing. We are required to comply with significant U.S. and state regulations, as well as similar laws in other countries in which we operate, with respect to the handling of consumer information, and a breach in security of our information systems could result in regulatory action and litigation against us. If a failure, interruption or breach occurs, it may not be adequately addressed by us or the third parties on which we rely. Such a failure, interruption or breach could harm our reputation, revenues, profitability and business prospects.
The success and growth of our business may be adversely affected if we do not adapt to and implement technological changes.
      Our mortgage loan production and servicing operations are dependent upon our ability to effectively interface with our brokers, borrowers and other third parties and to produce and service the loans efficiently. These operations are becoming more dependent upon technological advancement, such as the ability to process loan applications over the internet, accept electronic payments and provide immediate status updates. To the extent that we become reliant on any particular technology or technological solution, we may be harmed if the technology or technological solution:
  •  becomes non-compliant with existing industry standards or is no longer supported by vendors;
 
  •  fails to meet or exceed the capabilities of our competitors’ corresponding technologies or technological solutions;
 
  •  becomes increasingly expensive to service, retain and update; or
 
  •  becomes subject to third-party claims of copyright or patent infringement.
Our failure to acquire necessary technologies or technological solutions could limit our ability to remain competitive and could also limit our ability to increase our cost efficiencies, which could harm our revenues and profitability.
We depend on the accuracy and completeness of information about our customers and counterparties, and inaccuracies in such information could adversely affect our profitability.
      When we originate and purchase mortgage loans, we rely heavily upon information supplied by third parties, including the information contained in the loan application, property appraisal or other indicators of property value, title information and employment and income documentation. In connection with our business lending and investment activities, including our warehouse lending activities, we also rely heavily on third-party information and assessments. If any of this information is intentionally or negligently misrepresented and the misrepresentation is not detected prior to loan funding or investment, the value of the loan or investment may be significantly less than expected. The risk is typically higher when we purchase a loan from a third-party seller. Whether a misrepresentation is made by the loan applicant, the

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mortgage broker, the correspondent lender, another third party or one of our own employees, we generally bear the risk of loss associated with the misrepresentation. A loan subject to a material misrepresentation is typically unsaleable or subject to repurchase if it is sold prior to detection of the misrepresentation. Although we may have rights against persons and entities who made or knew or should have known about the misrepresentation, it is often difficult to recover any monetary losses that we have suffered as a result of their actions.
We may be required to repurchase mortgage loans or indemnify investors if we breach representations and warranties, which could harm our profitability.
      When we sell loans through whole-loan sales or securitizations, we are required to make customary representations and warranties about the loans to the purchaser or securitization trust. Our whole-loan sale agreements generally require us to repurchase or substitute loans if we breach a representation or warranty given to the loan purchaser. In addition, we may be required to repurchase loans as a result of borrower fraud or if a payment default occurs on a mortgage loan shortly after its origination. Likewise, we are required to repurchase or substitute loans if we breach a representation or warranty in connection with our securitizations. The remedies available to a purchaser of mortgage loans may be broader than those available to us against the originating broker or correspondent lender. If a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the seller of the mortgage loan to us or the borrower. Significant repurchase activity could harm our profitability and financial condition.
Our business capital activities expose us to additional risks that may adversely affect our revenues and profitability.
      We finance residential and resort development and construction projects, and we make equity investments in residential development and construction projects. We also provide capital to homebuilders through the leasing of model homes. Our investments in and financings of these projects involve significant risks because, among other things, the projects are not complete at the time of the investment or financing. The performance of our investment or repayment of our financing is ultimately dependent on the success of the project. The success or failure of a project is dependent on a variety of factors, including:
  •  the performance and financial strength of the developer;
 
  •  development, construction and other costs of the project not exceeding original estimates;
 
  •  the ability of the project to attract creditworthy buyers;
 
  •  the project being completed on schedule, which is subject to many factors, several of which are beyond the control of the developer, such as required governmental approvals, weather, labor conditions and material shortages;
 
  •  the continued involvement of key personnel; and
 
  •  local housing demand and competition, including the strength of the local and national economy and fluctuations in interest rates.
Loans to, and investments in, these projects are considered more risky than residential mortgage loans, in part because development and construction costs are inherently difficult to determine at the commencement of a project, the loans or investments are typically larger, the construction may not be completed timely, if at all, and the underlying collateral may be less marketable. In addition, some of our loans are subordinate to more senior loans secured by the project. Our equity investments in these projects are subordinate to all debt financings to the projects. If we have made both a loan and an equity investment in a construction project, there is a risk that our loan could be further subordinated by a court and deemed to be part of our equity investment. We have established reserves in our financial statements intended to cover our exposure to loans on these projects. However, losses may exceed our reserves, which could adversely affect our profitability and financial condition.

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Our business outside the United States exposes us to additional risks that may cause our revenues and profitability to decline.
      We conduct a significant portion of our business outside the United States. In 2004, we derived approximately 8% of our revenues and 5% of our net income from our businesses in Canada, Mexico and Europe. We intend to continue to pursue growth opportunities for our businesses outside the United States, which could expose us to greater risks. The risks associated with our operations outside the United States include:
  •  multiple foreign regulatory requirements that are subject to change;
 
  •  differing local product preferences and product requirements;
 
  •  fluctuations in foreign currency exchange rates and interest rates;
 
  •  difficulty in establishing, staffing and managing foreign operations;
 
  •  differing labor regulations;
 
  •  potentially negative consequences from changes in tax laws; and
 
  •  political and economic instability.
The effects of these risks may, individually or in the aggregate, adversely affect our revenues and profitability.
A significant portion of our business is in the State of California, and our business may be significantly harmed by a slowdown in the economy or the occurrence of a natural disaster in California.
      A significant portion of the mortgage loans we originate, purchase and service are secured by properties in California. In 2004, approximately 20% of our mortgage loan production involved residential real estate in California. In addition, as of December 31, 2004, approximately 10% of our mortgage loans held for investment and approximately 20% of the mortgage loans held in our servicing portfolio are secured by properties in California. A significant portion of our warehouse lending and business capital activities are also concentrated in California. As of December 31, 2004, approximately 29% of the underlying collateral for these lending receivables was in California.
      A decline in the economy or the residential real estate market in California, or the occurrence of a natural disaster such as an earthquake or wildfire, could decrease the value of mortgaged properties in California. This, in turn, would increase the risk of delinquency, default or foreclosure on our mortgage loans held for investment, the mortgage loans that we have sold to others and the mortgage loans that serve as collateral under our warehouse loans. The occurrence of any of these events could restrict our ability to originate, sell or securitize mortgage loans, impact the repayment of advances under our warehouse loans and adversely affect our business, profitability and financial condition.
      A decline in the economy or the residential real estate market in California, or the occurrence of a natural disaster, could also undermine the demand for the construction of new homes, undermine the development of residential real estate or delay the completion or sale of residential construction and development projects. The occurrence of any of these events could adversely affect our business capital activities.
Because we are a wholly-owned subsidiary of GM, we are jointly and severally responsible with GM and its other subsidiaries for funding obligations under GM’s and its subsidiaries’ IRS qualified U.S. defined benefit pension plans. If we are required to pay some or all of those obligations, our profitability and financial condition could be materially adversely affected.
      We are, and after the offering we will remain, a wholly-owned subsidiary of GM. Pursuant to the Employee Retirement Income Security Act of 1974, or ERISA, members of the GM control group (of which we are a member) are jointly and severally liable to the Pension Benefit Guaranty Corporation for any GM IRS-qualified U.S. defined benefit pension plan (including the plans of its subsidiaries) and/or any trustee appointed if any such plan were to be terminated by the Pension Benefit Guaranty Corporation in a “distress termination.” Our liabilities under ERISA with respect to any terminated plan would be

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limited to the liabilities of the plan on such termination date, if and to the extent that any liabilities of the terminated plan are not covered by the assets of the plan. In 2002 and 2003, GM and its subsidiaries contributed a total of $23.5 billion to their IRS-qualified U.S. defined benefit pension plans in part to fund certain subsidiary ERISA minimum contribution requirements. GM and its subsidiaries were not required to make material contributions to their IRS-qualified U.S. defined benefit pension plans in 2004 and are not expected to make material contributions to those plans in 2005.
      GM’s and its subsidiaries’ future funding obligations for their IRS-qualified U.S. defined benefit pension plans depend upon, among other things, changes in the level of benefits provided for by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine minimum ERISA funding levels, actuarial assumptions and experience, and any changes in government laws and regulations. If GM or its subsidiaries are legally required to make minimum contributions to those plans in the future, those contributions could be significant. Our profitability and financial condition could be materially adversely affected if we are required to pay some or all of these obligations.
Legal and Regulatory Risks Related to Our Business
The scope of our residential mortgage loan production and servicing operations exposes us to risks of noncompliance with an increasing and inconsistent body of complex laws and regulations at the federal, state and local levels in the United States and outside the United States.
      Because we are authorized to originate, purchase and service mortgage loans in all 50 states, we must comply with the laws and regulations, as well as judicial and administrative decisions, for all of these jurisdictions, in addition to an extensive body of federal law and regulations. We similarly face an extensive body of law and regulations in the countries in which we operate outside the United States. The volume of new or modified laws and regulations has increased in recent years, and individual cities and counties in the United States have begun to enact laws that restrict certain loan origination, acquisition and servicing activities in those cities and counties. The laws and regulations within and outside the United States are different, complex and, in some cases, in direct conflict with each other. In addition, these laws and regulations often contain vague standards or requirements, which make compliance efforts challenging. As our operations continue to grow, it may be more difficult to comprehensively identify, to accurately interpret and to properly program our technology systems and effectively train our personnel with respect to all of these laws and regulations, thereby potentially increasing our exposure to the risks of noncompliance with these laws and regulations.
      Our failure to comply with these laws can lead to:
  •  civil and criminal liability:
 
  •  loss of licenses and approvals;
 
  •  damage to our reputation in the industry;
 
  •  inability to sell or securitize our loans, or otherwise raise capital;
 
  •  demands for indemnification or loan repurchases from purchasers of our loans;
 
  •  fines and penalties and litigation, including class action lawsuits;
 
  •  administrative enforcement actions; and
 
  •  claims that an allegedly non-compliant loan is rescindable or unenforceable.
In addition, allegations of our failure to comply with these laws could damage our reputation. We are currently the subject of numerous class action lawsuits relating to alleged violations of various laws and regulations. See “Business — Legal Proceedings” for more information regarding these lawsuits. An adverse result in one or more of these lawsuits could harm our results of operations, financial condition, reputation and business prospects.

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New legislation with respect to so-called predatory lending practices could restrict our ability to produce mortgage loans, which could harm our revenues and profitability.
      Several states and cities in the United States are considering or have enacted laws, regulations or ordinances aimed at curbing so-called predatory lending practices. The U.S. government is also considering legislative and regulatory proposals in this regard. In general, these proposals involve lowering the existing federal Home Ownership and Equity Protection Act thresholds for defining a “high-cost” loan, and establishing enhanced protections and remedies for borrowers who receive such loans. In addition, some of these laws and regulations provide for extensive assignee liability for warehouse lenders, whole loan buyers and securitization trusts. Because of enhanced risk, including to an entity’s reputation, many whole-loan buyers elect not to purchase any loan labeled as a “high cost” loan under any local, state or federal law or regulation. The rating agencies have also taken adverse action with respect to securitizations that include these “high-cost” loans. Accordingly, these laws and rules could severely constrict the secondary market for a portion of our loan production and effectively preclude us from continuing to originate or purchase loans that fit within the newly defined thresholds. For example, after the Georgia Fair Lending Act became effective in 2002, many lenders and secondary market buyers refused to finance or purchase Georgia mortgage loans and rating agencies refused to provide ratings for securitizations including such loans. As a result, we substantially reduced our mortgage loan production in Georgia until the law was amended a few months later. Moreover, some of our competitors that are national banks or federally chartered thrifts may not be subject to these laws and may, therefore, be able to capture market share from us and other lenders. We are not able to similarly benefit from this federal preemption because we currently conduct most of our residential real estate finance business outside of GMAC Bank. Continued enactment of such state and local laws could increase our compliance costs, reduce our fee income and lower our mortgage loan production volume, all of which could harm our revenues, profitability and financial condition.
We may be subject to fines or other penalties based upon the conduct of independent mortgage brokers through which we originate mortgage loans and lenders from which we acquire mortgage loans.
      The mortgage brokers and lenders through which we obtain mortgage loans are subject to parallel and separate legal obligations. While these laws may not explicitly hold the originating lenders responsible for the legal violations of mortgage brokers or assignees liable for the legal violations of the originating lender, federal and state agencies have increasingly sought to impose such liability on parties that take assignments of such loans. Recently, for example, the Federal Trade Commission entered into a settlement agreement with a mortgage lender where the Federal Trade Commission characterized a broker that had placed all of its loan production with a single lender as the “agent” of the lender. The Federal Trade Commission imposed a fine on the lender in part because, as “principal,” the lender was legally responsible for the mortgage broker’s unfair and deceptive acts and practices. The U.S. Department of Justice in the past has sought to hold a nonprime mortgage lender responsible for the pricing practices of its mortgage brokers, alleging that the mortgage lender was directly responsible for the total fees and charges paid by the borrower under the Fair Housing Act even if the lender neither dictated what the mortgage broker could charge nor kept the money for its own account. In addition, various regulators and plaintiffs’ lawyers have sought to hold assignees of mortgage loans liable for the alleged violations of the originating lender under theories of express or implied assignee liability. Accordingly, we may be subject to fines or other penalties based upon the conduct of our independent mortgage brokers or originating lenders.
If warehouse lenders and securitization underwriters face exposure stemming from legal violations committed by the companies to which they provide financing or underwriting services, this could increase our borrowing costs and harm the market for our whole loans and mortgage-backed securities.
      The scope of potential liability has increased for warehouse lenders and securitization underwriters because of recent legal developments. In June 2003, a California jury found a warehouse lender and securitization underwriter liable in part for fraud on consumers committed by a mortgage lender to whom it provided financing and underwriting services. The jury found that the investment bank was aware of the fraud and substantially assisted the mortgage lender in perpetrating the fraud by providing financing and

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underwriting services that allowed the lender to continue to operate, and held the investment bank liable for 10% of the plaintiff’s damages. If other courts or regulators adopt this theory, we may face increased litigation as we are named as defendants in lawsuits and regulatory actions against the mortgage companies with which we do business, which could harm our profitability and financial condition. Some investment banks may also exit the business, charge more for warehouse lending or reduce the prices they pay for whole loans in order to build in the costs of this potential litigation. This could, in turn, restrict our access to capital and harm our profitability, financial condition and business prospects.
Enhanced reporting required by the Home Mortgage Disclosure Act may lead to increased litigation, media coverage and challenges to our reputation.
      In 2002, the Federal Reserve Board adopted changes to Regulation C promulgated under the Home Mortgage Disclosure Act. Among other things, the new regulations require lenders to report the interest rate spread between the annual percentage rate on a residential mortgage loan and the yield on U.S. Treasury securities with comparable maturities if the spread equals or exceeds 3% for first lien loans and 5% for subordinate lien loans. This requirement applies to residential mortgage loans we originate, but not to loans we purchase. The expanded reporting requirement became effective in 2004 for reports filed in 2005. Many of our residential mortgage loans are subject to the expanded reporting requirements.
      The expanded reporting does not provide for additional loan information, such as credit risk, debt-to-income ratio, loan-to-value ratio, documentation level or other salient loan features. As a result, there is a risk that this information could be misinterpreted and lead to increased litigation, especially with respect to compliance with equal credit and fair lending laws. This increased reporting has also attracted media coverage, including with respect to our information, and further media coverage is likely. Any litigation or negative media coverage could adversely affect our business or reputation.
We may be forced to curtail operations in Illinois if lenders are prohibited from charging fees in excess of 3% for mortgage loans with interest rates exceeding 8%.
      In March 2004, an Illinois Court of Appeals found that the Illinois Interest Act, which caps fees at 3% for loans with an interest rate in excess of 8%, is not preempted by federal law. This ruling contradicts the view of the United States Court of Appeals for the Seventh Circuit, several state courts, prior statements by Illinois banking officials and the Illinois Attorney General, and is currently on appeal to the Illinois Supreme Court. If this ruling is not overturned, we may reduce operations in Illinois. Moreover, as a result of this ruling, several borrowers have filed actions against lenders, including us, seeking various forms of relief as a result of any fees or interest that borrowers may have allegedly paid in excess of the applicable thresholds. Any such actions, if decided against us, could harm our profitability, financial condition and business prospects. See “Business — Legal Proceedings” for more information regarding these actions.
We are no longer able to rely on the Alternative Mortgage Transactions Parity Act of 1982 to preempt certain state law restrictions on prepayment penalties, which could harm our revenues and profitability.
      The value of a mortgage loan depends, in part, upon the expected period of time that the mortgage loan will be outstanding. If a borrower prepays a mortgage loan, the holder of the mortgage loan does not realize the full value expected to be received from the loan. A prepayment penalty payable by a borrower who repays a loan earlier than expected helps offset the reduction in value resulting from the early payoff. Consequently, the value of a mortgage loan is enhanced to the extent the loan includes a prepayment penalty, and a mortgage lender can offer a lower interest rate and/or lower loan fees on a loan that has a prepayment penalty. Prepayment penalties are an important feature used to obtain value on the loans we originate.
      Some state laws restrict or prohibit prepayment penalties on mortgage loans and, until July 2003, we relied on the Alternative Mortgage Transactions Parity Act and related rules issued by the Office of Thrift Supervision, or OTS, to preempt state limitations on prepayment penalties. This Act was enacted to extend to financial institutions the federal preemption that federally chartered depository institutions enjoy. However, in September 2002 the OTS released a new rule that reduced the scope of the Act’s preemption

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and we are therefore no longer able to rely on the Act to preempt state restrictions on prepayment penalties. The elimination of this federal preemption prohibits us from charging any prepayment penalty in any state that prohibits such penalties and limits the amount or other terms and conditions in several other states. This may place us at a competitive disadvantage relative to financial institutions that will continue to enjoy federal preemption of such state restrictions. Such institutions are able to charge prepayment penalties without regard to state restrictions and, as a result, may be able to offer loans with interest rate and loan fee structures that are more attractive than the interest rate and loan fee structures that we are able to offer. This competitive disadvantage could harm our profitability and business prospects.
Risks Related to the Notes
Rating agencies may downgrade their ratings for us in the future, which may adversely affect the market price of the notes and our ability to raise capital in the debt markets at attractive rates, which could have a material adverse effect on our results of operations and financial condition.
      Each of Standard & Poor’s Rating Services, Moody’s Investors Service, Inc., Fitch, Inc. and Dominion Bond Rating Service maintains a rating on us. The notes will also be rated by these agencies. Each of these agencies currently maintains a negative outlook with respect to our ratings, and a reduction in our rating could result in our debt being rated non-investment grade. Ratings reflect the rating agencies’ opinions of our financial strength, operating performance, strategic position and ability to meet our obligations. Agency ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization. Each agency’s rating should be evaluated independently of any other agency’s rating.
      If our ratings are downgraded, it could increase the interest rates on the notes as described under the heading “Description of the Notes — Principal Amount; Maturity and Interest — Interest Rate
Adjustments” and will likely make it more expensive for us to borrow money. As a result, a decrease in our ratings may have a material adverse effect on our business, results of operations and financial condition. A decrease in our ratings could also adversely affect the trading price of the notes.
      In addition, a lowering of the debt ratings of GM or GMAC by the rating agencies that rate them would likely adversely impact our ratings, independent of any change in circumstances at ResCap. Two rating agencies have recently downgraded GM and GMAC to non-investment grade. Each of the major rating agencies that rates GM and GMAC currently maintains a negative outlook.
GM and GMAC control all fundamental matters affecting us, and their interests may differ from those of the holders of the notes.
      GMAC indirectly owns all of our outstanding common stock and has the power to elect and remove all of our directors, including the two independent directors who are required under an operating agreement to which we, GM and GMAC are a party. See “Related Party Transactions — Transactions in Connection with Our Recapitalization — Operating Agreement.” The operating agreement may be amended by the parties thereto, except for amendments that materially and adversely affect the rights of noteholders, which require the approval of a majority of the independent directors. The operating agreement may be terminated by the parties thereto provided a majority of the independent directors approve the termination. The operating agreement also terminates if we cease to be a direct or indirect subsidiary of GMAC. GMAC is also able to approve or reject any action requiring the approval of our stockholders, including the adoption of amendments to our certificate of incorporation and approvals of mergers or sales of all or substantially all of our assets. GMAC is similarly controlled by GM.
      GM and GMAC’s interests may differ from the interests of holders of the notes and, subject to the applicable provisions of the operating agreement, GM and GMAC may cause us to take actions that are materially adverse to the interests of such holders.

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If GM and/or GMAC were to become the subject of a bankruptcy proceeding and we were substantively consolidated with GM and/or GMAC, our assets would become subject to the claims of our creditors and the creditors of GM and/or GMAC, which may result in holders of the notes receiving less than they would receive if we were not substantively consolidated with GM or GMAC in a bankruptcy proceeding.
      If GM and/or GMAC were to become the subject of a bankruptcy proceeding, the bankruptcy court could disregard the separate legal existence of ResCap and “substantively consolidate” us with GM and/or GMAC. If this were to occur, our assets and the assets of GM and/or GMAC would be subject to the claims of creditors of all entities so consolidated. This would expose holders of the notes not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base.
      At the closing of the offering of the old notes, we executed an operating agreement that is intended to create some separation between GM and GMAC, on the one hand, and us, on the other. See “Related Party Transactions — Transactions in Connection with Our Recapitalization — Operating Agreement” for more information regarding the operating agreement. Although we believe that we would not be consolidated with GM and/or GMAC in a bankruptcy of GM and/or GMAC, it is a question that would be determined by the bankruptcy court in light of the circumstances existing at the time of determination. As a result, we cannot state with certainty that we would not be substantively consolidated with GM and/or GMAC in a bankruptcy proceeding.
The notes are effectively junior to ResCap’s and the subsidiary guarantors’ secured indebtedness and to the existing and future liabilities of our non-guarantor subsidiaries.
      The notes are ResCap’s unsecured obligations and will rank equally in right of payment with all of ResCap’s other existing and future unsecured, unsubordinated obligations. Similarly, the guarantees are the subsidiary guarantors’ unsecured obligations and will rank equally in right of payment with all of the respective subsidiary guarantor’s other existing and future unsecured, unsubordinated obligations. Neither the notes nor the guarantees are secured by any of ResCap’s or the subsidiary guarantors’ assets. Any future claims of secured lenders with respect to assets securing their loans will be prior to any claim of the holders of the notes with respect to those assets. As of March 31, 2005, giving effect to the recapitalization transactions and the offering of the old notes, ResCap would have had approximately $8.1 billion in indebtedness, none of which was secured; the guarantor subsidiaries would have had approximately $21.1 billion in indebtedness, $9.0 billion of which was secured; and ResCap’s non-guarantor subsidiaries would have had approximately $67.0 billion in indebtedness, $64.7 billion of which was secured.
      ResCap’s subsidiaries are separate and distinct legal entities. ResCap’s non-guarantor subsidiaries have no obligation to pay any amounts due on the notes or to provide ResCap or ResCap’s subsidiary guarantors with funds to meet their payment obligations on the notes, whether in the form of dividends, distributions, loans or other payments. In addition, any payment of dividends, loans or advances by ResCap’s subsidiaries could be subject to statutory or contractual restrictions including, in the case of GMAC Bank, the regulatory requirements described under the heading “Business — Regulation — GMAC Bank.” Payments to ResCap by its non-guarantor subsidiaries will also be contingent upon the subsidiaries’ earnings and business considerations. ResCap’s right to receive any assets of any of its non-guarantor subsidiaries upon ResCap’s bankruptcy, liquidation or reorganization, and therefore the right of the holders of the notes to participate in those assets, will be effectively subordinated to the claims of that non-guarantor subsidiary’s creditors, including trade creditors. Because of the nature of our lending and investment businesses, our subsidiaries often incur significant liabilities to those creditors. In addition, even if ResCap is a creditor of any of its non-guarantor subsidiaries, its right as a creditor would be subordinate to any security interest in the assets of its non-guarantor subsidiaries and any indebtedness of its non-guarantor subsidiaries senior to that held by ResCap.
Federal or state laws allow courts, under specific circumstances, to void debts, including guarantees, and could require holders of the notes to return payments received from us and our subsidiary guarantors.
      If creditors were to initiate a bankruptcy proceeding or lawsuit against us or our guarantor subsidiaries, the notes and the subsidiary guarantees could come under review for federal or state

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fraudulent transfer violations. Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, obligations under the notes or the subsidiary guarantees could be voided, or claims in respect of the notes or the subsidiary guarantees could be subordinated to all other debts of the debtor or subsidiary guarantors if, among other things, the debtor or subsidiary guarantors at the time the debt evidenced by such notes or subsidiary guarantees was incurred:
  •  received less than reasonably equivalent value or fair consideration for the incurrence of such debt or guarantee; and
 
  •  one of the following applies:
  —  it was insolvent or rendered insolvent by reason of such incurrence;
 
  —  it was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
 
  —  it intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
In addition, any payment by that debtor or subsidiary guarantor under the notes or subsidiary guarantee of the notes could be voided and required to be returned to the debtor or subsidiary guarantor, as the case may be, or deposited in a fund for the benefit of the creditors of the debtor or subsidiary guarantor.
      The measure of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a debtor or guarantor would be considered insolvent if:
  •  the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;
 
  •  the present fair salable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
 
  •  it could not pay its debts as they become due.
      We cannot be sure as to the standards that a court would use to determine whether or not the subsidiary guarantors were solvent at the relevant time or, regardless of the standard that the court uses, that the issuance of the guarantees of the notes would not be voided or subordinated to the subsidiary guarantors’ other debt.
      If the subsidiary guarantees were legally challenged, they could also be subject to the claim that, since they were incurred for ResCap’s benefit, and only indirectly for the benefit of the subsidiary guarantors, the obligations of the subsidiary guarantors were incurred for less than fair consideration.
      A court could thus void the obligations under the subsidiary guarantees or subordinate the subsidiary guarantees to the subsidiary guarantors’ other debt or take other action detrimental to holders of the notes.

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FORWARD-LOOKING STATEMENTS
      This prospectus contains forward-looking statements within the meaning of the federal securities laws. In some cases, you can identify these statements by our use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “intend,” “could” or similar expressions. In particular, statements regarding our plans, strategies, prospects and expectations regarding our business are forward-looking statements. You should be aware that these statements and any other forward-looking statements in this document only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond our control, and may cause actual results and performance to differ materially from our expectations. Important factors that could cause our actual results to be materially different from our expectations include the risks and uncertainties set forth in this prospectus under the heading “Risk Factors.” Accordingly, you should not place undue reliance on the forward-looking statements contained in this prospectus. These forward-looking statements speak only as of the date on which the statements were made. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS
      This exchange offer is intended to satisfy certain of our obligations under the registration rights agreement. We will not receive any cash proceeds from the issuance of the new notes. In consideration for issuing the new notes contemplated in this prospectus, we will receive and retire outstanding notes in like principal amount, the form and terms of which are the same as the form and terms of the new notes, except as otherwise described in this prospectus.
      We used approximately $2.9 billion of the net proceeds from the sale of the old notes to repay outstanding amounts remaining under the existing domestic GMAC line of credit after the recapitalization transactions. We intend to use the remaining net proceeds from the sale of the old notes for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
      The following table sets forth our ratio of earnings to fixed charges on a historical basis for the periods indicated and on a pro forma basis for the three months ended March 31, 2005 and the year ended December 31, 2004. The pro forma ratio of earnings to fixed charges assumes the transfer of our subsidiaries to us, the recapitalization transactions, the offering of the old notes and the contemplated use of the proceeds from the offering had occurred as of January 1, 2005 (with respect to the information for the three months ended March 31, 2005) and January 1, 2004 (with respect to the information for 2004). For purposes of computing the ratio of earnings to fixed charges, earnings represent income before taxes and fixed charges. Fixed charges consist of interest expense and one-third of rental expense, which we believe to be representative of the interest portion of rent expense.
                                                                 
    Three Months    
    Ended March 31,   Years Ended December 31,
         
    Pro Forma       Pro Forma    
    2005   2005   2004   2004   2003   2002   2001   2000
                                 
Ratio of earnings to fixed charges
    1.61 x     1.68 x     1.56 x     1.66 x     1.95 x     1.61 x     1.42 x     1.46 x

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SELECTED FINANCIAL INFORMATION
      The following table sets forth selected historical financial information derived from our (i) unaudited interim financial statements for the three months ended March 31, 2005 and 2004 and as of March 31, 2005, which are included elsewhere in this prospectus; (ii) audited financial statements for the years ended December 31, 2004, 2003 and 2002 and as of December 31, 2004 and 2003, which are also included elsewhere in this prospectus; and (iii) unaudited financial statements for the years ended December 31, 2001 and 2000 and as of December 31, 2002, 2001 and 2000, which are not included in this prospectus. The historical financial information presented may not be indicative of our future performance.
      The selected historical financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the corresponding notes included elsewhere in this prospectus.
                                                           
    Three Months Ended    
    March 31,   For the Years Ended December 31,
         
    2005   2004   2004   2003   2002   2001   2000
                             
    (In millions)
Statement of Income Data:
                                                       
Interest income
  $ 1,310.0     $ 1,099.2     $ 4,990.9     $ 3,482.7     $ 1,814.0     $ 1,210.9     $ 973.5  
Interest expense
    765.9       505.2       2,405.0       1,402.7       800.9       797.4       743.5  
                                           
 
Net interest income
    544.1       594.0       2,585.9       2,080.0       1,013.1       413.5       230.0  
Provision for loan losses
    155.8       183.2       842.9       453.5       231.7       124.5       46.5  
                                           
 
Net interest income after provision for loan losses
    388.3       410.8       1,743.0       1,626.5       781.4       289.0       183.5  
Gain on sale of mortgage loans, net
    329.6       202.4       696.9       1,746.3       1,543.0       1,491.8       750.4  
Servicing fees
    347.4       306.2       1,294.3       1,185.7       1,175.5       1,029.2       845.5  
Amortization and impairment of servicing rights
    (139.8 )     (316.0 )     (1,003.3 )     (2,014.9 )     (2,217.6 )     (868.3 )     (472.6 )
Servicing asset valuation and hedge gain (loss), net
    (67.9 )     130.4       214.9       507.2       685.0       (374.9 )      
                                           
 
Net servicing fees (loss)
    139.7       120.6       505.9       (322.0 )     (357.1 )     (214.0 )     372.9  
Gain (loss) on investment securities, net
    72.1       11.2       63.7       (222.8 )     (371.5 )     (309.0 )     (147.5 )
Real estate related revenues
    131.4       109.9       649.2       500.4       459.2       387.4       370.1  
Other income
    66.5       89.8       308.0       398.1       447.7       434.7       264.6  
                                           
 
Total net revenue
    1,127.6       944.7       3,966.7       3,726.5       2,502.7       2,079.9       1,794.0  
Compensation and benefits
    319.9       284.3       1,216.5       1,188.8       962.5       865.2       763.4  
Professional fees
    50.3       44.4       224.7       169.4       115.2       126.0       90.4  
Data processing and telecommunications
    49.4       46.1       191.1       189.3       199.8       197.7       143.2  
Advertising
    39.3       33.5       151.4       127.7       123.6       119.3       108.5  
Occupancy
    29.6       25.2       107.6       99.6       97.3       93.0       87.8  
Other
    110.2       121.6       465.1       585.8       496.3       330.2       247.6  
                                           
 
Total expenses
    598.7       555.1       2,356.4       2,360.6       1,994.7       1,731.4       1,440.9  
                                           
Income before income tax expense
    528.9       389.6       1,610.3       1,365.9       508.0       348.5       353.1  
Income tax expense
    207.1       154.9       642.1       509.1       199.4       188.9       141.2  
                                           
Net income
  $ 321.8     $ 234.7     $ 968.2     $ 856.8     $ 308.6     $ 159.6     $ 211.9  
                                           
                                                         
    As of March 31,   As of December 31,
         
    2005   2004   2004   2003   2002   2001   2000
                             
    (In millions)
Balance Sheet Data:
                                                       
Total assets
  $ 98,646.2     $ 85,697.6     $ 94,349.5     $ 78,559.6     $ 45,549.1     $ 27,119.2     $ 17,162.9  
Affiliate borrowings
    10,269.8       10,533.4       10,006.2       10,683.9       11,852.6       13,025.0       10,212.5  
Collateralized borrowings in securitization trusts
    49,298.6       45,469.9       50,708.5       39,415.6       12,422.8       1,196.8        
Other borrowings
    28,482.4       20,578.2       23,703.7       20,647.6       15,038.3       7,277.8       4,122.8  
Total borrowings
    88,050.8       76,581.5       84,418.4       70,747.1       39,313.7       21,499.6       14,335.3  
Stockholder’s equity
    4,757.8       3,370.3       4,365.7       3,186.0       2,374.3       1,818.1       1,453.8  

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
      You should read the following discussion together with the financial statements and the corresponding notes included elsewhere in this prospectus. The discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements, see the discussion under the headings “Risk Factors” and “Forward-Looking Statements.”
General
      We are a newly formed company that did not conduct any operations prior to the transfer of our wholly-owned subsidiaries GMAC Residential Holding and GMAC-RFC Holding to us in March 2005. References to our historical assets, liabilities, products, businesses or activities are generally intended to refer to the historical assets, liabilities, products, businesses or activities of GMAC Residential Holding and RFC Holding and their respective subsidiaries as conducted prior to their transfer to us.
      We conduct our operations and manage and report our financial information primarily through four operating business segments:
  •  GMAC Residential. Our GMAC Residential segment primarily originates, purchases, sells, securitizes and services residential mortgage loans. This segment originates residential mortgage loans through a retail branch network, direct lending centers and mortgage brokers, and also purchases residential mortgage loans from correspondent lenders. Most of the loans originated or purchased by this segment are prime credit quality loans that meet the underwriting standards of Fannie Mae or Freddie Mac. This segment also provides collateralized lines of credit to other originators of residential mortgage loans, which we refer to as warehouse lending. Our limited banking activities through GMAC Bank are included in this segment. This segment generated approximately 32% of our revenues and 29% of our net income in 2004.
 
  •  Residential Capital Group. Our Residential Capital Group originates, purchases, sells, securitizes and services residential mortgage loans. This segment originates residential mortgage loans primarily through mortgage brokers, purchases loans from correspondent lenders and other third parties and provides warehouse lending. The residential mortgage loans produced by this segment cover a broad credit spectrum and generally do not conform to the underwriting requirements of Fannie Mae or Freddie Mac. These loans are primarily securitized through the issuance of non-agency mortgage-backed and mortgage related asset-backed securities. This segment generated approximately 41% of our revenues and 50% of our net income in 2004.
 
  •  Business Capital Group. Our Business Capital Group provides financing and equity capital to residential land developers and homebuilders and financing to resort developers and healthcare-related enterprises. This segment generated approximately 8% of our revenues and 15% of our net income in 2004.
 
  •  International Business Group. Our International Business Group includes substantially all of our operations in the United Kingdom, The Netherlands, Germany, Canada and Mexico. This segment generated approximately 7% of our revenues and 5% of our net income in 2004.
      Our other business operations include our real estate brokerage and relocation business and our Mexican distressed asset business (which we sold in the first quarter of 2005), none of which is significant to our results of operations. These businesses are included with certain holding company activities and other adjustments to conform the reportable segment information to our results of operations.
Overview
      Our ability to generate income and cash flow is highly dependent on the volume of our loan production and our ability to sell or otherwise finance our loans. Our business is also dependent on the acquisition and valuation of our other financial assets, including our mortgage loans held for investment from our on-balance sheet securitizations, retained interests from our off-balance sheet securitizations, mortgage servicing rights, other mortgage loans held for investment and lending receivables.

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      Our level of mortgage loan production, and the acquisition and valuation of our other financial assets, is subject to various factors and our assessment of them. These factors include the interest rate environment, housing prices and the condition of local and national economies in which we conduct business. These factors affect our estimates of prepayments, credit losses and other items affecting expected cash flows from our assets and our related valuation of these assets as well as our ability to originate or acquire mortgage loans. As a consequence of these factors, particularly interest rates, the business of acquiring and selling mortgage loans is cyclical.
      Beginning in 2001, we initiated a strategy to address the cyclical nature inherent in the mortgage markets and generate a longer-term source of revenue. We have pursued this strategy by structuring more of our securitizations as on-balance sheet financings rather than off-balance sheet transactions, thereby growing the portfolio of mortgage loans held for investment on our balance sheet and that we pledge to securitization trusts as collateral in these financing transactions. The debt securities issued in connection with these secured financings are characterized on our balance sheet as collateralized borrowings in securitization trusts. We continue to evaluate this strategy and the amount of retained interests that we hold from our off-balance sheet securitizations in light of market conditions. As an example, as we monitor how the secondary market reacts to changing conditions, we may structure our loan sales and securitizations such that we retain no residual interests in the loans we sell if we believe the market pricing is attractive or it would assist us with our retained risk profile. We intend to grow our portfolio of mortgage loans held for investment from these on-balance sheet financings as long as market conditions are favorable to do so. We also intend to increase the portfolio of mortgage loans held for investment and related funding through our subsidiary GMAC Bank.
      We seek to mitigate interest rate risk, in part, by monitoring and seeking to maintain an appropriate balance between our mortgage loan production volume and the size of our mortgage servicing portfolio. Interest rate movements will generally have an opposite effect on loan production volume and the valuation of the mortgage servicing rights. As interest rates rise, loan production generally declines as consumers are less likely to refinance mortgage loans. Conversely, rising rates generally increase the value of mortgage servicing rights as the cash flow stream associated with the servicing will lengthen as consumers are less likely to refinance. We also use various derivative and other financial instruments to mitigate our interest rate risk.
      We are subject to varying degrees of credit risk in connection with our residual interests from off-balance sheet securitizations, our portfolio of mortgage loans held for investment (primarily held in connection with on-balance sheet securitizations) and our lending receivables. We monitor our credit risk closely as it impacts the value of these assets and we seek to mitigate this risk through our risk-based pricing, appropriate underwriting policies and loss mitigation strategies. We use detailed credit loss estimation methodologies for determining the allowance for loan losses and for input into cash flow estimates for valuing residual interests from off-balance sheet securitizations. We update our credit loss assumptions regularly to reflect our actual experience as well as current economic conditions.
      Our business is also dependent on our sources of liquidity and funding. We sell almost all of our prime conforming residential mortgage loans to Fannie Mae or Freddie Mac in the form of agency-sponsored mortgage-backed securitizations. For other loan types, we primarily use aggregation facilities and our own securitizations as funding sources.
Understanding our Financial Results
      Our financial results are significantly impacted by the structure of our securitizations as either on- or off-balance sheet and the related valuation of the assets recorded in connection with securitizations, including mortgage servicing rights. The following descriptions should assist you in understanding our financial results as they relate to these items. A complete explanation of our accounting policies and estimates can be found under the heading “— Critical Accounting Estimates” and in the notes to the financial statements included elsewhere in this prospectus.

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On- and Off-Balance Sheet Securitizations
      Securitizations that are structured as sales provide a one-time contribution to our income — or a gain on sale — when the mortgage loans and related securities are sold into the securitization trust. We refer to these transactions as “off-balance sheet” securitizations. We determine the gain on sale by allocating the carrying value of the underlying mortgage loans between loans sold and the interests retained, based on relative fair values. The gain recognized is the difference between the cash proceeds of the securitization and the allocated carrying value of the loans sold. Our estimate of the fair value of our retained interests in these off-balance sheet securitizations requires us to exercise significant judgment as to the timing and amount of future cash flows from the retained interests. We are exposed to credit risk from the underlying mortgage loans in off-balance sheet securitizations to the extent we retain subordinated interests. Changes in expected cash flows from an off-balance sheet securitization resulting from changes in expected net credit losses will impact the value of our subordinated retained interests and those changes are recorded as a component of investment gain or loss.
      In contrast, for securitizations that are structured as financings, we recognize interest income over the life of the mortgage loans held for investment and interest expense incurred for the borrowings. We refer to these transactions as on-balance sheet securitizations. The mortgage loans collateralizing the debt securities for these financings are included in mortgage loans held for investment and the debt securities payable to investors in these securitizations are included in collateralized borrowings in securitization trusts on our balance sheet. Our recorded liability to repay these borrowings will be reduced to the extent cash flows received from the securitized and pledged assets are less than the recorded liabilities due. We provide for credit losses for the mortgage loans held for investment as they are incurred by establishing or increasing an allowance for loan loss.
      Whether a securitization is on- or off-balance sheet, investors in the securities issued by the securitization trust have no recourse to our assets or to us and have no ability to require us to repurchase their securities, but rather have recourse only to the assets transferred to the trust. Whereas the accounting differences are significant, the underlying economic impact to us, over time, will be the same whether the securitization is structured on- or off-balance sheet.
Net Interest Income
      Net interest income is the difference between the interest and fees we earn on various financial assets including mortgage loans held for investment, mortgage loans held for sale, lending receivables, and trading and available for sale securities and the interest we pay on the related liabilities, including collateralized borrowings in securitization trusts, affiliate borrowings, other borrowings and deposit liabilities.
Net Servicing Fees
      We recognize net revenue related to mortgage servicing rights in the following income statement line items:
  •  Servicing fees — the income earned for servicing a loan. This includes the contractual servicing fee as well as ancillary servicing items such as late fees. Servicing fees are generally calculated as a percentage of the loan balance.
 
  •  Amortization and impairment of servicing rights — an expense item that amortizes the capitalized mortgage servicing right over the estimated life of the servicing cash flows expected to be received from servicing the mortgage loan. Impairment relates to charges taken for temporary impairment of the mortgage servicing rights.
 
  •  Servicing asset valuation and hedge gain — the income statement effect of financial instruments hedging the mortgage servicing rights for both economic and accounting hedges as well as any related fair value adjustment of the mortgage servicing rights resulting from the application of hedge accounting.

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      While we separately disclose each of the above line items on the statement of income, we also provide a net servicing fee subtotal reflecting the combination of the above items. We believe this provides a more meaningful measure when comparing changes between years.
Critical Accounting Estimates
      The preparation of financial statements in accordance with GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in the preparation of the statements. Our significant accounting policies are described in Note 2 to the audited combined financial statements included elsewhere in this prospectus.
      Accounting estimates are considered critical if the estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and if different estimates reasonably could have been used in the reporting period or changes in the accounting estimate are reasonably likely to occur from period to period that would have a material impact on our financial condition, results of operations or cash flows.
Determination of the Allowance for Loan Losses
      The allowance for loan losses is our estimate of incurred losses in our portfolio of mortgage loans held for investment and lending receivables. Lending receivables are all loans other than residential mortgage loans. We periodically perform detailed reviews of our portfolio of mortgage loans held for investment and our lending receivables portfolio to determine if impairment has occurred and to assess the adequacy of the allowance for loan losses based on historical and current trends and other factors affecting credit losses. We charge additions to the allowance for loan losses to current period earnings through the provision for loan losses. Amounts determined to be uncollectible are charged directly against (and decrease) the allowance for loan losses, while amounts recovered on previously charged-off accounts increase the allowance. We exercise significant judgment in estimating the timing, frequency and severity of losses, which could materially affect the provision for loan losses and, therefore, net income. The methodology for determining the amount of the allowance differs for our portfolio of mortgage loans held for investment and our lending receivables portfolio.
      Our portfolio of mortgage loans held for investment consists of smaller-balance, homogeneous residential mortgage loans. We divide this portfolio into several pools (based on, among other things, mortgage product type, underlying collateral and geographic location), which we evaluate for impairment. We establish the allowance for loan losses through a process that begins with estimates of incurred losses in each pool based upon various statistical analyses, including migration analysis, in which historical loss experience that we believe to be indicative of the current environment is applied to the portfolio to estimate incurred losses. In addition, we consider the overall portfolio size and other portfolio indicators such as delinquencies and credit quality, as well as general economic and business trends that we believe are relevant to estimating incurred losses.
      Our lending receivables portfolio is comprised of larger-balance, non-homogeneous mortgage loans. We evaluate these loans individually and risk-grade them based on borrower, collateral and industry-specific information that we believe is relevant to determine the likelihood of the occurrence of a loss event and to measure impairment. We establish specific allowances for lending receivables that we determine to be individually impaired. We estimate the allowance for loan losses based on the borrower’s overall financial condition, financial resources, payment history and, when appropriate, the estimated realizable value of any collateral. In addition to the specific allowances for impaired loans, we maintain allowances that are based on a collective evaluation for impairment of certain lending receivable portfolios. These allowances are based on historical loss experience, concentrations, current economic conditions and performance trends within specific geographic and portfolio segments.
Valuation of Mortgage Servicing Rights
      Mortgage servicing rights represent the capitalized value of the right to receive future cash flows from the servicing of mortgage loans. Mortgage servicing rights are a significant source of value derived from

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originating or acquiring mortgage loans. Because residential mortgage loans typically contain a prepayment option, borrowers often elect to prepay their mortgage loans by refinancing at lower rates during declining interest rate environments. When this occurs, the stream of cash flows generated from servicing the original mortgage loan is terminated. As such, the market value of mortgage servicing rights is very sensitive to changes in interest rates, and tends to decline as market interest rates decline and increase as interest rates rise.
      We capitalize mortgage servicing rights on loans that we have originated based upon the fair market value of the servicing rights associated with the underlying mortgage loans at the time the loans are sold or securitized. We capitalize purchased mortgage servicing rights at cost (which approximates the estimated fair market value of such assets). The carrying value of mortgage servicing rights is dependent upon whether the rights are hedged. We carry mortgage servicing rights that receive hedge accounting treatment at fair value. Changes in fair value are recognized in current period earnings, which are generally offset by changes in the fair value of the underlying derivative if the changes in the value of the asset and derivative are highly correlated. Mortgage servicing rights that do not receive hedge accounting treatment are carried at the lower of cost or fair value.
      GAAP requires that the value of mortgage servicing rights be determined based on market transactions for comparable servicing assets or, in the absence of representative market trade information, based on other available market evidence and modeled market expectations of the present value of future estimated net cash flows that market participants would expect to be derived from servicing. When benchmark market transaction data is not available (which is generally the case today), we rely on estimates of the timing and magnitude of cash inflows and outflows to derive an expected net cash flow stream, and then discount this stream using an appropriate market discount rate. Servicing cash flows primarily include servicing fees; interest income, or the “float,” earned on collections that are deposited in various custodial accounts between their receipt and our distribution of the funds to investors; and late fees, in each case less operating costs to service the loans. Cash flows are derived based on internal operating assumptions that we believe would be used by market participants, combined with market-based assumptions for loan prepayment rates, interest rates, required yields based on other assumptions and discount rates. We consider available information and exercise significant judgment in estimating and assuming values for key variables in the modeling and discounting process.
      We use the following key assumptions in our valuation approach:
  •  Prepayments — The most significant driver of mortgage servicing rights value is actual and anticipated portfolio prepayment behavior. Prepayment speeds represent the rate at which borrowers repay their mortgage loans prior to scheduled maturity. As interest rates rise, prepayment speeds generally slow, and as interest rates decline, prepayment speeds generally accelerate. When mortgage loans are paid or expected to be paid earlier than originally estimated, the expected future cash flows associated with servicing such loans are reduced. We primarily use third-party models to project residential mortgage loan payoffs. We measure model performance by comparing prepayment predictions against actual results at both the portfolio and product level.
 
  •  Discount rate — The mortgage servicing rights cash flows are discounted at prevailing market rates which include an appropriate risk-adjusted spread.
 
  •  Base mortgage rate — The base mortgage rate represents the current market interest rate for newly originated mortgage loans. This rate is a key component in estimating prepayment speeds of our portfolio because the difference between the current base mortgage rate and the interest rates on existing loans in our portfolio is an indication of the borrower’s likelihood to refinance.
 
  •  Cost to Service — In general, servicing cost assumptions are based on actual expenses directly related to servicing. These servicing cost assumptions are compared to market servicing costs when market information is available. Our servicing cost assumptions include expenses associated with our activities related to loans in default.
 
  •  Volatility — Volatility represents the expected rate of change of interest rates. The volatility assumption used in our valuation methodology is intended to place a band around the potential

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  interest rate movements from one period to the next. We use implied volatility assumptions in connection with the valuation of our mortgage servicing rights. Implied volatility is defined as the expected rate of change in interest rates derived from the prices at which options on interest rate swaps, or swaptions, are trading. We update our volatility assumptions monthly for the change in implied swaption volatility during the period, adjusted by the ratio of historical mortgage to swaption volatility.

      We also periodically perform a series of reasonableness tests as we deem appropriate, including the following:
  •  Review and compare recent bulk mortgage servicing right acquisition activity. We evaluate market trades for reliability and relevancy and then consider, as appropriate, our estimate of fair value of each significant deal to the traded price. Currently, there is a lack of comparable transactions between willing buyers and sellers in the bulk acquisition market, which are the best indicators of fair value. However, we continue to monitor and track market activity on an ongoing basis.
 
  •  Review and compare recent flow servicing trades. We evaluate market trades of flow transactions to compare prices on our mortgage servicing rights. Fair values of flow market transactions may differ from our fair value estimate for several reasons, including age/credit seasoning of product, perceived profit margin/discount assumed by aggregators, economy of scale benefits and cross-sell benefits.
 
  •  Review and compare fair value price/multiples. We evaluate and compare our fair value price/multiples to market fair value price/multiples quoted in external surveys produced by third parties.
 
  •  Reconcile actual monthly cash flows to projections. We reconcile actual monthly cash flows to those projected in the mortgage servicing rights valuation. Based upon the results of this reconciliation, we assess the need to modify the individual assumptions used in the valuation. This process ensures the model is calibrated to actual servicing cash flow results.
      We generally expect our valuation to be within a reasonable range of that implied by each test. If we determine our valuation has exceeded the reasonable range, we may adjust it accordingly.
      We evaluate mortgage servicing rights for impairment by stratifying our portfolio on the basis of the predominant risk characteristics (mortgage product type and interest rate). To the extent that the carrying value of an individual tranche exceeds its estimated fair value, the mortgage servicing rights asset is considered to be impaired. We recognize impairment that is considered to be temporary through the establishment of (or an increase in) a valuation allowance, with a corresponding unfavorable effect on earnings. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, we reduce the valuation allowance, with a favorable effect on earnings. If the impairment is determined to be other than temporary, the valuation allowance is reduced along with the carrying value of the mortgage servicing right.
      The assumptions used in modeling expected future cash flows of mortgage servicing rights have a significant impact on the fair value of mortgage servicing rights and potentially a corresponding impact to earnings. For example, a 10% increase in the prepayment assumptions would have negatively impacted the fair value of our mortgage servicing rights asset by $186 million, or approximately 5%, as of December 31, 2004. The calculation assumes that a change in the prepayment assumption would not impact other modeling assumptions. In reality, changes in one factor may result in changes in another, which might magnify or mitigate the sensitivities. In addition, the factors that may cause a change in the prepayment assumption may also positively or negatively impact other areas of our operations (for example, declining interest rates, while increasing prepayments, would likely have a positive impact on mortgage loan production volume and gains recognized on the sale of mortgage loans).
Valuation of Interests in Securitized Assets
      When we securitize mortgage loans in off-balance sheet transactions, we may retain an interest in the sold assets. These retained interests may take the form of mortgage-backed or mortgage-related asset-backed securities (including senior and subordinated interests), interest-only, principal-only, investment

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grade, non-investment grade or unrated securities. The subordinated interests we retain provide a form of credit enhancement for the more highly-rated securities. In addition to the interests we retain from our securitization activities, we purchase mortgage-backed securities, interest-only strips and other interests in securitized mortgage assets. As a result of these purchases, we may hold for investment (primarily with the intent to sell or securitize) mortgage-backed securities similar to those we retain in connection with our securitization activities. Interests in securitized assets, whether retained or purchased, are accounted for as investments in debt securities. Our estimate of the fair value of these interests requires us to exercise significant judgment about the timing and amount of future cash flows from these interests.
      We value interests in securitized assets on the basis of external dealer quotes, where available. External quotes are not available for a significant portion of these assets because of the relative illiquidity of such assets in the market. In these circumstances, we base valuations on internally-developed models that consider recent market transactions, experience with similar securities, current business conditions and analysis of the underlying collateral, as available.
      Estimating the fair value of these securities requires us to make certain assumptions based on current market information. The following describes the significant assumptions that could impact future cash flows, and therefore the valuation of these assets.
  •  Prepayments — Similar to mortgage servicing rights, estimated prepayment speeds significantly impact the valuation of our retained interests in securitized assets because changes in actual and expected prepayment speed may significantly change the expected cash flows from these securities. For certain securities, we are able to obtain market information from third parties to estimate prepayment speeds. In other cases, we estimate prepayment speeds based upon historical and expected future prepayment rates.
 
  •  Credit Losses — Expected credit losses on loans underlying mortgage-backed and mortgage-related asset-backed securities also significantly impact the estimated fair value of the related subordinate interests we retain. Credit losses can be impacted by many economic variables including unemployment, housing prices and other regional factors. The types of loan product and the interest rate environment are also key variables impacting our credit loss assumptions. For certain securities, market information for similar investments is available to estimate credit losses and collateral defaults (for example, dealer-quoted credit spreads). For other securities, we estimate future credit losses using internally-developed credit loss models, which generate indicative credit losses on the basis of our historical credit loss frequency and severity.
 
  •  Discount Rate — Discount rate assumptions are affected primarily by changes in the assessed risk on the sold assets or similar assets and market interest rate movements. We determine discount rate assumptions using data obtained from market participants, where available, or based on current relevant treasury rates, plus an appropriate risk-adjusted spread, based on analysis of historical spreads on similar types of securities.
 
  •  Interest Rates — Estimates of interest rates on variable- and adjustable-rate loans are based on spreads over an appropriate benchmark interest rate, usually LIBOR, using market-based yield curves. The movement in interest rates can also have a significant impact on the valuation of our retained interests.
      We include changes in the fair value of mortgage-backed and mortgage-related asset-backed securities held for trading as a component of investment gain or loss in our income statement. We include changes in the estimated fair value of mortgage-backed and mortgage-related asset-backed securities available for sale as a component of equity (other comprehensive income) in our balance sheet. If we determine that other than temporary impairment should be recognized related to mortgage-backed and mortgage-related asset-backed securities available for sale, we recognize such amounts in our income statement in the line item entitled gain on investment securities, net.
      Similar to mortgage servicing rights, changes in model assumptions can have a significant impact on the carrying value of interests in securitized assets. Note 17 to the audited combined financial statements included elsewhere in this prospectus summarizes the impact on the fair value due to a change in key

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assumptions for the significant categories of interests in securitized assets as of December 31, 2004 and 2003.
Results of Operations
Combined Results
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
      Our net income increased $87.1 million, or 37.1%, to $321.8 million for the three months ended March 31, 2005 compared to $234.7 million for the same period in 2004. This increase was primarily caused by increases in gain on sale of loans, net servicing fees, real estate related revenues and a decline in the provision for loan losses. These favorable impacts to net income were partially offset by declines in net interest income and other income and an increase in operating expenses.
      Our loan production increased to $36.4 billion for the first quarter of 2005 compared to $31.9 billion for the first quarter of 2004. This increase was a result of our increased market share. The overall mortgage origination market declined about 3% in the three months ended March 31, 2005 compared to the same period in 2004. This increase in our mortgage loan production volume contributed to the increase in the gain on sale of loans. Gain on sale of loans was $329.6 million for the three months ended March 31, 2005, an increase of $127.2 million, or 62.8%, from $202.4 million for the same period in 2004. This increase in gain on sale of loans was also due to the sale of our Mexican distressed residential real estate loan portfolio in the three months ended March 31, 2005 for a gain of approximately $63 million.
      Net interest income was $544.1 million for the three months ended March 31, 2005 compared to $594.0 million for the same period in 2004, a decrease of $49.9 million, or 8.4%. This decrease in net interest income was the result of increased competition in our nonconforming mortgage loan business, which reduced our yields on our mortgage loans held for investment. Additionally, our borrowing costs were higher in the three months ended March 31, 2005 compared to the same period in 2004 because of an increase in market interest rates. Also contributing to the decline was a reduction in our securitization activity structured as on-balance sheet financing in the 2005 period. In the three months ended March 31, 2005, we issued approximately $3.7 billion of on-balance sheet securitizations, or approximately 33% of our non-agency securitization activity in the period. In the three months ended March 31, 2004, we issued $8.8 billion of on-balance sheet securitizations.
      The provision for loan losses was $155.8 million for the three months ended March 31, 2005 compared to $183.2 million for the same period in 2004. This decrease of $27.4 million was primarily the result of the larger provision required in the three months ended March 31, 2004 due to a significant increase in domestic nonaccrual loans during such period compared to the same period in 2005. For the three months ended March 31, 2005, nonaccrual loans increased $536 million, compared to a $1.1 billion increase in same period in 2004. The increase in nonaccrual loans for both periods was the result of the credit seasoning of the portfolio. See “— Asset Quality — Allowance for Loan Losses” for a discussion of credit seasoning and further discussion of asset quality.
      Net servicing fees for the three months ended March 31, 2005 increased $19.1 million, or 15.8% to $139.7 million from $120.6 million for the same period in 2004. This increase was comprised of a $41.2 million increase in servicing fees and a $176.2 million reduction in amortization and impairment of servicing rights, which was partially offset by a $198.3 million decline in servicing asset valuation and hedge gain (loss).
      The increase in servicing fees was primarily due to the increase in the servicing portfolio. The servicing portfolio grew from $288.6 billion as of March 31, 2004 to $334.7 billion as of March 31, 2005. The decline in amortization and impairment of mortgage servicing rights and the decrease in the mortgage servicing asset valuation and hedge gain (loss) was primarily due to the impact of changes in market interest rates. Mortgage interest rates rose during the three months ended March 31, 2005 and fell during the same period in 2004. We slowed our prepayment speed assumptions in our valuation models in the three months ended March 31, 2005 to reflect the increasing market interest rate environment. This

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resulted in an increase in the expected life of the servicing cash flows, which decreased the periodic amortization and impairment of servicing rights. The overall effect on our hedge positions, however, was negatively impacted by this same movement in interest rates.
      Gain on investment securities increased by $60.9 million in the three months ended March 31, 2005 compared to the same period in 2004 primarily due to $58.8 million in valuation gains recognized during the 2005 period on our home equity and high-loan-to-value residuals, compared to a loss of $4.4 million that we recognized in the same period in 2004. These valuation gains resulted from decreasing prepayment speeds.
      Real estate related revenues increased by $21.5 million, or 19.6%, primarily due to increased investment income associated with various real estate and construction investments.
      Operating expenses increased by $43.7 million, or 7.9%, primarily due to increased compensation expense due to increases in the number of employees and incentive compensation expense as a result of the improved results.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      Our net income increased $111.4 million, or 13.0%, to $968.2 million in 2004 compared to $856.8 million in 2003. This increase was primarily caused by increases in net interest income, net servicing fees, gain on investment securities and real estate related revenues. These favorable impacts to net income were partially offset by an increase in the provision for loan losses and a reduction in the gain on sales of loans.
      In 2004, our loan production declined to $147.0 billion from the record level of $180.6 billion in 2003. Our pricing margins also declined in 2004 as market participants reduced their pricing to address lower production volumes. Our decline in production reflects the overall reduction in mortgage loan originations in the United States in 2004 primarily due to increases in interest rates. In 2004, approximately $2.8 trillion in residential mortgage loans were funded in the United States, compared to $3.8 trillion in 2003.
      Net interest income increased by $506.0 million, or 24.3%, to $2.6 billion in 2004, compared to $2.1 billion in 2003 as a result of our continued use of on-balance sheet securitizations and the corresponding overall growth in our portfolio of mortgage loans held for investment (which increased to $56.8 billion in 2004 from $45.8 billion in 2003). In 2004, we issued $28.8 billion of on-balance sheet securitizations, compared to $33.8 billion of such transactions in 2003. The decline was due to the decline in mortgage loan production but also reflected a reduction in the percentage of our securitizations structured on-balance sheet (49% in 2004 from 53% in 2003). This reduction is the result of our continuous assessment of market pricing and our retained risk profile. As of December 31, 2004, there were $50.7 billion of collateralized borrowings in securitization trusts compared to $39.4 billion as of December 31, 2003.
      The $389.4 million increase in the provision for loan losses was driven by higher estimates of incurred loan losses in our portfolio of mortgage loans held for investment. The higher estimates of incurred losses reflects both the increase in the size of this portfolio from 2003 as well as the effect of the credit seasoning of loans that were originated in prior years. See “— Asset Quality — Allowance for Loan Losses” for a discussion of credit seasoning.
      Gain from the sales of loans declined $1.0 billion, or 60.1%, through a combination of lower margins and decreased production volumes from the record levels experienced in 2003. Proceeds from sales and repayments of mortgage loans held for sale declined by $29.9 billion, or 18.8%, to $128.8 billion in 2004 compared to $158.7 billion in 2003.
      Net servicing fees increased to $505.9 million in 2004 from a net servicing fee loss of $322.0 million in 2003. Net servicing fees benefited from the increase in overall market interest rates (and the resulting decline in actual and expected prepayment activity) as our residential mortgage operations experienced

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higher servicing fee income and lower amortization and impairment of mortgage servicing rights. The carrying value of our mortgage servicing rights increased to $3.4 billion as of December 31, 2004 compared to $3.2 billion as of December 31, 2003. The related amortization and impairment of the mortgage servicing rights were $1.0 billion in 2004 compared to $2.0 billion in 2003. Servicing asset valuation and hedge gain declined by $292.3 million, or 57.6%, primarily due to the flattening of the interest rate yield curve in 2004.
      Gains on investment securities were $63.7 million in 2004 as compared to a loss of $222.8 million in 2003. This improvement of $286.5 million was primarily due to prior year valuation adjustments taken on nonprime subordinate interests related to our off-balance sheet securitizations to reflect decreased projected cash flows from our original estimates in 2003.
      Real estate related revenues increased $148.8 million, or 29.7%, due to increased investment income associated with various real estate and construction investments and increases in real estate service fees as a result of continued growth.
      Total operating expenses were $2.4 billion in 2004, unchanged from 2003 despite a reduction in loan production volume. Compensation and benefits expense was $1.2 billion in 2004 and 2003. Reductions in other expenses, primarily due to a decrease in mortgage loan processing expense of $97.8 million reflecting lower mortgage loan production, were offset by an increase in professional fees of $55.3 million due to the use of consultants to assist with information technology development and a $23.6 million increase in advertising.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
      Our net income increased $548.2 million, or 177.6%, to $856.8 million in 2003 compared to $308.6 million in 2002. This increase was primarily caused by an increase in net interest income and a higher gain on sale of loans. These favorable impacts to net income were partially offset by increased operating expenses and a higher provision for loan losses. We had record loan production of $180.6 billion in 2003, surpassing the prior record of $122.3 billion in 2002.
      Net interest income increased by $1.1 billion, or 105.3%, to $2.1 billion in 2003, compared to $1.0 billion in 2002 as a result of our increased use of on-balance sheet securitizations and the overall growth in our portfolio of mortgage loans held for investment. In 2003, we issued $33.8 billion of on-balance sheet securitizations, compared to $12.2 billion of such transactions in 2002. The increase was due to both higher loan production and a higher percentage of our securitizations being structured as on-balance sheet securitizations. As of December 31, 2003, we had $39.4 billion of collateralized borrowings in securitization trusts compared to $12.4 billion as of December 31, 2002.
      The increase in the provision for loan losses of $221.8 million in 2003 reflected increased estimates of incurred losses related to both the increase in the size of the portfolio of mortgage loans held for investment from 2002 as well as the effect of the credit seasoning of loans that were originated in prior years. See “— Asset Quality — Allowance for Loan Losses” for a discussion of credit seasoning.
      Gain from the sales of loans increased $203.3 million, or 13.2%, due to higher loan production volumes. Proceeds from sales and repayments of mortgage loans held for sale increased $42.1 billion, or 36%, to $158.7 billion in 2003, compared to $116.6 billion in 2002.
      Net servicing fee loss was slightly improved to $322.0 million in 2003 from $357.1 million in 2002. This change was due to amortization and impairment of servicing rights, which declined in 2003 by $202.7 million, or 9.1%, to $2.0 billion, compared to $2.2 billion in 2002. This decline was caused by higher market interest rates in the second half of 2003. This favorable impact was partially offset by a decline in servicing asset valuation and hedge gain of $177.8 million, or 26.0%, to $507.2 million, compared to $685.0 million in 2002. This decline was primarily due to the increase in interest rates in the second half of 2003 and the impact this had on our hedge positions. The net carrying value of mortgage servicing rights increased to $3.2 billion as of December 31, 2003, compared to $2.3 billion as of December 31, 2002. This increase reflects the inflow of record mortgage loan production that we service

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and hedge accounting valuation increases corresponding to the increase in interest rates (and resultant decline in prepayment expectations) in the second half of 2003.
      The loss on investment securities was $222.8 million in 2003, an improvement of $148.8 million from 2002. This change reflects a decrease in the value of our prime home equity and high loan-to-value interest-only securities from our off-balance sheet securitizations recorded in 2002 and the relative stabilization of the value of those assets in 2003 resulting from the increase in interest rates in the second half of 2003. This was partially offset by a decline in gains on sales of U.S. Treasury securities in 2003. In 2003, we recognized gains of $33.0 million on these sales, compared to $275.8 million in 2002.
      Operating expenses increased by $365.9 million, or 18.3%, to $2.4 billion in 2003 from $2.0 billion in 2002. This was due to an increase in compensation and benefits of $226.3 million from 2002 to 2003 reflecting increased personnel to handle higher loan production volume as well as increased incentive compensation. Professional fees increased $54.2 million in 2003 due to the use of consultants for information technology development. Other expense increased $89.5 million primarily reflecting the increase in mortgage loan processing expense due to higher loan production volumes.
Segment Results
GMAC Residential
      The following table presents results of operations for GMAC Residential:
                                         
    Three Months Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
    (In millions)
Net interest income
  $ 73.2     $ 74.3     $ 327.6     $ 385.7     $ 192.9  
Provision for loan losses
    (1.1 )     (1.5 )     2.8       (8.0 )     (17.3 )
Gain on sales of mortgage loans, net
    132.5       105.2       497.7       1,237.7       1,083.5  
Servicing fees
    234.4       207.4       867.3       835.8       894.4  
Amortization and impairment of servicing rights
    (137.7 )     (199.2 )     (775.6 )     (1,555.3 )     (1,840.1 )
Servicing asset valuation and hedge gain (loss), net
    (13.9 )     45.2       211.2       405.8       415.2  
                               
Net servicing fees (loss)
    82.8       53.4       302.9       (313.7 )     (530.5 )
Other income
    62.8       17.2       142.1       155.3       53.8  
Operating expenses
    (204.4 )     (187.6 )     (767.5 )     (891.6 )     (760.5 )
Income tax expense
    (66.6 )     (24.0 )     (225.0 )     (204.9 )     (10.7 )
                               
Net income
  $ 79.2     $ 37.0     $ 280.6     $ 360.5     $ 11.2  
                               
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
      GMAC Residential had net income of $79.2 million for the three months ended March 31, 2005 compared to $37.0 million for the same period in 2004. The $42.2 million increase in net income was primarily due to increases in gain on sales of loans, net servicing fees and other income. These items were partially offset by an increase in operating expenses.
      Loan originations in the three months ended March 31, 2005 totaled $22.3 billion, compared to $17.7 billion during the same period in 2004. Origination volume in the three months ended March 31, 2005 was positively impacted by our success growing this segment’s market share, which was 3.9% in the period, compared to 2.9% in the same period in 2004. A portion of the growth in mortgage loan production volume resulted from the acquisition of certain mortgage banking assets in September 2004. This acquisition contributed $1.2 billion in mortgage loan production volume during the period in 2005. The overall mortgage origination market declined about 3% in the three months ended March 31, 2005 compared to the same period in 2004.

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      Gain on sales of loans increased by $27.3 million, or 26.0%, in the three months ended March 31, 2005 compared to the same period in 2004. The higher gain on sale was the result of higher mortgage loan production volume during the period in 2005.
      Net servicing fees increased by $29.4 million, or 55.1%, in the three months ended March 31, 2005 compared to the same period in 2004. This increase was the result of higher servicing fees of $27.0 million and a decline in amortization and impairment of servicing rights of $61.5 million in the period in 2005 compared to the same period in 2004, offset by the decreased servicing asset valuation and hedge gain of $59.1 million.
      The increase in servicing fees reflects the growth in this segment’s servicing portfolio in the three months ended March 31, 2005 compared to the same period in 2004. The mortgage loan servicing portfolio grew from $195.4 billion as of March 31, 2004 to $228.0 billion as of March 31, 2005.
      An increase in market interest rates in 2005 was the primary contributor to the change in the value of the mortgage servicing rights and associated derivative hedge instruments during the quarter ended March 31, 2005. The average interest rate on a 30-year mortgage increased by 30 basis points during the three months ended March 31, 2005 compared to a 43 basis point decrease during the same period in 2004. As rates increased in 2005, projected prepayments decreased resulting in a reduction in the amortization rates applied to the mortgage servicing rights portfolio. The increase in interest rates also decreased the average borrower’s refinance incentive and therefore decreased actual portfolio prepayments which contributed to the increase in the value of the mortgage servicing rights. The overall effect on our hedge positions, however, was negatively impacted by the increase in market interest rates during the three months ended March 31, 2005.
      Other income improved by $45.6 million primarily due to securities gains of $42.8 million in the three months ended March 31, 2005, compared to securities losses of $5.8 million in the same period in 2004. This improvement was primarily due to $58.8 million in valuation gains recognized during the period in 2005 on our investment in home equity and high-loan-to-value residuals, compared to losses of $4.4 million recognized during the same period in 2004. These valuation gains resulted from decreasing prepayment speeds.
      Operating expenses increased by $16.8 million, or 9.0%, in the three months ended March 31, 2005 compared to the same period in 2004. This increase was primarily due to an increase in compensation expense as both headcount and incentive compensation expense increased compared to the same period in 2004. The increase in incentive compensation reflects the increased originations and overall profitability during the three months ended March 31, 2005 compared to the same period in 2004.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      Net income in 2004 was $280.6 million, compared to $360.5 million in 2003. Loan production volume in 2004 declined 24% to $87.5 billion, compared to $114.5 billion in 2003. Loan production volume in 2004 was negatively impacted by a decline in mortgage refinance transactions as mortgage interest rates began to increase from the levels observed in 2003. The decline in loan production volume drove a reduction in the gain on sales of loans, which was partially offset by an increase in net servicing fees and other income.
      Net interest income declined $58.1 million, or 15.1%, in 2004 primarily due to the decrease in origination activity, which resulted in a decrease in our portfolio of mortgage loans held for sale. The net interest income for this segment is primarily earned from mortgage loans held for sale as substantially all of the loan production volume is sold and not retained on the balance sheet. This was partially offset by an increase in our mortgage loans held for investment and lending receivables portfolio for this segment of $798.2 million from 2003 to 2004.
      The $740.0 million, or 59.8%, decline in gain on sales of loans in 2004 was primarily due to decreased production of mortgage loans combined with lower margins achieved on their sale. Mortgage loan production volume was $87.5 billion in 2004, compared to $114.5 billion in 2003.

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      Net servicing fees increased to $302.9 million in 2004 from a loss of $313.7 million in 2003. Net servicing fees increased primarily due to a 50.1% decline in amortization and impairment of servicing rights resulting from lower prepayment speeds due to increases in market interest rates. This favorable impact was partially offset by a decline in servicing asset valuation and hedge gain of $194.6 million, or 48.0%, in 2004. In both 2004 and 2003, a large portion of our hedge position was comprised of interest rate swaps in which we received fixed rates and paid floating rates. In 2003, we recognized additional benefits from these positions as short term interest rates did not increase as fast as expected by the market. In 2004, these positions were less beneficial due to the yield curve flattening more in line with market expectations. Additionally, other derivative gains increased $72 million. Other derivative gains or losses are attributable to derivatives that are no longer designated as hedges.
      Operating expenses declined by $124.1 million, or 13.9%, in 2004, primarily due to a reduction in mortgage loan processing expenses of $93.3 million. This decline in mortgage loan processing expenses was attributable to the decline in loan production volume, which was partially offset by a $22.6 million increase in advertising.
      Income tax expense increased by $20.1 million in 2004. This increase occurred despite a $59.8 million decline in income before income tax expense as compared to 2003 and resulted in an effective tax rate of 44.5% in 2004, compared to 36.2% in 2003. The increase was primarily the result of a $25.0 million increase in state income taxes net of federal tax benefit due to limitations on the deductibility of certain losses and a $13.5 million benefit in 2003 due to a settlement with a local taxing authority.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
      Net income in 2003 was $360.5 million, compared to $11.2 million in 2002. The increase was caused primarily by an increase in net interest income, larger gains on sales of mortgage loans related to increased loan production volume and a decrease in the net servicing fee loss. These increases were partially offset by higher operating expenses.
      Net interest income increased by $192.8 million, or 99.9%, in 2003 primarily due to the increase in loan production volume, resulting in growth in our portfolio of mortgage loans held for sale. Loan production increased to $114.5 billion in 2003 from $71.6 billion in 2002, an increase of 59.9%. Gain on sales of mortgage loans increased in 2003 by $154.2 million, or 14.2%, due to increased loan production volume.
      Net servicing fee loss declined to $313.7 million in 2003 from $530.5 million in 2002. The reduced loss was primarily due to a $284.8 million decrease in amortization and impairment of servicing rights resulting from decreasing prepayment speeds to reflect market interest rate conditions in the second half of 2003 as compared to 2002. This favorable impact was partially offset by the decline in service fees of $58.6 million resulting from prepayments in 2003 impacting loans with higher than average servicing fee rates. In 2003, the average servicing rate declined by 2 basis points. Also in 2003, Ginnie Mae reduced the service fee rate on certain pools from 0.44% to 0.19%.
      Other income increased by $101.5 million, or 188.7%, in 2003. This increase reflects a decrease recorded in 2002 in the value of our prime home equity and high loan-to-value interest-only securities from our off-balance sheet securitizations and the value of these assets stabilizing in 2003 resulting from the increase in interest rates in the second half of 2003. This was partially offset by a decline in gains on sales of U.S. Treasury securities in 2003. In 2003, we recognized gains of $33.0 million on these sales, compared to $275.8 million in 2002.
      Operating expenses increased by $131.1 million, or 17.2% primarily due to increases in compensation expense reflecting higher headcount and incentive compensation due to the increased loan production volume and profitability. Mortgage loan processing expense also increased reflecting the higher loan production volume.

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Residential Capital Group
      The following table presents the results of operations for Residential Capital Group:
                                         
    Three Months Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
    (In millions)
Net interest income
  $ 416.1     $ 484.6     $ 2,050.2     $ 1,581.6     $ 778.2  
Provision for loan losses
    (148.4 )     (175.4 )     (820.0 )     (380.3 )     (193.2 )
Gain on sales of mortgage loans, net
    65.6       50.7       6.7       358.9       389.6  
Servicing fees
    109.5       100.5       412.5       352.5       276.0  
Amortization and impairment of servicing rights
    (5.3 )     (115.5 )     (233.5 )     (455.5 )     (377.6 )
Servicing asset valuation and hedge gain (loss), net
    (54.0 )     85.2       3.7       101.5       269.8  
                               
Net servicing fees (loss)
    50.2       70.2       182.7       (1.5 )     168.2  
Other income
    76.9       55.3       216.7       (27.9 )     (23.7 )
Operating expenses
    (214.7 )     (201.9 )     (844.6 )     (787.0 )     (646.9 )
Income tax expense
    (94.2 )     (108.4 )     (302.8 )     (284.5 )     (181.7 )
                               
Net income
  $ 151.5     $ 175.1     $ 488.9     $ 459.3     $ 290.5  
                               
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
      Residential Capital Group’s net income for the three months ended March 31, 2005 was $151.5 million, compared to $175.1 million for the same period in 2004. The decrease was primarily caused by declines in net interest income and other income partially offset by increases in the gain on sales of mortgage loans, net servicing fees and a decline in the provision for loan losses.
      Net interest income declined $68.5 million, or 14.1%, in 2005 compared to 2004. This decline was due to increased competition in our nonconforming mortgage loan purchase and securitization activities. Increased competition in the secondary market and the resultant higher prices reduced the yield of our mortgage loans purchased during 2004 that we held in our portfolio of mortgage loans held for investment resulting from on-balance sheet securitizations. In addition, our borrowing costs were higher in the period in 2005 compared to the same period in 2004 because of the increase in interest rates.
      Gain on sales of mortgage loans increased $14.9 million, or 29.4%, in the three months ended March 31, 2005, primarily due to our completion of more off-balance sheet securitizations in the three months ended March 31, 2005 compared to the same period in 2004. For the three months ended March 31, 2005, the total volume of off-balance sheet securitizations was $6.1 billion, compared to $2.9 billion for the same period in 2004. We continually monitor market conditions in determining whether to issue on- or off-balance sheet securitizations. In the three months ended March 31, 2005, market conditions were more favorable to off-balance sheet securitizations and the sale of the related subordinated retained interests.
      The provision for loan losses declined $27.0 million, or 15.4%, in the three months ended March 31, 2005 to $148.4 million from $175.4 million for the same period in 2004. This decrease was primarily the result of a larger provision required in the period in 2004 due to a significant increase in domestic nonaccrual loans for the three months ended March 31, 2004 when compared to the same period in 2005. This increase in nonaccrual loans was the result of the credit seasoning of the portfolio.
      Net servicing fees were $50.2 million for the three months ended March 31, 2005, a decrease of $20.0 million from the same period in 2004. Servicing fees for the three months ended March 31, 2005 increased $9.0 million due to the growth in the mortgage servicing portfolio from the same period in 2004. The mortgage loan servicing portfolio was $87.3 billion as of March 31, 2005, an increase of $6.4 billion from March 31, 2004. Amortization and impairment of servicing rights declined by $110.2 million, or 95.4%, in the three months ended March 31, 2005 primarily due to slower prepayment assumptions

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resulting from the increase in interest rates. This increase in interest rates also led to a decline of $139.2 million in servicing asset valuation and hedge gain, from an $85.2 million gain for the period ended March 31, 2004 to a $54.0 million loss for the period ended March 31, 2005.
      Other income increased $21.6 million, or 39.1%, primarily due to an increase in the valuation of residual interests and interest-only strips due to slower prepayment speeds in the three months ended March 31, 2005 compared to the same period in 2004.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      Net income in 2004 was $488.9 million, compared to $459.3 million in 2003. The increase was primarily caused by increases in net interest income, other income and net servicing fees. These increases were largely offset by an increase in the provision for loan losses, a decline in the gain on sale of loans and an increase in operating expenses.
      Net interest income increased $468.6 million, or 29.6%, in 2004 primarily due to the growth in our portfolio of mortgage loans held for investment related to securitizations structured as on-balance sheet financings. As of December 31, 2004, we had $50.7 billion of collateralized borrowings in securitization trusts, compared to $39.4 billion as of December 31, 2003.
      The provision for loan losses increased $439.7 million, or 115.6%, in 2004. The increase in the provision for loan losses was driven by higher estimates of incurred loan losses in our portfolio of mortgage loans held for investment. The higher estimate of incurred losses reflected both the overall growth of this portfolio as well as the effect of the credit seasoning of loans that were originated in prior years.
      The $352.2 million, or 98.1%, decline in gain on sales of loans in 2004 was primarily due to the continued strategy to execute a significant portion of securitizations as on-balance sheet financings. Additionally, decreased loan production volume contributed to the decline.
      Net servicing fees increased to $182.7 million in 2004 from a net servicing fee loss of $1.5 million in 2003. The increase in net servicing fees resulted from a $60.0 million increase in servicing fees and a $222.0 million decrease in amortization and impairment of servicing rights, partially offset by a $97.8 million reduction in servicing asset valuation and hedge gain. Servicing fees increased due to the growth of our servicing portfolio. As of December 31, 2004, the primary servicing portfolio increased $8.1 billion, or 10.4% to $86.5 billion, compared to $78.4 billion as of December 31, 2003. The reduction in amortization and impairment of servicing rights was primarily due to slower prepayment speeds resulting from higher interest rates in 2004. The decline in the hedge gain was primarily due to increases in interest rates in 2004 compared to 2003 and the resulting impact of those increases on our hedge position.
      Other income increased by $244.6 million in 2004 primarily due to a $314.9 million reduction in the net loss on investment securities. This reduction was primarily due to valuation adjustments taken on certain of our nonprime subordinate interests in 2003 due to decreased projected cash flows from our original estimates as of December 31, 2002.
      Operating expenses increased by $57.6 million, or 7.3%, in 2004 primarily due to higher compensation expense from an increase in personnel and increased professional fees. The increase in professional fees was primarily due to the use of consultants for information technology development projects.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
      Net income in 2003 was $459.3 million, compared to $290.5 million in 2002. The increase was primarily caused by an increase in net interest income due to growth in our portfolio of mortgage loans held for investment reflecting our increased use of securitizations structured as on-balance sheet financings rather than as sales. This increase was partially offset by an increase in the provision for loan losses, a reduction in net servicing fees and an increase in operating expenses.
      Net interest income increased by $803.4 million, or 103.2%, in 2003. This increase was due to the low interest rate environment in 2003 that resulted in loan production and securitization volume reaching

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record highs. We continued to grow the size of our portfolio of mortgage loans held for investment by increasing the number of securitization transactions we structured as on-balance sheet financings. In 2003, we structured $33.8 billion of securitizations as on-balance sheet financings compared to $12.2 billion in 2002. The percentage of securitizations structured as on-balance sheet financings increased to approximately 50% in 2003 compared to approximately 25% in 2002.
      The provision for loan losses increased by $187.1 million, or 96.8%, in 2003. The increase in the provision for loan losses was driven by higher estimates of incurred loan losses in our portfolio of mortgage loan held for investment. The higher estimates of incurred losses reflected both the growth of this portfolio from 2002 as well as the effect of the credit seasoning of loans that were originated in prior years.
      Net servicing fees declined to a loss of $1.5 million in 2003 from income of $168.2 million in 2002. This reduction was due to higher amortization and impairment of servicing rights in 2003 and our hedge position having a larger positive impact in 2002. Amortization and impairment of servicing rights increased by $77.9 million in 2003 compared to 2002 primarily due to the growth of the size of the servicing portfolio. Our mortgage loan servicing portfolio was $78.4 billion as of December 31, 2003, an increase of $14.9 billion from December 31, 2002. The $168.3 million larger positive impact of our hedge position in 2002 compared to 2003 reflected the continuous decline in interest rates during 2002 as compared to 2003. Both of these negative effects were partially offset by an increase in servicing fees of $76.5 million in 2003 due to an increase in the size of our servicing portfolio.
      Operating expenses increased $140.1 million, or 21.7%. This was attributable to increased compensation from increased number of personnel and higher incentive compensation. Professional fees also increased due to the use of consultants for information technology development expenses.
Business Capital Group
      The following table presents the results of operations for the Business Capital Group:
                                         
    Three Months            
    Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
    (In millions)
Net interest income
  $ 37.2     $ 21.7     $ 124.2     $ 81.2     $ 50.2  
Provision for loan losses
    (7.5 )     (5.2 )     (21.0 )     (62.6 )     (19.9 )
Other income
    50.1       42.7       208.8       136.0       101.9  
Operating expenses
    (17.2 )     (14.0 )     (71.8 )     (54.7 )     (38.6 )
Income tax expense
    (24.0 )     (17.3 )     (91.9 )     (38.2 )     (36.0 )
                               
Net income
  $ 38.6     $ 27.9     $ 148.3     $ 61.7     $ 57.6  
                               
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
      Business Capital Group’s net income for the three months ended March 31, 2005 was $38.6 million, compared to $27.9 million for the same period in 2004. The increase was primarily caused by increases in net interest income and real estate related revenues.
      Net interest income increased by $15.5 million, or 71.4%, in the three months ended March 31, 2005. This increase was primarily due to the growth of lending receivables. As of March 31, 2005, lending receivables increased by $983.4 million, or 42.1%, compared to March 31, 2004. This growth came primarily from asset growth in residential construction and resort finance lending receivables.
      Real estate related revenues increased by $15.0 million, or 47.1%, in the three months ended March 31, 2005. This increase was primarily due to a $293.3 million increase in our real estate owned portfolio. This portfolio consists of model homes and residential land lots that we hold and lease to residential builders. Other income generated from this portfolio increased by $9.6 million from the period in 2004 to the same period in 2005. In addition, other income from real estate related equity investments

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increased by $5.3 million from the three months ended March 31, 2004 to the same period in 2005. Both of these items are included in other income in the table above.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      Net income in 2004 was $148.3 million, compared to $61.7 million in 2003. The increase was primarily caused by increases in net interest income and other income and a reduction in the provision for loan losses. These items were partially offset by an increase in operating expenses.
      Net interest income increased by $43.0 million, or 53.0%, in 2004. This increase was primarily due to the growth of lending receivables. Lending receivables increased by $1.1 billion in 2004, or 55.2%, from 2003. This growth came from the consolidation of a previously non-consolidated entity that is used as an aggregation facility for certain of our lending receivables. We are now required to consolidate this entity under GAAP due to a restructuring of this facility. The growth also reflects increases in our construction and resort lending portfolios. The favorable impact to net interest income was partially offset by increases in our cost of borrowings.
      The provision for loan losses declined by $41.6 million, or 66.5%, in 2004. This decline was primarily due to the stabilization of credit risk on certain loans in the portfolio.
      Other income increased by $72.8 million, or 53.5%, in 2004. This increase was primarily due to an increase in income from an equity investment in a homebuilder.
      Operating expenses increased by $17.1 million, or 31.3%, in 2004. This increase was primarily due to increased compensation expense, including incentive compensation, due to the increased size and profitability of the business.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
      Net income in 2003 was $61.7 million, compared to $57.6 million in 2002. The increase was primarily due to increases in net interest income and other income. These items were partially offset by increases in the provision for loan losses and operating expenses.
      Net interest income increased by $31.0 million, or 61.8%, in 2003. This increase was primarily due to the growth of lending receivables. Lending receivables increased by $601.3 million in 2003, or 43.6%, from 2002. The majority of this receivables growth came from our resort finance business which increased by $317.8 million and our health capital business which increased by $147.1 million. The first full year of operation for the resort finance business was 2003.
      In 2003, the provision for loan losses increased by $42.7 million from 2002. This increase was primarily due to deterioration of credit quality in certain specific lending receivables as well as increased allowances for other receivables due to updated loss estimates.
      Other income increased by $34.1 million, or 33.5%, in 2003. This increase was primarily due to an increase in investment income from various projects and partnerships.
      Operating expenses increased by $16.1 million, or 41.7%, in 2003. This increase was primarily due to increased compensation expense, including incentive compensation, due to the increased size and profitability of the business.

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International Business Group
      The following table presents the results of operations for International Business Group:
                                         
    Three Months            
    Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
    (In millions)
Net interest income
  $ 23.5     $ 19.1     $ 105.5     $ 52.3     $ 17.6  
Provision for loan losses
    1.3       (1.0 )     (4.5 )     (2.2 )     (1.1 )
Gain on sales of mortgage loans, net
    67.1       42.3       196.8       118.2       70.5  
Servicing fees
    2.8       (2.6 )     8.6       (4.0 )     6.5  
Amortization and impairment of servicing rights
    0.3       0.1       0.5       0.1        
Servicing asset valuation and hedge gain, net
                             
                               
Net servicing fees (loss)
    3.1       (2.5 )     9.1       (3.9 )     6.5  
Other income
    (4.1 )     2.5       (29.0 )     11.9       29.9  
Operating expenses
    (58.4 )     (44.1 )     (200.5 )     (138.6 )     (102.2 )
Income tax expense
    (9.9 )     (3.5 )     (26.1 )     (13.7 )     (8.7 )
                               
Net income
  $ 22.6     $ 12.8     $ 51.3     $ 24.0     $ 12.5  
                               
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
      Net income for the three months ended March 31, 2005 was $22.6 million, compared to $12.8 million for the same period in 2004. The increase was primarily caused by an increase in the gain on sale of loans, which was partially offset by an increase in operating expenses.
      Gain on sale of mortgage loans increased by $24.8 million, or 58.6%, in the three months ended March 31, 2005 compared to the same period in 2004. This increase was primarily due to increased off-balance sheet securitizations and the impact of hedging activities related to mortgage loans held for sale. In the period in 2005, $1.6 billion of loans were sold through off-balance sheet securitizations compared to $1.4 billion in the same period in 2004.
      Operating expenses increased by $14.3 million, or 32.4%, in the three months ended March 31, 2005 compared to the same period in 2004. This increase was primarily due to higher compensation expense due to an increase in headcount and an increase in incentive compensation due to improved operating results.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      Net income in 2004 was $51.3 million, compared to $24.0 million in 2003. The increase was primarily due to increases in net interest income and gain on sales of loans. These items were partially offset by an increase in operating expenses and a decline in other income.
      Net interest income increased by $53.2 million, or 101.7%, in 2004. This increase was primarily due to the growth of our portfolio of mortgage loans held for investment in the United Kingdom. We structured one $900.5 million securitization in September 2004 as an on-balance sheet financing. In September and December 2003, we structured two of our securitizations in the United Kingdom as on-balance sheet financings totaling $1.7 billion. Prior to September 2003, all securitizations in this segment had been structured as off-balance sheet transactions.
      Gain on sales of loans increased by $78.6 million, or 66.5%, in 2004. The majority of this increase occurred in the United Kingdom and was primarily due to increased loan production volume in 2004. In the United Kingdom, total loans sold increased by $4.8 billion, or 83%, to $10.6 billion in 2004, compared to $5.8 billion in 2003. The increase in loan production was primarily the result of favorable interest rates and housing price appreciation.

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      Other income declined by $40.9 million in 2004. This decline was primarily due to a decline in the fair value of residual interests from our off-balance sheet securitizations due to increased prepayment speeds.
      Operating expenses increased by $61.9 million, or 44.7%, in 2004. This increase was primarily due to increased compensation expense including incentive compensation, due to the increased size and profitability of the business.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
      Net income in 2003 was $24.0 million, compared to $12.5 million in 2003. The increase was primarily caused by increases in net interest income and gain on sales of loans. These items were partially offset by an increase in operating expenses and a decline in other income.
      Net interest income increased by $34.7 million, or 197.2%, in 2003. This increase was primarily due to the growth of mortgage loans held for investment in the United Kingdom and an increase in the yield on these loans. In September and December 2003, we structured two of our securitizations in the United Kingdom as on-balance sheet financings totaling $1.7 billion. Prior to September 2003, all securitizations in this segment had been structured as off-balance sheet transactions.
      Gain on sales of loans increased by $47.7 million, or 67.7%, in 2003. This was due to increases in gains on sale of loans in the United Kingdom resulting from increased loan production volume in 2003. In the United Kingdom, total loans sold increased by $1.9 billion, or 49%, to $5.8 billion in 2003, compared to $3.9 billion in 2002. Additionally, the gain on sale of loans in continental Europe increased to $24.5 million in 2003 as loan originations doubled in The Netherlands to $1.2 billion in 2003.
      Other income declined by $18.0 million in 2003. This decline was primarily due to declines in the fair value of residual interests retained from our off-balance sheet securitizations due to increased prepayment speeds.
      Operating expenses increased by $36.4 million, or 35.6%, in 2003. This increase was primarily due to increased compensation expense, including incentive compensation, reflecting the increased size and profitability of the business.
Corporate and Other
      The following table presents the results of operations for Corporate and Other:
                                         
    Three Months Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
    (In millions)
Net interest expense
  $ (5.9 )   $ (5.8 )   $ (21.6 )   $ (20.8 )   $ (25.7 )
Provision for loan losses
    (0.2 )     (0.1 )     (0.2 )     (0.4 )     (0.2 )
Gain (loss) on sales of loans
    64.0       3.7       (5.9 )     30.3       (0.4 )
Servicing fees
    1.2       1.3       7.6       2.7       (1.7 )
Mortgage servicing rights amortization and impairment
    2.9       (1.3 )     5.3       (4.2 )      
                               
Net servicing fees (loss)
    4.1             12.9       (1.5 )     (1.7 )
Other income
    84.2       93.4       482.3       400.2       373.7  
Operating expenses
    (103.9 )     (107.5 )     (472.0 )     (488.7 )     (446.6 )
Income tax expense (benefit)
    (12.5 )     (1.7 )     3.6       32.2       37.7  
                               
Net income (loss)
  $ 29.8     $ (18.0 )   $ (0.9 )   $ (48.7 )   $ (63.2 )
                               
      Corporate and Other represents our business operations outside of our four reportable operating segments and includes our real estate brokerage and relocation business and our Mexican distressed asset business, none of which is significant to our results of operations. Corporate and Other also includes

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certain holding company activities and other adjustments to conform the reportable segment information to our results of operations.
      Other income and operating expenses includes the revenues and expenses of our real estate brokerage and relocation business. A significant portion of other income is comprised of the gross commissions we earn on our real estate brokerage business and a significant portion of other expenses is comprised of the commissions due to the individual real estate brokers involved in the transactions. Our net income from these activities is not significant. Operating expenses also include compensation–related expenses at RFC Holding and not pushed down to the business segments for management reporting purposes. These compensation-related expenses primarily relate to long-term incentive compensation programs. By their nature, these expenses will vary and are dependent upon the profitability of the business. In 2004, we reduced a $23.0 million accrual for certain long-term compensation programs due to changes in estimates. Additionally, in 2003, we made a $20.0 million charitable contribution, which increased operating expenses.
      Certain borrowings are not allocated to the business segments for management reporting purposes. The net interest expense results from these amounts being retained in Corporate and Other. The net servicing fees relate to insignificant differences between management reporting at the segment level and our results of operations. Other income includes miscellaneous investments held at the holding company level. Income tax expenses are generally allocated to the individual reportable operating segments. The amount of income tax expense in Corporate and Other results from an allocation to the income and expense items reported in Corporate and Other.
      Gain (loss) on sale of loans relates to our Mexican distressed mortgage loan business, which was sold in the first quarter of 2005.
Asset Quality
Allowance for Loan Losses
      Our loss estimation models for mortgage loans held for investment use historical information to estimate the amount of loss inherent in loans that are delinquent, as well as an estimate of loss for borrowers who may be contractually current but for which an incurred loss is probable. We determine these estimates by product type, credit score and delinquency stratum (current, 30, 60, 90, 120 and over 180 days past due, bankruptcy and foreclosure in process). Our loss estimates are based on expected roll rate and severity assumptions applied at a loan level to each delinquency stratum on a monthly basis. We refer to “roll rate” as the percentage of the portfolio within a particular stratum for which we estimate a loss event has occurred and will ultimately result in a loss after all loss mitigation efforts have been completed. We also estimate the “severity” of the loss as the percentage of the unpaid principal balance of the loan that we anticipate will not be collected.
      Our roll rate and severity estimates are based on the historical loss experience for our various product types. We update our estimates on a regular basis to reflect our recent experience and the macroeconomic environment. In making severity assumptions, we consider our loss mitigation strategies including when to foreclose on a property and the expected proceeds from the sale of the property. Nonaccrual loans are included in this analysis as they are generally loans contractually past due for 60 days or more. Our assumptions included in determining the allowance for loan losses involve a high degree of judgment and, accordingly, the actual level of loan losses may vary depending on actual experience in relation to these assumptions.
      Our historical performance provides us with information to assist us in understanding our estimated timing of losses over the life of static origination pools for each of our various product types. We refer to “credit seasoning” as the loss pattern that occurs within a pool of mortgage loans tracked by month of origination (static origination pool) as they age. Historic data on these pools indicate that loss events generally increase during the first two-to-three years after origination, and thereafter stabilize at a more

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consistent level. Credit seasoning between pools will differ depending on a variety of factors, especially the type of mortgage product included in the pool.
      Our lending receivables portfolio is comprised of individually larger, non-homogenous loans and, accordingly, our allowance for loan loss estimation process for these lending receivables is based upon a process that includes a specific allowance allocation for individual impairment and a general allowance allocation for loans not included in the specific allowance allocation. For loans for which it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, impairment is measured and recognized through a provision for loan loss based upon the present value of the expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent or foreclosure is probable. The general allowance allocation is an estimate of the inherent losses in the lending receivables portfolio excluding loans for which a specific reserve has been established. Our general allowance allocations are based upon the risk rating or assessment of the borrower, the available collateral and the structure of the financing. The expected loss percentages assigned are based upon our historical experience and our estimates include an assessment of current conditions that may not be reflected in the model estimates.
      The following table summarizes the activity related to the allowance for loan losses:
                                         
    Three Months Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
    (In millions)
Beginning balance
  $ 1,014.7     $ 618.0     $ 618.0     $ 335.8     $ 178.6  
Provision for loan losses
    155.8       183.2       842.9       453.5       231.7  
Charge-offs
    (109.2 )     (80.4 )     (460.6 )     (191.2 )     (77.1 )
Recoveries
    14.0       0.7       14.4       19.9       2.6  
                               
Ending balance
  $ 1,075.3     $ 721.5     $ 1,014.7     $ 618.0     $ 335.8  
                               
Allowance as a percentage of total mortgage loans held for investment and lending receivables
    1.65 %     1.19 %     1.51 %     1.13 %     1.67 %
                               
      The following table summarizes the net charge-off information:
                                           
    Three Months Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
    (In millions)
Mortgage loans:
                                       
 
Prime conforming
  $     $     $     $     $  
 
Prime non-conforming
    (14.5 )     (19.9 )     (44.7 )     (13.6 )     (10.8 )
 
Prime second-lien
    (2.0 )     (2.4 )     (8.5 )     (6.7 )     (10.3 )
 
Government
                (0.2 )            
 
Nonprime
    (78.3 )     (57.0 )     (376.4 )     (156.7 )     (47.5 )
Lending receivables:
                                       
 
Warehouse
    (0.4 )           3.0       16.4       (1.1 )
 
Construction
                (18.9 )     (3.2 )     (4.2 )
 
Healthcare
                      (3.8 )      
 
Other
          (0.4 )     (0.5 )     (3.7 )     (0.6 )
                               
Total Net Charge-Offs
  $ (95.2 )   $ (79.7 )   $ (446.2 )   $ (171.3 )   $ (74.5 )
                               
Nonperforming Assets
      Nonperforming assets include nonaccrual loans, foreclosed assets and restructured loans. Mortgage loans and lending receivables are generally placed on nonaccrual status when they are at least 60 and 90 days, respectively, or more past due or when the timely collection of the principal of the loan, in whole

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or in part, is doubtful. Restructured loans were immaterial as of March 31, 2005, December 31, 2004 and 2003.
      Nonperforming assets consisted of the following:
                             
        As of December 31,
    As of March 31,    
    2005   2004   2003
             
    (In millions)
Nonaccrual loans:
                       
 
Mortgage loans:
                       
   
Prime conforming
  $ 12.7     $ 16.9     $ 17.5  
   
Prime non-conforming
    249.3       197.8       157.2  
   
Government
    13.8       26.3       94.4  
   
Prime second-lien
    58.0       46.1       18.9  
   
Nonprime*
    4,804.4       4,327.1       1,779.7  
 
Lending receivables:
                       
   
Warehouse
    4.7       4.6       3.5  
   
Construction
    10.6             47.0  
   
Healthcare
    3.7       1.9        
                   
Total nonaccrual loans
    5,157.1       4,620.7       2,118.2  
Foreclosed assets
    561.9       455.8       367.7  
                   
Total nonperforming assets
  $ 5,719.0     $ 5,076.5     $ 2,485.9  
                   
Total nonperforming assets as a percentage of total assets
    5.8 %     5.4 %     3.2 %
                   
 
Includes $894.7 million (as of March 31, 2005), $908.7 million (as of December 31, 2004) and $551.4 million (as of December 31, 2003) of loans that were purchased distressed and already in nonaccrual status.
      Our classification of a loan as nonperforming does not necessarily indicate that the principal amount of the loan is ultimately uncollectible in whole or in part. In certain cases, borrowers make payments to bring their loans contractually current and, in all cases, our mortgage loans are collateralized by residential real estate. As a result, our experience has been that any amount of ultimate loss is substantially less than the unpaid principal balance of a nonperforming loan. See the discussion under the heading “— Allowance for Loan Losses” for more information regarding estimating incurred losses on loans, including nonaccrual loans.
      The allowance for loan losses as a percentage of total mortgage loans held for investment and lending receivables was 1.65% as of March 31, 2005 compared to 1.19% as of March 31, 2004. The increase in the allowance as a percentage of total mortgage loans held for investment and lending receivables is due to the credit seasoning of the growing portfolio. The provision for loan losses decreased to $155.8 million for the three months ended March 31, 2005, from $183.2 million for the same period in 2004. This decrease was primarily the result of the larger provision required in the period in 2004 due to a significant increase in domestic nonaccrual loans during such period. Nonaccrual loans increased to $3.2 billion as of March 31, 2004 from $2.1 billion as of December 31, 2003. This increase of $1.2 billion in the period in 2004 was greater than the $0.5 billion increase in nonaccrual loans during the same period in 2005, from $4.6 billion as of December 31, 2004 to $5.1 billion as of March 31, 2005. The increase in nonaccrual loans during both the three months ended March 31, 2005 and the three months ended March 31, 2004 was the result of the credit seasoning of the portfolio. Net charge-offs increased to $95.2 million for the three months ended March 31, 2005 compared to $79.7 million for the three months ended March 31, 2004. This increase was primarily the result of greater charge-offs in the nonprime portfolio resulting from the seasoning and growth of that portfolio. The allowance for loan losses as a percentage of the total mortgage loans held for investment and lending receivables was 1.65% as of March 31, 2005, which is comparable to the 1.51% as of December 31, 2004.

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      The provision for loan losses, net charge-offs, allowance for loan losses as a percentage of total mortgage loans held for investment and lending receivables and nonaccrual loans all increased in 2004 compared to 2003. The provision for loan losses increased by $389.4 million to $842.9 million for 2004 compared to $453.5 million for 2003. Net charge-offs increased to $446.2 million for 2004 from $171.3 million for 2003. The allowance for loan losses increased to 1.51% of total mortgage loans held for investment and lending receivables as of December 31, 2004 from 1.13% as of December 31, 2003 and nonaccrual loans increased to $4.6 billion as of December 31, 2004 compared to $2.1 billion as of December 31, 2003. These increases were the result of the growth in our portfolio of mortgage loans held for investment on our combined balance sheet to $56.8 billion as of December 31, 2004 from $45.8 billion as of December 31, 2003 and $15.1 billion as of December 31, 2002. This growth, which reflected our increased structuring of securitizations as on-balance sheet financings, primarily affected our nonprime mortgage loan portfolio. We issued $24.9 billion of nonprime on-balance sheet financings in 2004, compared to $28.7 billion in 2003 and $10.9 billion in 2002. This securitization activity increased our nonprime mortgage loans held for investment to $47.4 billion as of December 31, 2004 from $38.4 billion as of December 31, 2003 and $13.2 billion as of December 31, 2002. The credit seasoning of this growth in our mortgage loans held for investment, primarily nonprime, resulted in our increase in the provision for loan losses, net charge-offs, allowance for loan losses and nonaccrual loans. To the extent we continue to originate significant levels of nonprime mortgage loans held for investment related to on-balance sheet securitizations, the current trends in asset quality measures may continue.
Liquidity and Capital Resources
Liquidity and Capital Management
      We have significant financing needs related to the operation of our business. We manage our liquidity and funding operations in an effort to ensure that we have access to funding sources that meet our short- and long-term financing needs in a variety of market conditions and balance sheet levels. Our strategy has been to develop diverse funding sources to meet our liquidity needs. Our liquidity and capital management practices involve actively monitoring the risk associated with our funding needs and capital structure. We regularly assess the term structure of our assets and liabilities, our interest rate risk and the reliability and concentrations of our funding sources. In order to enhance our financial flexibility, we maintain a mix of secured and unsecured debt and actively manage the maturity of our funding. Most of our assets are pledged as collateral to secure certain debt obligations.
      The funding sources we use are primarily determined by the type and volume of the assets that we are seeking to finance. We generally require short-term funding to finance mortgage loans pending permanent sale or securitization and to finance our lending receivables. We require longer-term funding to finance mortgage loans held for investment and other assets related to our securitization activities. We have developed significant sources of funding, including asset securitization programs, asset-backed financing vehicles, whole loan and securities repurchase agreements and other secured lending facilities, unsecured lines of credit and borrowings and bank deposits. Our affiliates have provided and continue to provide us with domestic and international borrowing lines that we use on a daily basis. We generally obtain liquidity and long-term funding for our mortgage loans in the secondary market, where we are an active participant in selling whole loans and securitizing loans. We sell most of our prime conforming mortgage loans to Fannie Mae and Freddie Mac, including pursuant to Fannie Mae’s “as soon as pooled,” or ASAP, program. The ASAP and other similar programs of the government-sponsored enterprises provide us with a significant source of additional liquidity. We primarily sell the remainder of our mortgage loans through whole-loan sales or our own securitizations.
      ResCap has been formed to obtain more cost effective additional liquidity to fund the growth of our businesses, provide independent access to unsecured debt markets, further diversify our sources of liquidity and ultimately replace all borrowings from affiliates. Our future funding and liquidity strategy includes issuing additional unsecured long-term debt as our needs dictate and market conditions allow. We may use the proceeds of additional debt to repay GMAC to the extent permitted under our operating agreement and consistent with our long-term funding strategy. In the past, the counterparties on some of our funding

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sources have relied on GMAC guarantees to support our obligations under those arrangements. We have terminated or replaced many of the GMAC guarantees with guarantees from ResCap in connection with the offering of the old notes and intend to terminate or replace the remainder of the GMAC guarantees over the next several months. If we are unable to replace these guarantees by maturity, those funding sources may not be available to us in the future. We plan to further diversify our funding sources by, among other things, arranging credit facilities from a bank syndicate and further expanding our use of GMAC Bank, depending on our liquidity profile and market conditions. We may also securitize types of assets that we have not historically securitized, including unsecuritized assets that are currently on our balance sheet.
Funding Sources
      The following table sets forth our sources of funding as of March 31, 2005, December 31, 2004 and December 31, 2003:
                           
    Outstanding as of
     
        December 31,
    March 31,    
    2005   2004   2003
             
    (In millions)
Collateralized borrowings in securitization trusts
  $ 49,298.6     $ 50,708.5     $ 39,415.6  
Short-term secured borrowings
    22,419.9       17,718.0       14,981.2  
Short-term unsecured non-affiliate borrowings
    3,929.8       4,292.5       4,749.6  
Long-term unsecured borrowings
    184.7       186.1       94.8  
FHLB advances — short term
    1,100.0       853.0       267.0  
FHLB advances — long term
    848.0       654.0       555.0  
Bank deposits
    2,010.9       1,665.0       1,281.5  
Affiliate borrowings
    10,269.8       10,006.2       10,683.9  
                   
 
Total borrowings and deposits
    90,061.7       86,083.3       72,028.6  
Off-balance sheet financings
    64,189.7       61,091.4       52,611.3  
                   
 
Total
  $ 154,251.4     $ 147,174.7     $ 124,639.9  
                   
Collateralized Borrowings in Securitization Trusts
      As part of our ongoing funding and risk management practices, we have established secondary market trading and securitization arrangements that provide long-term financing primarily for our mortgage loans. We have had consistent and reliable access to these markets through our securitization activities in the past and expect to continue to access the securitization markets.
      Beginning in 2001, we initiated a strategy to address the cyclical nature inherent in the mortgage markets by structuring more of our securitizations as on-balance sheet financings, thereby growing the portfolio of loans we hold on our balance sheet and increasing the related collateralized borrowings in securitization trusts. The primary difference between on- and off-balance sheet securitizations is the accounting treatment applied to the transactions. See the discussion under the heading “— Understanding our Financial Statements — On- and Off-Balance Sheet Securitizations” for more information regarding the accounting treatment of on- and off-balance sheet securitizations. See the discussion under the heading “— Off-Balance Sheet Financings” for a description of our off-balance sheet securitizations.
      Collateralized borrowings in securitization trusts were $49.3 billion as of March 31, 2005, $50.7 billion as of December 31, 2004 and $39.4 billion as of December 31, 2003. In the three months ended March 31, 2005, we accounted for $3.8 billion of securitizations as financings, compared to $8.8 billion in the same period in 2004. In 2004, we accounted for $28.8 billion of securitizations as financings compared to $33.8 billion in 2003 and $12.2 billion in 2002.
Short-Term Secured Borrowings
      In the United States and in the other countries in which we operate, we use both committed and uncommitted secured facilities to fund inventories of mortgage loans held for investment, mortgage loans held for sale, lending receivables, mortgage servicing cash flows and securities. We use these facilities to

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provide funding for residential mortgage loans prior to their subsequent sale or securitization. We refer to the time period between the acquisition or origination of loans and their subsequent sale or securitization as the aggregation period. These aggregation facilities are primarily funded through the issuance of asset-backed commercial paper or similar short-term securities, issued by vehicles administered by third parties. Other short-term secured borrowings include transactions under repurchase agreements or similar arrangements or secured bank loans. The cost of funding related to these vehicles is priced off a short-term benchmark, such as highly-rated commercial paper, one month LIBOR or a similar index, plus a stated percentage over such cost and/or other costs of issuance. Committed liquidity sources are generally renewed annually and at our discretion and the discretion of the third-party. Our short-term secured borrowings, including our aggregation facilities, are repaid as the underlying assets are sold, securitized or mature. The following table shows the amount of borrowings outstanding as of March 31, 2005, December 31, 2004 and December 31, 2003 under our short-term secured borrowing arrangements:
                           
    Outstanding as of
     
        December 31,
    March 31,    
    2005   2004   2003
             
    (In millions)
Mortgage Interest Networking Trust
  $ 6,113.3     $ 5,811.1     $ 6,702.7  
Mortgage Asset Lending Agreement
    2,020.0       1,940.0       1,851.0  
Other secured aggregation facilities
    2,280.3       2,116.8       1,330.4  
Repurchase agreements
    10,417.1       6,598.5       4,478.8  
FHLB advances
    1,100.0       853.0       267.0  
Other
    1,589.2       1,251.6       618.3  
                   
 
Total short-term secured borrowings
  $ 23,519.9     $ 18,571.0     $ 15,248.2  
                   
  •  Mortgage Interest Networking Trust, or MINT, is a secured aggregation vehicle administered by GMAC Mortgage Group, Inc. that provides us with financing for mortgage loans during the aggregation period and for warehouse lending receivables. MINT obtains financing through the issuance of asset-backed commercial paper and similar discounted notes (MITTENs), both of which are secured by the mortgage loans and warehouse lending receivables. As of March 31, 2005 and December 31, 2004, MINT had 364-day bank liquidity commitments of $3.4 billion backing the commercial paper issued.
 
  •  The Mortgage Asset Lending Agreement, or MALA, is a secured aggregation facility that funds residential mortgage loans, during the aggregation period. The facility receives funding from a syndicate of asset-backed commercial paper vehicles. MALA shares a funding commitment with Receivables Lending Agreement, an off-balance sheet financing facility (described under the heading “— Off-Balance Sheet Financings”). As of March 31, 2005 and December 31, 2004, the two facilities had an aggregate liquidity commitment of $7.9 billion.
 
  •  Other secured aggregation facilities include certain facilities to fund mortgage loans prior to their sale or securitization. As of March 31, 2005 and December 31, 2004, in addition to MINT and MALA, we had $2 billion of liquidity commitments to fund second-lien mortgage loans, £2.0 billion of liquidity commitments to fund loans in the United Kingdom (£1.8 billion as of December 31, 2004) and 0.5 billion of liquidity commitments to fund loans originated in The Netherlands.
 
  •  We have developed numerous relationships with banks and securities firms to provide funding for mortgage loans and other securities through repurchase agreements and other similar arrangements on a domestic and international basis. Borrowings under these agreements are provided on either a committed or an uncommitted basis.
 
  •  Other short-term secured borrowings include facilities that fund construction lending receivables, for which we had aggregate liquidity commitments of $0.8 billion as of March 31, 2005 and December 31, 2004. In addition, we have arranged facilities to fund mortgage servicing rights and mortgage servicing advances either on a committed or uncommitted basis. These facilities provided $0.85 billion in aggregate liquidity commitments as of March 31, 2005 and December 31, 2004.

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      The following table shows the amount of secured committed and unused liquidity facilities as of March 31, 2005, December 31, 2004 and December 31, 2003:
                                                   
    Secured   Unused Secured
    Committed Liquidity   Committed Liquidity
    Facilities as of   Facilities as of
         
        December 31,       December 31,
    March 31,       March 31,    
    2005   2004   2003   2005   2004   2003
                         
    (In millions)
Mortgage loans and warehouse lending(a)
  $ 20,067.4     $ 19,772.1     $ 16,513.2     $ 8,040.0     $ 12,392.1     $ 6,088.1  
Construction lending receivables
    800.0       800.0       500.0             100.0        
Other(b)
    925.0       1,725.0                   688.1        
                                     
 
Total
  $ 21,792.4     $ 22,297.1     $ 17,013.2     $ 8,040.0     $ 13,180.2     $ 6,088.1  
                                     
 
(a) Facilities to fund mortgage loan and warehouse lending receivables.
 
(b) Facilities to fund servicing advances, servicing rights and residual interests.
Short-Term Unsecured Borrowings
      The following table shows the amounts outstanding as of March 31, 2005, December 31, 2004 and December 31, 2003 under our short-term unsecured borrowing arrangements:
                           
    Outstanding as of
     
        December 31,
    March 31,    
    2005   2004   2003
             
    (In millions)
Affiliate borrowings
  $ 10,269.8     $ 10,006.2     $ 10,683.9  
Lines of credit
    907.5       1,131.4       1,970.3  
Investor custodial funds
    2,229.1       1,915.1       1,980.8  
International borrowings
    345.0       334.2       182.7  
Other
    448.2       911.9       615.8  
                   
 
Total short-term unsecured borrowings
  $ 14,199.6     $ 14,298.8     $ 15,433.5  
                   
      As of March 31, 2005 and December 31, 2004, we had access to approximately $2.2 billion of unsecured lines of credit from financial institutions. These lines are available on an uncommitted basis and borrowings under these lines mature in 30 to 90 days. We use borrowings under these lines for general working capital purposes. The outstanding balances under these lines included $125.8 million as of December 31, 2004 and $462.5 million as of December 31, 2003, which we borrowed on behalf of an affiliate. In March 2005, all amounts borrowed on behalf of the affiliate were repaid and ongoing utilization of these lines by the affiliate was terminated.
      Investors in the securitizations, as part of certain servicing arrangements in place at GMAC Residential, where we act as servicer, historically permitted us to use custodial funds for use in our daily operations. These funds are remitted from borrowers as payments of principal and interest on their mortgage loans prior to the subsequent distribution of these funds to the investors. These funds are remitted to the investors on a fixed date each month in the normal course of servicing. As of May 18, 2005, one of these investors, a government-sponsored enterprise, no longer permits this use, although we are permitted to earn interest on the amounts in the custodial accounts. As of March 31, 2005, the maximum amount of custodial funds available to us from this investor was $2.5 billion.
      Our Mexican operations have issued commercial paper and medium-term notes in Mexico under programs established by GMAC. Our obligations under this commercial paper and the medium-term notes are guaranteed by GMAC. In addition, our operations in Mexico participate in bank loan facilities with GMAC that are guaranteed by GMAC. These unsecured facilities are offered on an uncommitted basis and had a total capacity of 9.5 billion pesos as of March 31, 2005. In April 2005, a lender under this

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unsecured facility notified us of its withdrawal and, in May 2005, another lender under this unsecured facility notified us that it would no longer permit additional borrowings, but amounts outstanding from such lender (which were 2.9 billion pesos as of May 31, 2005) could be repaid pursuant to the terms of the facility. Therefore, as of May 31, 2005, we had total capacity of 3.9 billion pesos under this facility. Finally, our U.K. operations have access to an unsecured credit line of £20 million. This line is available to us on an uncommitted basis and is guaranteed by GMAC.
Bank Deposits and FHLB Advances
      GMAC Bank provides us another source of liquidity through its ability to accept deposits. As of March 31, 2005, GMAC Bank had approximately $2.0 billion of deposits, $1.6 billion of which were escrows related to our servicing of mortgage loans. In addition, GMAC Bank has entered into an advances agreement with the Federal Home Loan Bank of Pittsburgh, or FHLB. As of March 31, 2005, we had total borrowing capacity of $3.3 billion. Under the arrangement with the FHLB, we are able to fund mortgage loans, investments securities and certain lending receivables.
Affiliate Borrowings
      Affiliates have provided funding to ResCap through domestic and international intercompany credit lines. We had access to a $20 billion domestic line provided by GMAC to us and certain other GMAC subsidiaries prior to the offering of the old notes. Our borrowings under this line averaged approximately $10.3 billion from January 1, 2003 until the offering of the old notes. On May 4, 2005, GMAC contributed $2 billion to our capital by forgiving $2 billion of these borrowings. We also had access to international lines of credit from various affiliates of approximately $3.7 billion in the aggregate as of March 31, 2005. In connection with the offering of the old notes, GMAC restructured the domestic facility as described under the heading “— Recapitalization.” The international lines of credit remained in place after the closing of the offering of the old notes.
Off-Balance Sheet Financings
      Our total off-balance sheet financings were $64.2 billion as of March 31, 2005, $61.1 billion as of December 31, 2004 and $54.5 billion as of December 31, 2003. A significant portion of our off-balance sheet financing relates to securitizations issued in off-balance sheet trusts. The off-balance sheet securitization trusts had aggregate outstanding balances of $60.3 billion as of March 31, 2005, $57.4 billion as of December 31, 2004 and $50.9 billion as of December 31, 2003.
      We also have off-balance sheet structured facilities that fund mortgage loans during the aggregation period as well as warehouse lending receivables. These facilities provide funding for these assets through the issuance of commercial paper from multi- and single-seller asset-backed commercial paper conduits. Our most significant sources of short-term off-balance sheet borrowings are as follows:
  •  Receivable Lending Agreement, or RLA, is an asset-backed commercial paper facility that funds our warehouse lending receivables. As of March 31, 2005 and December 31, 2004, the RLA and MALA facilities had aggregate liquidity commitments of $7.9 billion. See “— Short-Term Secured Borrowings” for more information regarding MALA. RLA provided $3.3 billion of funding for lending receivables as of March 31, 2005, $3.9 billion as of December 31, 2004 and $3.0 billion as of December 31, 2003.
 
  •  Walnut Grove Funding is a secured aggregation facility that funds home equity loans, home equity lines of credit, high loan-to-value mortgage loans and certain non-conforming fixed rate mortgage loans through the issuance of asset-backed commercial paper. Walnut Grove Funding provided $591.2 million of funding as of March 31, 2005, $235.6 million as of December 31, 2004 and $280.3 million as of December 31, 2003, and was permitted to finance a maximum of $600 million as of March 31, 2005 and December 31, 2004.

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  •  Horsham Funding is a facility that funds defaulted government insured or guaranteed residential mortgage loans repurchased through the issuance of asset-backed commercial paper. Horsham Funding provided $176.6 million of funding as of March 31, 2005, $184.5 million as of December 31, 2004 and $224.1 million as of December 31, 2003, and was permitted to finance a maximum amount of $500 million as of March 31, 2005 and December 31, 2004.
Purchase Obligations and Options
      In connection with our asset sales, securitizations and other asset funding facilities, we typically deliver standard representations and warranties to the purchaser or facility. These representations and warranties are primarily factual statements about the characteristics of the underlying transferred assets and are customary in securitizations and other transfers of assets. These provisions are intended to ensure that underlying assets conform in all material respect to the expectations of the parties to the transaction. Prior to any sale or securitization transaction, we perform due diligence with respect to the assets to be included in the sale to ensure that they conform to the representations and warranties.
      Our representations and warranties in off-balance sheet arrangements primarily relate to the required characteristics of the mortgage loans as of the initial sale date. Typical representations and warranties include that the loans contain customary and enforceable provisions, are secured by enforceable liens and have original terms not less than or greater than a stated number of months. Representations and warranties are also given with respect to the documentation that will be included in the loan file for each transferred asset. For example, a representation and warranty may be given that the loan file will contain the mortgage note, the mortgage, and all relevant assignments. It is common industry practice to provide representations and warranties with regard to asset documentation even though the seller might not have physically received all of the original loan documentation from a closing agent, recording office or third-party register. In such cases, we include a representation that documents will be delivered within a specified number of days after the initial sale of the loans.
      Upon discovery of a breach of a representation, we either correct the loans in a manner conforming to the provisions of the sale agreement, replace the loans with similar loans that conform to the provisions, or purchase the loans at a price determined by the related transaction documents, consistent with industry practice.
      We purchased $66 million in mortgage loans under these provisions in 2004 and $154 million of mortgage loans in 2003. The majority of purchases due to breaches of representations and warranties occurring in 2004 and 2003 resulted from the inability to deliver underlying mortgage documents within a specified number of days after the initial sale date, which in 2003 was often caused by the record origination volumes we experienced. In most cases, we ultimately received the trailing mortgage documents and subsequently sold or securitized the assets. The remaining purchases occurred due to a variety of non-conformities (typically related to clerical errors discovered after sale in the post-closing review). Our reserves for losses in connection with these activities are recorded in other liabilities.
      In addition to our representations and warranties, we have the option to purchase certain assets in our off-balance sheet facilities, including:
  •  Asset Performance Conditional Calls — In certain of our securitizations, we retain the option (but not an obligation) to purchase specific mortgage loans that become delinquent beyond a specified period of time, as set forth in the transaction legal documents (typically 90 days). Mortgage loans are purchased after the option becomes exercisable when it is in our economic interest to do so. We purchased an aggregate of $137 million of mortgage loans in 2004 and $122 million in 2003 under these provisions.
 
  •  Cleanup Calls — In each of our securitizations, we retain a cleanup call option that allows the servicer to purchase the remaining transferred assets once such assets reach a minimal level and the cost of servicing those assets becomes burdensome in relation to the benefits of servicing (defined as a specified percentage of the original principal balance). We choose to exercise cleanup calls

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  when it is in our economic interest to do so. We purchased $3.8 billion of assets under these cleanup call provisions in 2004 and $1.9 billion of such assets in 2003.

      When we purchase mortgage loans, either as a result of an obligation to do so or upon the exercise of our options, we execute the purchase in accordance with the legal terms in the facility or specific transaction documents. In most cases, the provisions for the purchase of the asset require the purchase price to be equal to the unpaid principal balance of the asset, plus any accrued interest thereon. Once the conditions are satisfied for an obligatory or optional purchase (or in the case of cleanup calls, when notice of intent to exercise is provided), we report the asset on our balance sheet as held for sale or held for investment, with a corresponding liability, until the loan is paid in full, charged-off or sold in a later transaction.
      Upon the obligatory or optional purchase of an asset from an off-balance sheet facility, we generally do not recognize any net gain or loss since the mortgage loan is purchased at the unpaid principal balance, plus any accrued interest thereon, as required by the transaction documents. To the extent that the fair value differs from the unpaid principal balance, any resulting gain or loss would be substantially offset by a gain or loss recognized through the revaluation of any retained interest that we hold related to the purchased asset. As a result, the purchase of the asset does not by itself result in any material net gain or loss.
Guarantees
      Guarantees are defined as contracts or indemnification agreements that contingently require us to make payments to third parties based on changes in an underlying agreement that is related to a guaranteed party. Our guarantees include standby letters of credit and certain contract provisions regarding securitizations and sales. See Note 22 to the audited combined financial statements included elsewhere in this prospectus for more information regarding our outstanding guarantees to third parties.
Recapitalization
      On May 4, 2005, GMAC contributed $2 billion to our capital by forgiving $2 billion of our indebtedness outstanding under the $20 billion domestic line of credit that we share with other GMAC subsidiaries.
      Concurrently with the closing of the offering of the old notes, the line of credit with GMAC was amended to remove us as a borrower. Our portion of the line of credit (and our indebtedness outstanding thereunder) was restructured as follows:
  •  subordinated notes in an aggregate principal amount of $5 billion, maturing September 30, 2015;
 
  •  a new revolving line of credit, which ranks equally with the notes and expires in 2007, in a principal amount of up to $2.5 billion, under which we had no amounts outstanding as of the closing of the offering of the old notes; and
 
  •  a term loan in a principal amount of $1.5 billion, which ranks equally with the notes and matures in 2006.
      We repaid the remaining amounts outstanding under the existing domestic line of credit with a portion of the proceeds from the offering of the old notes.
      See “Related Party Transactions” for more information regarding these transactions and other transactions that we have entered into with GMAC and its affiliates.
      We are seeking commitments from lenders to provide us with approximately $3 billion in credit facilities, which will rank equally with the notes. We anticipate that we will complete these negotiations and the credit facilities will become available to us in the third quarter of 2005. We intend to borrow sufficient amounts under the new credit facilities to repay any amounts then outstanding under the $1.5 billion term loan from GMAC.

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      We also entered into an operating agreement with GMAC as part of the recapitalization, the form of which is attached to this prospectus as Appendix A. The operating agreement contains restrictions on, among other things, ResCap’s ability to pay dividends or make other distributions to GMAC. These restrictions include a requirement that ResCap’s stockholder’s equity be at least $6.5 billion for dividends to be paid. If ResCap is permitted to pay dividends pursuant to the previous sentence, the cumulative amount of such dividends may not exceed 50% of ResCap’s cumulative net income, measured from July 1, 2005, at the time such dividend is paid. These restrictions will cease to be effective if ResCap’s stockholder’s equity has been at least $12 billion as of the end of each of two consecutive fiscal quarters or if GMAC ceases to be the majority stockholder of ResCap. Our businesses have not paid cash dividends to our parent since at least 1997, other than a $25 million dividend from RFC Holding in 1999, which our parent contributed to GMAC Residential Holding. Future payment of dividends will be at the discretion of our board of directors, and will depend upon our results of operations, financial condition and financial covenants in various agreements (including those discussed above) and other factors deemed relevant by our board of directors.
      The operating agreement also contains restrictions on our ability to prepay subordinated debt owed to GMAC. See “Related Party Transactions — Transactions in Connection with our Recapitalization — Operating Agreement.”
Aggregate Contractual Obligations
                                               
    Payments due by period
     
        Less than   1-3   3-5   More than
As of December 31, 2004   Total   1 Year   Years   Years   5 Years
                     
    (In millions)
Description of obligation:
                                       
 
Debt
                                       
   
Unsecured
  $ 14,485     $ 14,299     $ 130     $ 56     $  
   
Secured
    69,933       18,793       381       26       50,733  
 
Lease commitments
    318       86       136       56       40  
 
Mortgage purchase and sale commitments
    11,262       11,197                   65  
 
Lending commitments
    15,013       8,430       1,208       877       4,498  
 
Commitment to remit cash flows on certain loan portfolios
    4,335                         4,335  
 
Commitments to provide capital to equity method investees
    323             4       101       218  
 
Purchase obligations
    223       123       76       21       3  
 
Commitments to fund development of lots and/or model homes
    202       54       135       13        
 
Bank certificates of deposit
    9       7       2              
                               
     
Total
  $ 116,103     $ 52,989     $ 2,072     $ 1,150     $ 59,892  
                               
      As described under the heading “— Liquidity and Capital Resources — Recapitalization,” the GMAC domestic line of credit is being restructured. Assuming that we restructured the domestic line of credit as of December 31, 2004, and that we also issued the notes in the offering of the old notes and repaid GMAC on that date, the contractual obligations for the $14.5 billion of unsecured debt in the table above would have been, on a pro forma basis, as follows:
                                           
    Payments Due by Period
     
        Less than   1–3   3–5   More than
As of December 31, 2004   Total   1 Year   Years   Years   5 Years
                     
    (In millions)
Description of obligation:
                                       
 
Pro forma unsecured debt
  $ 13,615     $ 4,429     $ 1,130     $ 2,556     $ 5,500  

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Cash Flow
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
      Cash used by operating activities was $4.2 billion for the three months ended March 31, 2005 compared to cash provided by operating activities of $796.1 million for the same period in 2004. This change was primarily due to the $3.1 billion increase in trading securities and $2.3 billion increase in mortgage loans held for sale as of March 31, 2005 compared to December 31, 2004.
      Cash flow used in investing activities was $116.5 million for the three months ended March 31, 2005 compared to $7.6 billion for the same period in 2004. The change was primarily due to a $4.5 billion decline in originations and purchases of mortgage loans held for investment and a $2.5 billion increase in proceeds from sales and repayments of mortgage loans held for investment.
      Cash flow provided by financing activities was $4.0 billion for the three months ended March 31, 2005 compared to $6.1 billion for the same period in 2004. The change was primarily due to a $5.1 billion decline in proceeds from issuances of collateralized borrowings in securitization trusts and a $2.3 billion increase in repayments of collateralized borrowings in securitization trusts, which were partially offset by a $4.4 billion increase in short-term borrowings.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      Cash provided by operating activities was $4.8 billion in 2004 compared to $851.5 million in 2003. The change was primarily due to a net $2.6 billion increase in proceeds from sales and repayments of mortgage loans held for sale exceeding originations of mortgage loans held for sale.
      Cash flow used in investing activities was $18.8 billion in 2004 compared to $32.0 billion in 2003. The change was primarily due to a $9.9 billion increase in proceeds from sales and repayments of mortgage loans held for investment and a $5.3 billion decline in originations and purchases of mortgage loans held for investment.
      Cash flow provided by financing activities was $13.9 billion in 2004 compared to $31.7 billion in 2003. The change was primarily due to a $10.8 billion increase in repayments and a $5.0 million decline in proceeds from issuances of collateralized borrowings in securitization trusts.
Recently Issued Accounting Standards
      FASB Interpretation No. 46R — In December 2003, the Financial Accounting Standards Board (FASB) released a revision to Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46R) to clarify some of the provisions of the original interpretation (FIN 46) and to exempt certain entities from its requirements. FIN 46R provides special effective date provisions to enterprises that fully or partially applied FIN 46 prior to the issuance of the revised interpretation. In particular, entities that had already adopted FIN 46 were not required to adopt FIN 46R until the quarterly reporting period ended March 31, 2004. Since we adopted FIN 46 effective July 1, 2003, we adopted FIN 46R for the period ended March 31, 2004. Among other matters, FIN 46R changed the primary beneficiary analysis of variable interest entities as it relates to fees paid to decision makers. However, these changes did not impact the conclusions of our primary beneficiary analysis previously reached under FIN 46 and, as such, the adoption of FIN 46R did not impact our financial condition or results of operations.
      SAB 105 — In March 2004, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments (SAB 105), that summarizes the views of the staff regarding the application of GAAP to loan commitments accounted for as derivative instruments. SAB 105 is effective for commitments to originate or purchase loans to be held for sale and for commitments to purchase loans to be held for investment (also referred to as interest rate lock commitments, or IRLCs) that are entered into after March 31, 2004. SAB 105 provides specific guidance on the measurement of loan commitments accounted for at fair value, specifying that fair value measurement exclude any expected future cash flows related to the customer relationship or loan servicing.
      Prior to April 1, 2004, upon entering into the commitment, we recognized loan commitments at fair value based on expected future gain on sale, including an estimate of the future mortgage servicing rights.

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For certain products, the future gain on sale (exclusive of mortgage servicing right value) was known based on transparent pricing in an active secondary market and was included in current period earnings. Any additional value associated with the loan commitments (including the future value of the mortgage servicing rights) was deferred and recognized in earnings at the time of the sale (or securitization) of the loan. As a result of SAB 105, effective April 1, 2004, we no longer recognize the value of the commitment at the time of the rate lock. However, subsequent changes in value from the time of the lock are recognized as assets or liabilities, with a corresponding adjustment to current period earnings, but exclude any future mortgage servicing right value. Upon sale of the loan, the initial estimated value associated with the rate lock, along with the mortgage servicing right, is recognized as part of the gain on sale (or securitization). The impact of adopting the provisions of SAB 105 resulted in a deferral in the timing of recognizing the value of certain loan commitments, but did not have a material impact on our financial condition or results of operations.
      Statement of Position 03-3 — In December 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3), that addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 does not apply to loans originated by us. SOP 03-3 limits the accretable yield to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows (expected at acquisition to be collected) over the investor’s initial investment in the loan and it prohibits “carrying over” or creating a valuation allowance for the excess of contractual cash flows over cash flows expected to be collected in the initial accounting of a loan acquired in a transfer. SOP 03-3 and the required disclosures were effective for loans acquired in fiscal years beginning after December 15, 2004. Adoption of SOP 03-3 did not have a material impact on our financial condition or results of operations.
      EITF 03-1 — In March 2004, the Emerging Issues Task Force released EITF Issue No. 03-1, The Meaning of Other Than Temporary Impairment and Its Application to Certain Investments (EITF 03-1). EITF 03-1 provides guidance for determining when an investment is other than temporarily impaired and applies to investments classified as either available for sale or held to maturity under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities (including individual securities and investments in mutual funds), and investments accounted for under the cost method. In addition, EITF 03-1 contains disclosure requirements for impairments that have not been recognized as other than temporary. In September 2004, the FASB voted to delay the effective date of the recognition and measurement provisions related to determining other than temporary impairment on available for sale securities. The effective dates for the disclosure requirements vary depending on the type of investment being considered, however, all disclosure requirements are now effective. We are monitoring the ongoing discussions by the FASB related to this issue in order to assess the potential impact of this guidance on our financial statements.
Quantitative and Qualitative Disclosures About Market Risk
      Our activities give rise to market risk, representing the potential loss in the fair value of assets or liabilities caused by movements in market variables, such as interest and foreign exchange rates. We are primarily exposed to interest rate risk arising from changes in interest rates related to our financing, investing and cash management activities. More specifically, we have entered into contracts to provide financing, to retain mortgage servicing rights and to retain various assets related to securitization activities, all of which are exposed, in varying degrees, to changes in value due to movements in interest rates. Interest rate risk arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including derivatives, to maintain the desired level of exposure to the risk of interest rate fluctuations. See “Risk Factors — Risks Relating to our Business — Our earnings may decrease because of increases or decreases in interest rates” and “Risk Factors — Risks Relating to our Business — Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates” for more information regarding the risks related to changes in interest rates and our hedging strategies.

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      We actively manage market risk. We maintain risk management control systems to monitor interest rate risks and related hedge positions. We monitor positions using a variety of analytical techniques including market value, sensitivity analysis and value at risk models. While each operating segment is responsible for risk management, we supplement this decentralized model with a centralized risk committee, headed by our chief financial officer. This risk management function is responsible for ensuring that each operating segment has proper policies and procedures for managing risk and for identifying, measuring and monitoring risk across the enterprise.
Value at Risk
      One of the measures we use to manage market risk is value at risk, or VaR, which gauges the dollar amount of potential loss in fair value from adverse interest rate and currency movements in an ordinary market. The VaR model uses a distribution of historical changes in market prices to assess the potential for future losses. In addition, VaR takes into account correlations between risks and the potential for movements in one portfolio to offset movements in another.
      We measure VaR using a 95% confidence interval and an assumed one month holding period, meaning that we would expect to incur changes in fair value greater than those predicted by VaR in only one out of every 20 months. Currently, our VaR measurements do not include all of our market risk sensitive positions. The VaR estimates encompass the majority (approximately 90%) of our market risk sensitive positions that we believe are representative of all positions. The following table represents the maximum, average and minimum potential VaR losses measured for the years indicated.
                   
    Year Ended
    December 31,
     
    2004   2003
         
    (In millions)
Value at Risk
               
 
Maximum
  $ 215.1     $ 215.7  
 
Average
    133.7       143.5  
 
Minimum
    58.5       57.0  
      While no single risk statistic can reflect all aspects of market risk, the VaR measurements provide an overview of our exposure to changes in market influences. Less than 5% of our assets are accounted for as held for trading (i.e., those in which changes in fair value directly affect earnings). As such, our VaR measurements are not indicative of the impact to current period earnings caused by potential market movements. The actual earnings impact would differ as the accounting for our financial instruments is a combination of historical cost, lower of cost or market and fair value (as further described in the accounting policies in Note 2 to the audited combined financial statements included elsewhere in this prospectus).
Sensitivity Analysis
      While VaR reflects the risk of loss due to unlikely events in a normal market, sensitivity analysis captures our exposure to isolated hypothetical movements in specific market rates. The following analyses are based on sensitivity analysis performed assuming instantaneous, parallel shifts in interest rates. The net fair value of financial instruments includes both asset and liability financial instruments.
                                 
    As of December 31,
     
    2004   2003
         
    Non-Trading   Trading   Non-Trading   Trading
                 
    (In millions)
Estimated net fair value of financial instruments exposed to changes in interest rates
  $ (1,627 )   $ 2,715     $ (3,895 )   $ 3,372  
Impact of a 10% adverse change in rates
    (714 )     (14 )     270       (30 )
      There are certain shortcomings inherent to the sensitivity analysis data presented. The models assume that interest rate changes are instantaneous, parallel shifts. In reality, changes are rarely instantaneous or parallel and therefore the sensitivities disclosed above may be overstated.

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BUSINESS
      ResCap is a newly formed entity that did not conduct any operations prior to the transfer of our wholly-owned subsidiaries GMAC Residential Holding and RFC Holding to us in March 2005. We conduct our operations through four operating segments: GMAC Residential, which represents substantially all of the operations of GMAC Residential Holding, and the Residential Capital Group, Business Capital Group and International Business Group, representing substantially all of the operations of RFC Holding. References in this prospectus to our historical assets, liabilities, products, businesses or activities are generally intended to refer to the historical assets, liabilities, products, businesses or activities of GMAC Residential Holding and RFC Holding and their respective subsidiaries as they were conducted prior to their transfer to us.
Business Overview
      We are a leading real estate finance company focused primarily on the residential real estate market. Our globally diversified businesses include:
  •  U.S. Residential Real Estate Finance — We are one of the largest participants in the U.S. residential real estate finance industry. We operate this business through two segments, the GMAC Residential segment of GMAC Residential Holding and the Residential Capital Group of RFC Holding. Through these segments, we:
  —  Originate, purchase, sell and securitize residential mortgage loans throughout the United States. We are the sixth largest producer of residential mortgage loans in the United States, producing approximately $133 billion in residential mortgage loans in 2004, and the fourth largest non-agency issuer of mortgage- backed and mortgage-related asset-backed securities in the United States, issuing more than $51.0 billion of these securities in 2004.
 
  —  Provide primary and master servicing to investors in our residential mortgage loans and securitizations. As of December 31, 2004, we were the seventh largest servicer of residential mortgage loans in the United States, with a primary servicing portfolio of approximately $304 billion.
 
  —  Provide collateralized lines of credit, which we refer to as warehouse lending facilities, to other originators of residential mortgage loans. We were the largest provider of such facilities in the United States in 2003, the latest date for which information is available.
 
  —  Hold a portfolio of residential mortgage loans for investment and retained interests from our securitization activities. This portfolio, which included approximately $53.1 billion in mortgage loans and retained interests as of March 31, 2005, provides us with a longer-term source of revenues.
 
  —  Conduct limited banking activities through our federally chartered savings bank, GMAC Bank.
 
  —  Provide real estate closing services.
  Our GMAC Residential segment comprises that portion of our residential real estate finance operations in the United States with a greater focus on the direct origination of mortgage loans, primarily with consumers of prime credit quality. Most of these loans conform to the underwriting requirements of the Federal National Mortgage Association, which is commonly referred to as Fannie Mae, and the Federal Home Loan Mortgage Corporation, which is commonly referred to as Freddie Mac. Our Residential Capital Group comprises that portion of our residential real estate finance operations in the United States with a greater focus on the purchase of mortgage loans in the secondary market and the origination of loans through mortgage brokers. Mortgage loans produced in this segment cover a broad spectrum of the credit scale and generally do not conform to the underwriting requirements of Fannie Mae or Freddie Mac.

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  Our U.S. residential real estate finance business generated approximately 73% of our revenues and 79% of our net income in 2004.
  •  Business Capital — Through our Business Capital Group, we provide financing and equity capital to residential land developers and homebuilders. We also provide financing to resort developers and healthcare-related enterprises. We conduct our business capital activities through our subsidiary RFC Holding. Our business capital activities generated approximately 8% of our revenues and 15% of our net income in 2004.
 
  •  International — Through our International Business Group, we originate, purchase, sell and securitize residential mortgage loans in the United Kingdom, The Netherlands, Germany, Canada and Mexico. We also extend credit to companies involved in residential real estate development in Mexico and provide warehouse lending facilities to Mexican mortgage originators. We believe that we are the largest originator of nonprime residential mortgage loans in the United Kingdom, originating approximately $4.8 billion of such loans in 2004. We also produced approximately $14 billion in residential mortgage loans outside the United States in 2004 and serviced approximately $20 billion of such loans as of March 31, 2005. We conduct substantially all of our international activities through our subsidiary RFC Holding. The International Business Group generated approximately 7% of our revenues and 5% of our net income in 2004.
      Our business operations outside these four reportable segments include our real estate brokerage and relocation operations and our Mexican distressed asset business (which we sold in the first quarter of 2005). These activities, together with certain holding company activities and other adjustments to conform reportable segment information to our results of operations, are reported outside our four reportable segments. Approximately 12% of our revenues and less than 1% of our net income related to these activities and adjustments in 2004.
Our Strengths
      We believe that our competitive strengths include:
  •  Leading market presence. We are a leader in many of the markets in which we compete. We are among the largest producers of residential mortgage loans in the United States. Our recognized consumer brands include GMAC Mortgage and ditech.com®. We believe retail consumers associate our brands with a wide variety of innovative mortgage products, competitive pricing and high levels of customer service. We have also developed a network of more than 7,700 correspondent lenders and mortgage brokers throughout the United States through which we obtain many of our mortgage loans. Our mortgage loan production in the United States has grown at a compound annual growth rate of 27% from 2000 through 2004 and our market share of U.S. mortgage loan production has grown from approximately 3.3% in 1999 to 4.9% in 2004. In addition, we were the largest provider of warehouse financing to the residential mortgage lending industry in the United States in 2003, which is the latest date for which industry rankings are available.
  We are also a leader in the primary and master servicing of residential mortgage loans. As of December 31, 2004, we were the seventh largest servicer of residential mortgage loans in the United States, with a primary servicing portfolio of approximately $304 billion. Our servicing operations are highly rated by each of the ratings agencies that rate such activities.
 
  We were the first, and today are one of the largest, issuers of non-agency mortgage-backed and mortgage-related asset-backed securities, having issued more than $341 billion of these securities since we began securitization activities in 1982. Through our leadership in the secondary mortgage markets, and our consistent development of innovative investment products, we have forged effective and longstanding relationships with numerous institutional investors, large capital providers, underwriters and the rating agencies.
  •  History of earnings growth and diversification. We have a strong record of growing and diversifying earnings. We have grown net income at a compound annual growth rate of 36% since

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  2000. During this time, we executed a strategy to structure more of our non-agency U.S. securitizations as on-balance sheet financings, subject to market conditions. This strategy has enabled us to replace the one-time contribution to net income provided by gain on sale transactions with a source of income that is recognized over the life of the securitization. We have also continued to diversify our business by expanding our mortgage loan products and production channels, business capital activities and our international operations. Net income from our business capital activities represented approximately 15% of our net income in 2004 compared to approximately 7% in 2003, and net income from our International Business Group represented approximately 5% of our net income in 2004 compared to approximately 3% in 2003.
 
  •  Diversified products and markets. We have developed a broad range of mortgage products offered through multiple channels. We have extensive experience in and knowledge of the U.S. residential real estate finance industry, particularly in connection with the origination, purchase, securitization and servicing of residential mortgage loans. We are a leading producer of prime conforming, prime non-conforming and nonprime mortgage loans, which we produce through direct origination efforts, mortgage brokers and correspondent lenders. We originate mortgage loans in all 50 states and the District of Columbia and are now leveraging our expertise, and developing new expertise, by growing our business in the residential mortgage loan markets of the United Kingdom, The Netherlands, Germany, Canada and Mexico.
 
  •  Disciplined risk management focus. We have successfully grown our business over the past 20 years by maintaining a consistent and prudent approach to growth that seeks to balance risk and return. We have well-defined risk management practices that are executed by our highly-trained staff of experienced risk management professionals. In addition, we employ sophisticated methods to measure and monitor interest rate sensitivity and credit risk in the origination and purchase of residential mortgage loans as well as in the management of our portfolios of mortgage servicing rights, mortgage loans held for investment and retained interests from our securitizations.
 
  •  Experienced leadership. Each member of our current executive team is a seasoned professional in the residential real estate finance industry. Each of our co-chief executive officers has more than 20 years of experience in the residential real estate finance industry and has been with us for more than 15 years.

Our Strategy
      We intend to grow and strengthen our competitive position through the continued implementation of our business strategy, which includes:
  •  Focusing on market leadership. We strive to be the partner of choice in all of the markets in which we operate. We plan to continue investing in our brands, new technologies and product development to increase our market share of loan production through both our direct lending efforts and our networks of correspondent lenders and mortgage brokers.
 
  •  Promoting stable growth by continuing to balance and diversify our business. We believe that building sustainable earnings in the residential real estate finance industry requires a balanced approach to growth. To that end, we plan to manage toward an appropriate ratio of our lending market share to our servicing market share, in order to mitigate our risk of earnings volatility across various market environments. We expect to continue to leverage our technical capabilities and economies of scale to be a low-cost provider of mortgage loan products and services.
  We intend, subject to market conditions, to continue to grow our portfolio of residential mortgage loans held for investment to provide a longer-term source of income and generate an attractive risk-adjusted return. We plan to continue to use our risk management expertise to actively manage the interest rate and credit risks related to holding this portfolio of mortgage-related assets. In addition, we intend to increase our business lending activities to further develop another source of income-producing assets.

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  We plan to maintain a leading presence in all areas of the residential real estate finance industry, and innovate new products and services within the market, to reduce our exposure to any single market sector. In the United States, we plan to leverage our knowledge of the residential real estate finance industry by continuing to create a diverse range of products and services that create value for borrowers and investors. We also intend to increase our activities outside the United States, both in the markets that we currently serve and in other select markets that have increasing demands for residential real estate finance or that present an opportunity for significant growth. We believe that this focused approach will allow us to maximize our use of resources and increase our return on investment in those markets.
  •  Diversifying and developing additional funding sources. We have historically relied heavily on GMAC as the major source of our unsecured funding and liquidity. We have obtained credit ratings for our business separate from those of GM and GMAC and we intend to actively develop independent sources of funding to support our future business growth. We plan to become an established unsecured debt issuer in the capital markets, significantly increase the use of GMAC Bank as a source of liquidity and further diversify our funding sources.
 
  •  Executing our strategies with disciplined leadership. We intend to achieve our strategic goals through continued disciplined execution of our business plans and prudent allocation of our capital. We require that each of our businesses support, and assist in the development of, methodologies, competencies, processes, metrics and a culture that safeguards and grows our businesses.
Corporate History
      We are a wholly-owned subsidiary of GMAC Mortgage Group, Inc., which is a wholly-owned subsidiary of GMAC. GMAC is a wholly-owned subsidiary of GM. We were formed in August 2004.
      GMAC entered the residential real estate finance industry in 1985 through its acquisition of Colonial Mortgage Service Company, which was formed in 1926, and the loan administration, servicing operations and portfolio of Norwest Mortgage, which entered the residential mortgage loan business in 1906. These businesses formed the original basis of what is today our GMAC Residential segment. In 1990, GMAC acquired Residential Funding Corporation. Created in 1982, Residential Funding Corporation was the first private mortgage conduit in the United States.
      In the 1990s we strengthened our core competencies in the residential real estate finance industry by acquiring our wholesale and warehouse lending businesses. We also acquired a distressed asset resolution business to strengthen our ability to provide special servicing for distressed residential mortgage loans and continued to acquire servicing platforms and residential mortgage loan portfolios to expand our servicing and securitization activities. In 1999, we acquired ditech.com® to increase our direct lending efforts as well as our e-commerce presence on the internet.
      As our understanding and capabilities in the residential real estate finance industry grew, we began seeking opportunities to leverage these strengths in related industries in the United States. In the early 1990s, we established our residential construction finance business, lending to homebuilders and residential land developers for the development and construction of residential housing. In 1998, we expanded into related residential real estate services by acquiring the Better Homes and Gardens® Real Estate Service network and Argonaut Relocation. In 1999, we acquired our model home finance business. In 2001, we formed GMAC Bank, a federally-chartered savings bank, and acquired our healthcare finance business. In 2002, we established our resort financing business.
      In the late 1990s and early 2000s, we also sought to leverage our understanding of the residential real estate finance industry in the United States to expand our business to foreign markets. We entered the U.K. and Mexican residential mortgage loan markets in 1998. We also entered residential real estate finance markets in The Netherlands in 2001 and in Canada and Germany in 2002.

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Our Industry
      We operate a number of businesses, including residential real estate finance, real estate brokerage services, relocation services, document custody services, consumer banking, residential construction finance, model home finance, resort finance and healthcare finance. Our core businesses are in the residential real estate finance industry.
      The U.S. residential mortgage market has been a growth market for several decades. This growth has been driven by a variety of factors including low interest rates, increasing rates of homeownership, greater access to mortgage financing, the development of an efficient secondary market, home price appreciation and the tax advantage of mortgage debt compared to other forms of consumer debt. As of December 31, 2004, there were approximately $7.9 trillion in residential mortgage loans outstanding, compared to $7.6 trillion at December 31, 2003 and $6.5 trillion at December 31, 2002. Origination of residential mortgage loans has expanded rapidly in recent years as a result of historically low interest rates, but slowed in 2004 as interest rates rose. In 2004, approximately $2.8 trillion in residential mortgage loans were funded in the United States, compared to $3.8 trillion in 2003 and $2.7 trillion in 2002.
      Prime credit quality mortgage loans are the largest component of the residential mortgage market in the United States, accounting for $2.3 trillion of originations in 2004, or approximately 82% of the total residential mortgage loans originated. Loans conforming to the underwriting standards of Fannie Mae and Freddie Mac, Veterans’ Administration-guaranteed loans and loans insured by the Federal Housing Administration collectively accounted for approximately 46%, or $1.3 trillion, of all U.S. residential mortgage production in 2004. Approximately $686 billion in U.S. residential mortgage loans produced in 2004, or 24% of all U.S. residential mortgage loans produced, were of prime credit quality but did not conform to the underwriting standards of the government-sponsored enterprises because their original principal amounts exceeded Fannie Mae or Freddie Mac limits ($333,700 in 2004 and $359,650 in 2005) or they otherwise did not meet the relevant documentation or property requirements. Home equity mortgage loans, which are typically mortgage loans secured by a second (or more junior) lien on the underlying property, continue to grow in significance within the U.S. residential real estate finance industry, and there were approximately $308 billion of these loans produced in 2004, or 11% of total production.
      The development of an efficient secondary market for residential mortgage loans, including the securitization market, has played an important role in the growth of the residential real estate finance industry. Approximately $801 billion of mortgage-backed and mortgage-related asset-backed securities were issued by private sector issuers in the United States in 2004, and another $1.0 trillion of these securities were issued by government-sponsored enterprises, primarily Fannie Mae and Freddie Mac.
      An important source of capital for the residential real estate finance industry is warehouse lending. These facilities provide funding to mortgage loan originators until the loans are sold to investors in the secondary mortgage loan market. Industry commitments were estimated to be approximately $51.2 billion as of December 31, 2004.
Our Business
U.S. Residential Real Estate Finance
      We are one of the largest residential mortgage producers and servicers in the United States, producing approximately $133 billion in residential mortgage loans in 2004 and servicing approximately $315 billion in residential mortgage loans as of March 31, 2005. We are also one of the largest non-agency issuers of mortgage-backed and mortgage-related asset-backed securities in the United States, issuing approximately $51.0 billion of these securities in 2004 and more than $341 billion since we commenced securitization activities. Additionally, we were the largest provider of warehouse lending to the residential mortgage lending industry in the United States in 2003, which is the latest date for which industry rankings are available.

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      The principal activities of our U.S. residential real estate finance business include:
  •  Originating, purchasing, selling and securitizing residential mortgage loans;
 
  •  Servicing residential mortgage loans for ourselves and others;
 
  •  Providing warehouse financing to residential mortgage loan originators and correspondent lenders to originate residential mortgage loans;
 
  •  Creating a portfolio of mortgage loans and retained interests from our securitization activities;
 
  •  Conducting limited banking activities through GMAC Bank; and
 
  •  Providing real estate closing services.
          Loan Origination and Acquisition
Sources of Loan Production
      We have three primary sources for our residential mortgage loan production: the origination of loans through our direct lending network, the origination of loans through our mortgage brokerage network and the purchase of loans in the secondary market (primarily from correspondent lenders).
Direct Lending Network
      Our direct lending network consists of retail branches, internet and telephone-based operations. Our retail network consists of approximately 320 retail offices and 1,800 loan officers targeting customers desiring face-to-face service. Typical referral sources are realtors, homebuilders, credit unions, small banks and affinity groups.
      We originate residential mortgage loans through our direct lending network using three brands:
  •  GMAC Mortgage, focusing on retail, telephone and internet lending services;
 
  •  ditech.com®, focusing on telephone and internet lending services; and
 
  •  CalDirect®, focusing on telephone and internet lending services for California residents.
We also originate mortgage loans through our participation in GM Family First, an affinity program available to GM employees, retirees and their families and employees of GM’s subsidiaries, dealers and suppliers and their families in the United States. In addition, we conduct origination activities associated with the refinancing of existing mortgage loans for which we are the primary servicer.
Mortgage Brokerage Network
      In addition to mortgage loans we originate through our direct lending network, we also originate residential mortgage loans through mortgage brokers. Loans sourced by mortgage brokers are funded by us and generally closed in our name.
      When originating loans through mortgage brokers, the mortgage broker’s role is to identify the applicant, assist in completing the loan application, gather necessary information and documents and serve as our liaison with the borrower through the lending process. We review and underwrite the application submitted by the mortgage broker, approve or deny the application, set the interest rate and other terms of the loan and, upon acceptance by the borrower and satisfaction of all conditions required by us, fund the loan. Because mortgage brokers conduct their own marketing, employ their own personnel to complete the loan applications and maintain contact with the borrowers, mortgage brokers represent an efficient loan production channel.
      We qualify and approve all mortgage brokers who generate mortgage loans for us, and we continue to monitor their performance. These mortgage brokers must complete an application, disclose certain information about their business and provide us evidence of their licenses. Upon approval, the mortgage

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brokers must enter into a standard broker agreement with us, whereby the brokers agree, among other things, to comply with all applicable laws (including consumer disclosure requirements) in connection with their mortgage loan generation activities.
      As of December 31, 2004, we had approved more than 6,300 mortgage brokers to submit loans to us. We originated loans through approximately 4,500 of these approved mortgage brokers in 2004.
Correspondent Lender and other Secondary Market Purchases
      Loans purchased from correspondent lenders are originated or purchased by the correspondent lenders, and subsequently sold to us. As with our mortgage brokerage network, we approve any correspondent lenders that participate in our loan purchase programs. In determining whether to approve a correspondent lender, we generally consider its financial status, its previous experience in originating mortgage loans and its potential loan origination volumes, its prior delinquency and loss experience (if available), its underwriting standards and quality control procedures and, if applicable, its servicing operations. Upon approval, each correspondent lender must sign an agreement with us to originate loans in accordance with the underwriting standards and procedures required by our loan programs. These agreements also require that the correspondent lender originate its loans in accordance with all applicable laws.
      As of December 31, 2004, we had approved more than 1,400 correspondent lenders from which we may purchase mortgage loans. We purchased mortgage loans from more than 1,100 of these approved correspondent lenders during 2004.
      We also purchase pools of residential mortgage loans from entities other than correspondent lenders, which we refer to as bulk purchases. These purchases are generally made from large financial institutions. In connection with these purchases, we typically conduct due diligence on all or a sampling of the mortgage pool and use our underwriting technology to determine if the loans meet the underwriting requirements of our loan programs.
      Some of the residential mortgage loans we obtain in bulk purchases are “seasoned” or “distressed.” Seasoned mortgage loans are loans that generally have been funded for more than 12 months. Distressed mortgage loans are loans that are currently in default or otherwise not performing. We sometimes also obtain foreclosed properties as part of these bulk purchases. In 2004 we spent approximately $1.7 billion to purchase seasoned and distressed mortgage loans. For more information regarding our treatment of seasoned and distressed loans, see the discussion under the heading “— Our U.S. Residential Real Estate Finance Operating Segments — Residential Capital Group — Seasoned and Distressed Mortgage Loans.”
      Summary of Production Channels
      The following table summarizes our U.S. residential mortgage loan production by channel:
                                                                                   
    U.S. Mortgage Loan Production by Channel
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Retail branches
    27,847     $ 4,197       33,230     $ 4,034       134,160     $ 18,012       249,478     $ 28,881       172,881     $ 21,284  
Direct lending (other than retail branches)
    38,554       4,284       39,379       4,718       148,343       16,209       232,792       31,411       181,994       20,237  
Mortgage brokers
    29,173       4,764       26,029       3,687       111,571       16,302       143,353       21,522       110,061       16,552  
Correspondent lender and secondary market purchases
    124,149       20,341       115,475       16,272       533,459       82,504       586,561       89,406       392,809       58,649  
                                                             
 
Total U.S. mortgage loan production
    219,723     $ 33,586       214,113     $ 28,711       927,533     $ 133,027       1,212,184     $ 171,220       857,745     $ 116,722  
                                                             

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      Types of Mortgage Loans
      We originate and acquire mortgage loans that generally fall into one of the following five categories:
  •  Prime Conforming Mortgage Loans — These are prime credit quality first-lien mortgage loans secured by single-family residences that meet or “conform” to the underwriting standards established by Fannie Mae or Freddie Mac for inclusion in their guaranteed mortgage securities programs.
 
  •  Prime Non-Conforming Mortgage Loans — These are prime credit quality first-lien mortgage loans secured by single-family residences that either (1) do not conform to the underwriting standards established by Fannie Mae or Freddie Mac, because they have original principal amounts exceeding Fannie Mae and Freddie Mac limits ($333,700 in 2004 and $359,650 in 2005), which are commonly referred to as jumbo mortgage loans, or (2) have alternative documentation requirements and property or credit-related features (e.g., higher loan-to-value or debt-to-income ratios) but are otherwise considered prime credit quality due to other compensating factors.
 
  •  Government Mortgage Loans — These are first-lien mortgage loans secured by single-family residences that are insured by the Federal Housing Administration or guaranteed by the Veterans Administration.
 
  •  Nonprime Mortgage Loans — These are first-lien and certain junior lien mortgage loans secured by single-family residences, made to individuals with credit profiles that do not qualify for a prime loan, have credit-related features that fall outside the parameters of traditional prime mortgage products or have performance characteristics that otherwise expose us to comparatively higher risk of loss.
 
  •  Prime Second-Lien Mortgage Loans — These are open- and closed-end mortgage loans secured by a second or more junior lien on single-family residences, which include home equity mortgage loans.
      The following table summarizes our U.S. residential mortgage loan production by type:
                                                                                   
    U.S. Mortgage Loan Production by Type
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Prime conforming mortgage loans
    77,527     $ 14,206       80,403     $ 12,967       276,129     $ 45,593       557,618     $ 89,259       365,496     $ 55,155  
Prime non-conforming mortgage loans
    42,115       10,078       24,775       5,694       163,260       43,473       139,759       38,093       117,982       33,418  
Government mortgage loans
    9,404       1,197       4,550       536       40,062       4,834       49,988       4,929       30,234       3,399  
Nonprime mortgage loans
    40,011       5,617       62,419       7,587       217,344       27,880       239,142       29,763       175,878       17,485  
Prime second-lien mortgage loans
    50,666       2,488       41,966       1,927       230,738       11,247       225,677       9,176       168,155       7,265  
                                                             
 
Total U.S. mortgage loan production
    219,723     $ 33,586       214,113     $ 28,711       927,533     $ 133,027       1,212,184     $ 171,220       857,745     $ 116,722  
                                                             
Underwriting Standards and Quality Control
      All mortgage loans that we originate and most of the mortgage loans we purchase are subject to our underwriting guidelines and loan origination standards. When originating mortgage loans directly through our retail branches or by internet or telephone, or indirectly through mortgage brokers, we follow established lending policies and procedures that require consideration of a variety of factors, including:
  •  the borrower’s capacity to repay the loan;
 
  •  the borrower’s credit history;

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  •  the relative size and characteristics of the proposed loan; and
 
  •  the amount of equity in the borrower’s property (as measured by the borrower’s loan-to-value ratio).
      Our underwriting standards have been designed to produce loans that meet the credit needs and profiles of our borrowers, thereby creating more consistent performance characteristics for investors in our loans. When purchasing mortgage loans from correspondent lenders, we either re-underwrite the loan prior to purchase or delegate underwriting responsibility to the correspondent lender originating the mortgage loan.
      To further ensure consistency and efficiency, much of our underwriting analysis is conducted through the use of automated underwriting technology. We also conduct a variety of quality control procedures and periodic audits to ensure compliance with our origination standards, including our responsible lending standards and legal requirements. Although many of these procedures involve manual reviews of loans, we seek to leverage our technology in further developing our quality control procedures. For example, we have programmed many of our compliance standards into our loan origination systems and continue to use and develop automated compliance technology to mitigate regulatory risk.
          Sale and Securitization Activities
      We sell most of the mortgage loans we originate or purchase. In 2004, we sold $132.7 billion in mortgage loans. We typically sell our Prime Conforming Mortgage Loans in sales that take the form of securitizations guaranteed by Fannie Mae or Freddie Mac, and we typically sell our Government Mortgage Loans in securitizations guaranteed by the Government National Mortgage Association, or Ginnie Mae. In 2004, we sold $49.4 billion of mortgage loans to government-sponsored enterprises, or 37% of the total loans we sold, and $83.3 billion to other investors through whole-loan sales and securitizations, including both on-balance sheet and off-balance sheet securitizations. We hold the mortgage loans that we do not sell and the securities and subordinated interests that we retain in our securitizations as part of our investment portfolio. See “— Mortgage Loans Held for Investment and Retained Interests” for more information about our management of these retained interests. We generally retain the servicing rights with respect to loans that we sell or securitize.
      Our sale and securitization activities include developing asset sale or retention strategies, conducting pricing and hedging activities and coordinating the execution of whole-loan sales and securitizations. Specifically, we set current pricing for loan purchases, manage loan commitments and the inventory of mortgage loans awaiting sale or securitization, and hedge mortgage loans against interest-rate risk during the aggregation period, which is the time between the initial acquisition of a mortgage loan and its sale or securitization. For more information on our hedging activities, see the discussion under the heading “Risk Factors — Risks Related to Our Business — Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risk.”
      The length of time from the origination or purchase of a mortgage loan to its sale or securitization generally ranges from 10 to 100 days, depending on a variety of factors including loan volume by product type, interest rates and other capital market conditions. During 2004, we typically sold loans within 20 to 60 days of purchase or origination. We generally sell or securitize mortgage loans in the secondary market when we have accumulated a sufficient volume of mortgage loans with similar characteristics, usually $150 million to $1.5 billion in principal amount.
      In conducting our securitizations, we typically sell the related pool of mortgage loans to one of our wholly-owned special purpose entities, which then sells the loans to a separate, transaction-specific securitization trust in exchange for cash and certain trust interests that we may retain. The securitization trust issues and sells undivided interests to third party investors that entitle the investors to specified cash flows generated from the securitized loans. These undivided interests are usually represented by notes or certificates with various interest rates and are supported by the payments on the loans acquired by the trust.

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      As a result of the structure of these securitizations, the third party investors and the securitization trusts have no recourse to our assets or us and have no ability to require us to repurchase their securities, but rather have recourse only to the assets transferred to the trust. We do make certain representations and warranties concerning the mortgage loans, such as lien status or mortgage insurance coverage. If we are found to have breached a representation or warranty we could be required to repurchase the loan from the securitization trust. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Purchase Obligations and Options.” We do not guarantee any securities issued by the securitization trusts as part of our securitizations. In the past, however, we have provided guarantees or pledged collateral to third party credit enhancement providers in support of certain securitization activities. These guarantees and pledged collateral had an aggregate maximum potential liability of $357.6 million as of March 31, 2005. To date, no claims have been made under these guarantees, nor has any of the collateral been subject to any claims.
      In addition to the cash we receive in exchange for the mortgage loans we sell to the securitization trust, we often retain interests in the securitization trust as partial payment for the loans and generally hold these retained interests in our investment portfolio. These retained interests may take the form of mortgage-backed or mortgage-related asset-backed securities (including senior and subordinated interests), interest-only, principal-only, investment grade, non-investment grade or unrated securities. We are entitled to receive payment on our subordinated retained interests only after the investors holding more senior interests are repaid their investment plus interest and there is excess cash remaining in the securitization trust. Thus, the subordinated interests we retain serve as credit enhancement for the more senior securities issued by the securitization trust. Our ability to receive payment on our retained interests depends on the performance of the underlying mortgage loans, and material adverse changes in performance of the loans, including actual credit losses and prepayment speeds, could have a material adverse effect on the value of these retained interests. See “Risk Factors — Risks Related to Our Business — Our earnings may decrease because of increases or decreases in interest rates;” “Risk Factors — Risks Related to Our Business — General business and economic conditions may significantly and adversely affect our revenues, profitability and financial condition” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Valuation of Interests in Securitized Assets” for more information regarding our accounting for these retained interests and how the value of these retained interests may be affected by events outside of our control.
      One of our wholly-owned subsidiaries is a registered broker dealer and member of the National Association of Securities Dealers, Inc. This subsidiary underwrites and distributes some of our mortgage-backed and mortgage-related asset-backed securities, and provides capital market liquidity in mortgage-backed securities and mortgage-related asset-backed securities sold by us to both institutional investors and financial institutions in the United States.
          Servicing Activities
      Although we sell most of the residential mortgage loans that we produce, we generally retain the rights to service these loans. The mortgage servicing rights we retain consist of primary and master servicing rights. Primary servicing rights represent our right to service certain mortgage loans originated or purchased and later sold on a servicing-retained basis through our securitization activities and whole-loan sales, as well as primary servicing rights we purchase from other mortgage industry participants. When we act as primary servicer, we collect and remit mortgage loan payments, respond to borrower inquiries, account for principal and interest, hold custodial and escrow funds for payment of property taxes and insurance premiums, counsel or otherwise work with delinquent borrowers, supervise foreclosures and property dispositions and generally administer the loans. Master servicing rights represent our right to service mortgage-backed and mortgage-related asset-backed securities and whole-loan packages sold to investors. When we act as master servicer, we collect mortgage loan payments from primary servicers and distribute those funds to investors in mortgage-backed and mortgage-related asset-backed securities and whole-loan packages. Key services in this regard include loan accounting, claims administration, oversight of primary servicers, loss mitigation, bond administration, cash flow waterfall calculations, investor reporting and tax reporting compliance.

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      We also occasionally purchase primary servicing rights from other mortgage industry participants or agree to provide primary mortgage servicing as a subservicer where we do not hold the corresponding servicing right (and, therefore, do not include the mortgage servicing right as an asset in our financial statements). As of March 31, 2005, we acted as primary servicer and owned the corresponding servicing rights on approximately 2.7 million residential mortgage loans having an aggregate unpaid principal balance of over $315 billion, and we acted as subservicer (and did not own the corresponding servicing rights) on approximately 113,000 loans having an aggregate unpaid principal balance of over $16.7 billion. We also acted as master servicer on more than 1 million residential mortgage loans having an aggregate principal balance of approximately $108.9 billion as of March 31, 2005 (including loans for which we are also primary servicer).
      In return for performing primary and master servicing functions, we receive servicing fees equal to a specified percentage of the outstanding principal balance of the loans being serviced and may also be entitled to other forms of servicing compensation, such as late payment fees or prepayment penalties. Our servicing compensation also includes interest income, or the “float,” earned on collections that are deposited in various custodial accounts between their receipt and our distribution of the funds to investors.
      We sometimes advance funds to investors or third parties in mortgage-backed and mortgage-related asset-backed securities and whole-loan packages, in our capacity as master or primary servicer, to cover delinquent payments on the related pool of mortgage loans and taxes and insurance premiums not covered by borrowers’ escrow funds. Any such funds that we advance are repaid using future cash flow from the pool of mortgage loans.
      The value of our mortgage servicing rights is sensitive to changes in interest rates and other factors. We have developed and implemented a hedge program to, among other things, mitigate the overall risk of impairment loss due to a change in the fair value of our mortgage servicing rights. In accordance with this hedge program, we designate hedged risk as the change in the total fair value of our capitalized mortgage servicing rights. The success or failure of this hedging program may have a material effect on our results of operations. For additional information regarding our mortgage servicing rights hedged risk and how we manage this risk, see the discussion under the headings “Risk Factors — Risks Related to Our Business — Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Valuation of Mortgage Servicing Rights.”
      The following table sets forth the types of residential mortgage loans comprising our primary servicing portfolio for which we hold the corresponding mortgage servicing rights:
                                                                                   
    U.S. Mortgage Loan Servicing Portfolio
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Prime conforming mortgage loans
    1,349,633     $ 172,022       1,271,836     $ 147,838       1,323,918     $ 165,577       1,309,295     $ 153,693       1,418,874     $ 150,424  
Prime non-conforming mortgage loans
    214,874       60,363       226,952       52,116       203,822       55,585       178,334       43,951       212,462       42,918  
Government mortgage loans
    191,544       18,495       200,542       18,249       191,844       18,328       191,023       17,594       230,085       21,174  
Nonprime mortgage loans
    492,978       50,478       505,456       48,412       505,929       51,139       486,634       45,747       383,131       31,431  
Prime second-lien mortgage loans
    448,594       13,921       347,485       9,660       445,396       13,718       358,761       9,522       313,315       8,267  
                                                             
 
Total U.S. mortgage loans serviced
    2,697,623     $ 315,279       2,552,271     $ 276,275       2,670,909     $ 304,347       2,524,047     $ 270,507       2,557,867     $ 254,214  
                                                             

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      The following table sets forth information concerning the delinquency experience, including pending foreclosures, on residential mortgage loans that generally complied with our underwriting criteria at the time of origination or purchase and for which we were the primary servicer as of the dates indicated. We do not have direct credit exposure on most of these mortgage loans; our direct exposure is limited to those mortgage loans held for investment or sale and those loans for which we have retained interests, which collectively represented approximately 21% of the loans we service as of December 31, 2004. The determination as to whether a loan falls into a particular delinquency category is made as of the close of business on the last business day of each month.
                                                                                   
    U.S. Mortgage Loan Servicing Portfolio Delinquency
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Total U.S. mortgage loans serviced
    2,697,623     $ 315,279       2,552,271     $ 276,275       2,670,909     $ 304,347       2,524,047     $ 270,507       2,557,867     $ 254,214  
                                                             
Period of delinquency(1)(2)
                                                                               
 
30 to 59 days
    62,111       6,963       64,035       6,493       74,344       8,021       74,813       7,736       66,918       6,309  
 
60 to 89 days
    16,954       1,783       18,632       1,835       21,627       2,066       21,479       2,156       18,062       1,636  
 
90 days or more
    26,673       2,130       36,983       3,300       26,495       2,376       24,160       2,119       25,180       1,966  
Foreclosures pending
    34,089       3,543       28,907       2,833       37,712       3,458       32,624       3,383       27,287       2,597  
                                                             
Total delinquent loans
    139,827     $ 14,419       148,557     $ 14,461       160,178     $ 15,921       153,076     $ 15,394       137,447     $ 12,508  
                                                             
Percent of U.S. mortgage loans serviced
    5.18 %     4.57 %     5.82 %     5.23 %     6.00 %     5.23 %     6.06 %     5.69 %     5.37 %     4.92 %
 
(1)  As used in this discussion, prime credit quality loans and some of our other mortgage loans are considered to be 30 or more days delinquent when a payment due remains unpaid as of the close of business on the last business day immediately prior to the next following monthly due date.
 
(2)  Does not include foreclosures pending.
      The delinquency and pending foreclosure information set forth above may not be representative of the results we will experience on any mortgage loans we produce and service in the future.
          Warehouse Lending
      We are the largest provider of warehouse lending facilities to correspondent lenders and other mortgage originators in the United States. These facilities enable those lenders and originators to finance residential mortgage loans until they are sold in the secondary mortgage loan market. We provide warehouse lending facilities for a full complement of residential mortgage loans, including mortgage loans that we acquire through our correspondent lenders. We provide some of our warehouse lending facilities through GMAC Bank.
      Advances under our warehouse lending facilities are generally fully collateralized by the underlying mortgage loans and bear interest at variable rates. Our warehouse lending facilities generally have a one-year term that may be renewed or extended, although some of our warehouse lending facilities have up to a four-year term. In addition, we also make lines of credit and term loans available to a limited number of our correspondent lenders to finance the acquisition of servicing rights, the retention of interest-only securities and other residual interests in their securitizations or for general working capital purposes.
      As of March 31, 2005, we had total warehouse line of credit commitments of approximately $15.3 billion, against which we had advances outstanding of approximately $8.4 billion. We purchased approximately 14% of the mortgage loans financed by our warehouse lending facilities in 2004.

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          Mortgage Loans Held for Investment and Retained Interests
      We hold a portfolio of assets consisting of (1) residential mortgage loans held for investment, including residential mortgage loans sold in on-balance sheet securitizations and (2) retained interests from our securitization activities. As of March 31, 2005, the principal balance of our mortgage loan portfolio was approximately $52.4 billion and the fair value of our retained interests was approximately $744.8 million. We hold a portion of this portfolio through GMAC Bank. Our portfolio of mortgage loans and retained interests provides a longer-term source of revenues as we recognize interest income from the underlying mortgage loans.
      Our portfolio of residential mortgage loans held for investment and retained interests includes some residential mortgage loans we own directly, having decided to hold these loans in our portfolio instead of selling them through whole-loan sales or securitizations. A decision to retain certain assets in our portfolio is dependent upon a variety of factors, including the type of mortgage product, the interest rate environment, general economic conditions, the availability of efficient funding sources and other factors in the capital markets. These factors impact our assessment of the value of the asset and its ability to generate revenues over time. As discussed above under the heading “— Sale and Securitization Activities,” the interests that we retain from our securitizations may include mortgage-backed or mortgage-related asset-backed securities (including senior and subordinated interests), interest-only, principal-only, investment grade, non-investment grade or unrated securities. Our ability to obtain repayment on our retained interests depends on the performance of the underlying mortgage loans, and material adverse changes in performance of the loans, including actual credit losses and increased prepayment speeds, could have a material adverse effect on the value of these retained interests. See “Risk Factors — Risks Related to Our Business — Our earnings may decrease because of increases or decreases in interest rates;” “Risk Factors — Risks Related to Our Business — General business and economic conditions may significantly and adversely affect our revenues, profitability and financial condition” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Valuation of Interests in Securitized Assets” for more information regarding our accounting for these retained interests and how the value of these retained interests may be affected by events outside our control.
      We own in our portfolio retained interests from securitizations for which we recognized a gain on sale. We also have mortgage loans that appear on our balance sheet because they were securitized through transactions structured as on-balance sheet securitizations under generally accepted accounting principles. In contrast to the more common off-balance sheet securitizations, we do not recognize a gain on sale in our on-balance sheet securitizations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Understanding our Financial Results — On- and Off-Balance Sheet Securitizations” for more information regarding these on-balance sheet securitizations.
      We develop and maintain loss and prepayment models based on loan attributes and anticipated market developments that are used to monitor our portfolio performance, establish reserve levels and enable risk-based pricing of future mortgage production. For more information regarding our loss and prepayment models and the risks inherent in these models, see the discussion under the headings “Risk Factors — Risks Related to Our Business — Our earnings may decrease because of increases or decreases in interest rates” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates.”
          Other Related Real Estate Finance Activities
      As an extension of our real estate finance business, we own GMAC Bank, a federally chartered savings bank, which provides us access to an additional source of funding for our U.S. residential real estate finance business. GMAC Bank also participates in many of our U.S. residential real estate finance business activities, and provides collateral/pool certification and collateral document custodial services to our U.S. residential real estate finance business and third party customers.
      GMAC Bank also provides individual banking products and other investment services to consumers through a single branch in Delaware and online at www.gmacbank.com. These products primarily include

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consumer deposits, money market accounts, student loans, online banking and bill payment services, as well as residential mortgage and home equity loans and lines of credit. GMAC Bank’s consumer business is targeted at participants in GM Family First and other customers of our U.S. residential real estate finance business. Through GMAC Bank, we also may, from time to time, based on independent analysis of underwriting criteria, provide real-estate secured financing to GM automotive dealers for purposes of refinancing existing debt or to expand existing dealer real estate holdings. If any of these financings become delinquent for a period of at least 60 days, we have the right to require that GMAC purchase the delinquent loans for the amount of unpaid principal plus accrued interest and additional costs. As of March 31, 2005, there were $86.6 million of such automotive dealer loans outstanding.
      As of March 31, 2005, GMAC Bank had $4.8 billion in assets, with more than $2.0 billion in customer deposits. A significant portion of GMAC Bank’s deposit liabilities (approximately 76% as of March 31, 2005) consists of custodial funds deposited by other parts of our business.
      We also provide real estate closing services, such as obtaining flood and tax certifications, appraisals, credit reports and title insurance.
      Our captive reinsurer, CapRe of Vermont, Inc., provides reinsurance of private mortgage insurance on loans we or our correspondent lenders originate. As of March 31, 2005, CapRe of Vermont had reinsurance agreements covering $14.1 billion in active original principal mortgage loans.
          Our U.S. Residential Real Estate Finance Operating Segments
      We carry out our U.S. residential real estate finance operations, and manage and report our financial information for these operations, through two operating segments: GMAC Residential and Residential Capital Group.
GMAC Residential
      GMAC Residential is headquartered in Horsham, Pennsylvania and offers residential mortgage and mortgage-related products and services to consumers and businesses throughout the United States. We also operate GMAC Bank and our CapRe of Vermont reinsurance business through our GMAC Residential segment.
      The residential real estate finance business of our GMAC Residential segment has a greater focus on the direct origination of mortgage loans with consumers of prime credit quality that generally conform to the underwriting requirements of Fannie Mae or Freddie Mac than does the Residential Capital Group business. Our GMAC Residential segment is one of the largest residential mortgage originators and servicers in the United States.
Sources of Loan Production
      We conduct substantially all of our direct origination of mortgage loans in our GMAC Residential segment through retail branches and our direct lending network. In addition, GMAC Residential originates mortgage loans through mortgage brokers and purchases of mortgage loans from correspondent lenders. We produced approximately $87.4 billion in residential mortgage loans in 2004 through GMAC Residential.

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      The following table summarizes GMAC Residential’s loan production by channel:
                                                                                   
    GMAC Residential Mortgage Loan Production by Channel
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Retail branches
    27,847     $ 4,197       33,230     $ 4,034       134,160     $ 18,012       249,478     $ 28,881       172,881     $ 21,284  
Direct lending (other than retail branches)
    37,261       4,049       38,077       4,477       143,316       15,302       223,199       29,226       173,710       18,405  
Mortgage brokers
    7,538       1,551       2,154       346       14,172       2,524       20,033       3,188       17,533       2,630  
Correspondent lenders
    63,247       12,507       52,151       8,832       289,974       51,609       317,720       53,159       186,314       29,299  
                                                             
 
Total mortgage loan production
    135,893     $ 22,304       125,612     $ 17,689       581,622     $ 87,447       810,430     $ 114,454       550,438     $ 71,618  
                                                             
Types of Mortgage Loans
      The following table summarizes GMAC Residential’s loan production by type:
                                                                                   
    GMAC Residential Mortgage Loan Production by Type
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Prime conforming mortgage loans
    77,585     $ 14,211       80,133     $ 12,918       276,444     $ 45,635       558,204     $ 89,271       367,612     $ 55,407  
Prime non-conforming mortgage loans
    14,724       5,119       10,866       2,775       101,883       28,521       41,202       13,451       23,391       7,010  
Government mortgage loans
    9,404       1,197       4,550       536       40,062       4,834       49,988       4,929       30,234       3,399  
Nonprime mortgage loans
    913       44       767       35       3,854       178       1,560       70       5,623       220  
Prime second-lien mortgage loans
    33,267       1,733       29,296       1,425       159,379       8,279       159,476       6,733       123,578       5,582  
                                                             
 
Total mortgage loan production
    135,893     $ 22,304       125,612     $ 17,689       581,622     $ 87,447       810,430     $ 114,454       550,438     $ 71,618  
                                                             
Automated Underwriting Technology and Bulk Purchases
      Loan applications for Prime Conforming Mortgage Loans, Government Mortgage Loans and Prime Non-Conforming Mortgage Loans for loan amounts or combined loan amounts less than $850,000 that are originated or purchased by GMAC Residential are submitted to an automated underwriting system. For these types of loans, GMAC Residential uses Fannie Mae’s Desktop Underwriter® program or Freddie Mac’s Loan Prospector® program. These automated underwriting systems are used to underwrite conventional, government-insured and certain non-conforming loans based on established guidelines. GMAC Residential also uses its proprietary Engenious® program to select and in certain instances to underwrite a variety of mortgage loans other than Prime Conforming Mortgage Loans. Loan applications for amounts exceeding $850,000 are underwritten using a combination of agency tools and proprietary models, including Engenious®.
Sale and Securitization Activities
      GMAC Residential sells most of the mortgage loans it originates or purchases. GMAC Residential primarily sells these mortgage loans (58% in 2004) in sales that take the form of securitizations guaranteed by government-sponsored enterprises, primarily Fannie Mae and Freddie Mac, and also sells mortgage loans to other investors through whole-loan sales or securitizations. The loans that GMAC Residential does not sell are generally held at GMAC Bank as part of our portfolio of mortgage loans held for investment.

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Servicing Activities
      GMAC Residential generally retains the servicing rights with respect to loans it sells or securitizes, and also occasionally purchases mortgage servicing rights from other servicers or acts as a subservicer of mortgage loans (and does not hold the corresponding mortgage servicing right asset). As of March 31, 2005, GMAC Residential managed, as primary servicer, a portfolio of approximately 2.0 million loans with an aggregate unpaid principal balance of approximately $228 billion and, as subservicer, a portfolio of approximately 113,000 loans with an aggregate unpaid principal balance of approximately $16.7 billion. GMAC Residential also managed, as master servicer, a portfolio of more than 240,000 loans with an aggregate unpaid principal balance of approximately $14.2 billion as of March 31, 2005 (including loans for which GMAC Residential also serves as primary servicer). GMAC Residential has earned the highest possible ratings from each of Standard & Poor’s and Fitch, Inc. for both master and primary servicing in every category of residential mortgage loans it services except for special and nonprime servicing, where GMAC Residential earned the second highest possible rating from Standard & Poor’s.
      The following table sets forth the types of residential mortgage loans comprising GMAC Residential’s primary servicing portfolio for which it held the corresponding mortgage servicing rights:
                                                                                   
    GMAC Residential Mortgage Loan Servicing Portfolio
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Prime conforming mortgage loans
    1,349,002     $ 171,969       1,270,929     $ 147,758       1,323,249     $ 165,521       1,308,284     $ 153,601       1,418,843     $ 150,421  
Prime non-conforming mortgage loans
    59,267       26,869       82,451       22,389       53,119       23,604       34,041       13,937       36,225       12,543  
Government mortgage loans
    191,544       18,495       200,542       18,249       191,844       18,328       191,023       17,594       230,085       21,174  
Nonprime mortgage loans
    19,545       701       22,721       784       20,227       718       23,818       820       33,317       1,164  
Prime second-lien mortgage loans
    336,444       9,967       243,857       6,196       330,107       9,656       258,310       6,203       228,099       5,502  
                                                             
 
Total mortgage loans serviced
    1,955,802     $ 228,001       1,820,500     $ 195,376       1,918,546     $ 217,827       1,815,476     $ 192,155       1,946,569     $ 190,804  
                                                             
Warehouse Lending
      Primarily through GMAC Bank, GMAC Residential provides warehouse lending facilities to mortgage originators to finance residential mortgage loans. GMAC Residential had warehouse line of credit commitments of approximately $2.3 billion as of March 31, 2005, against which it had advances outstanding of approximately $1.0 billion. GMAC Residential’s warehouse lending business concentrates on providing warehouse lines of credit to mortgage brokers transitioning to correspondent lending. As a result, GMAC Residential’s warehouse lending customers typically have a smaller warehouse line of credit and net worth than Residential Capital Group’s warehouse lending customers.
Residential Capital Group
      Headquartered in Minneapolis, Minnesota, our Residential Capital Group focuses primarily on the purchase of residential mortgage loans in the secondary market and the origination of loans through mortgage brokers. The Residential Capital Group’s mortgage loans cover a broad spectrum of the credit scale, from prime to nonprime, and generally do not conform to the underwriting requirements of Fannie Mae or Freddie Mac. The Residential Capital Group’s mortgage loans are generally considered non-conforming because of the size of the loans or because they have more expansive documentation, property or credit-related features (e.g., higher debt-to-income or loan-to-value ratios).
      Our Residential Capital Group was the third-largest non-agency issuer of mortgage-backed and mortgage-related asset-backed securities in the United States in 2004. The Residential Capital Group has issued approximately $311 billion of cumulative mortgage-backed and mortgage-related asset-backed

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securities since its inception in 1982, with $42.2 billion having been issued in 2004. The Residential Capital Group is also a leading provider of wholesale funding services to U.S. mortgage brokers for the origination of residential mortgage loans and was the largest provider of warehouse lending to the residential mortgage lending industry in the United States in 2003, which is the latest date for which industry rankings are available. The Residential Capital Group is also a leading primary and master servicer of residential mortgage loans and serves in that capacity for most of the loans it originates or purchases.
Sources of Loan Production
      Our Residential Capital Group purchases first- and second-lien residential mortgage loans from correspondent lenders throughout the United States and in the secondary market from entities other than correspondent lenders. The Residential Capital Group also originates first- and second-lien residential mortgage loans in the United States, primarily through mortgage brokers to whom it provides wholesale funding. In addition to these origination activities through mortgage brokers, the Residential Capital Group also originates mortgage loans directly through its HomeComings brand in connection with refinancing activities related to mortgage loans it services.
      The following table summarizes the Residential Capital Group’s loan production by channel:
                                                                                   
    Residential Capital Group U.S. Mortgage Loan Production by Channel
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Direct lending
    1,293     $ 235       1,302     $ 241       5,027     $ 907       9,593     $ 2,185       8,284     $ 1,832  
Mortgage brokers
    21,635       3,213       23,875       3,341       97,399       13,778       123,320       18,334       92,528       13,922  
Correspondent lender and secondary market purchases
    67,375       8,843       71,896       8,701       274,941       35,517       330,710       45,259       257,492       36,632  
                                                             
 
Total U.S. mortgage loan production
    90,303     $ 12,291       97,073     $ 12,283       377,367     $ 50,202       463,623     $ 65,778       358,304     $ 52,386  
                                                             
Types of Mortgage Loans
      Our Residential Capital Group’s origination and purchase strategies emphasize the production of prime non-conforming mortgage loans, nonprime mortgage loans and prime second-lien mortgage loans. When the Residential Capital Group acquires prime conforming mortgage loans or government mortgage loans it generally sells those loans to GMAC Residential, which then typically sells the loans in the form of securitizations guaranteed by Fannie Mae or Freddie Mac or, in the case of Government Mortgage Loans, Ginnie Mae.
      The following table summarizes the Residential Capital Group’s loan production by type:
                                                                                   
    Residential Capital Group U.S. Mortgage Loan Production by Type
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Prime conforming mortgage loans
    6,415     $ 1,004       8,842     $ 1,309       31,141     $ 4,580       61,283     $ 9,000       48,881     $ 7,030  
Prime non-conforming mortgage loans
    27,391       4,959       13,909       2,919       61,377       14,952       98,557       24,642       94,591       26,408  
Government mortgage loans
                                                           
Nonprime mortgage loans
    39,098       5,572       61,652       7,553       213,490       27,702       237,582       29,693       170,255       17,265  
Prime second-lien mortgage loans
    17,399       755       12,670       502       71,359       2,968       66,201       2,443       44,577       1,683  
                                                             
 
Total U.S. mortgage loan production
    90,303     $ 12,291       97,073     $ 12,283       377,367     $ 50,202       463,623     $ 65,778       358,304     $ 52,386  
                                                             

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Automated Underwriting Technology and Bulk Purchases
      To help ensure consistency and efficiency in its production of residential mortgage loans, much of the Residential Capital Group’s underwriting analysis is conducted through the use of its proprietary underwriting technology, Assetwise Directsm. This proprietary technology implements automated decision, pricing and integration tools that extend mortgage products and risk management and pricing strategies to points of origination, and facilitates secondary market acquisition of mortgage loans.
Sale and Securitization Activities
      Our Residential Capital Group sells nearly all of the mortgage loans it produces, primarily through its securitization programs or in whole-loan sales to third-party investors.
      As part of its securitization activities, the Residential Capital Group segregates the types of mortgage loans it acquires into specific securitization programs, each having distinct underlying collateral characteristics. By securitizing mortgage loans with similar prepayment and credit-related characteristics through dedicated securitization programs, we believe that we are able to more efficiently obtain funding for those assets through the capital markets.
Servicing Activities
      Our Residential Capital Group acts as the primary servicer of most of the residential mortgage loans it obtains and as the master servicer of substantially all of the loans it sells in whole-loan sales and securitizations. As of March 31, 2005, the Residential Capital Group managed, as primary servicer, a portfolio of approximately 742,000 loans with an aggregate unpaid principal balance of approximately $87 billion. The Residential Capital Group also managed, as master servicer, a portfolio of approximately 772,000 loans with an aggregate unpaid principal balance of approximately $95 billion (including loans for which the Residential Capital Group also serves as primary servicer). The Residential Capital Group has earned the highest possible ratings from each of Standard & Poor’s, Moody’s Investors Service and Fitch for both master and primary servicing in every category of residential mortgage loans it services except for its primary servicing of nonprime loans and special servicing, in which the Residential Capital Group earned the second-highest rating from Moody’s Investors Service. The Residential Capital Group’s special servicing has not received a rating from Standard & Poor’s.
      The following table sets forth the types of residential mortgage loans comprising the Residential Capital Group’s primary servicing portfolio for which it held the corresponding mortgage servicing rights:
                                                                                   
    Residential Capital Group U.S. Mortgage Loan Servicing Portfolio
     
    For the Three Months Ended March 31,   For the Year Ended December 31,
         
    2005   2004   2004   2003   2002
                     
        Dollar       Dollar       Dollar       Dollar       Dollar
    No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of   No. of   Amount of
    Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans   Loans
                                         
    (Dollars in millions)
Prime conforming mortgage loans
    631     $ 53       906     $ 80       669     $ 56       1,011     $ 92       31     $ 3  
Prime non-conforming mortgage loans
    155,607       33,494       144,501       29,727       150,703       31,981       144,293       30,014       176,237     $ 30,375  
Government mortgage loans
                                                           
Nonprime mortgage loans
    473,433       49,777       482,735       47,628       485,702       50,421       462,816       44,927       349,814       30,267  
Prime second-lien mortgage loans
    112,150       3,954       103,628       3,464       115,289       4,062       100,451       3,319       85,216       2,765  
                                                             
 
Total U.S. mortgage loans serviced
    741,821     $ 87,278       731,770     $ 80,899       752,363     $ 86,520       708,571     $ 78,352       611,298     $ 63,410  
                                                             

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Warehouse Lending
      Our Residential Capital Group is the largest warehouse lender for residential mortgage loans in the United States, and had total warehouse line of credit commitments of approximately $13 billion as of March 31, 2005, against which it had advances outstanding of approximately $7.4 billion.
Seasoned and Distressed Mortgage Loans
      Our Residential Capital Group purchases seasoned and distressed residential mortgage loans. Many of its seasoned loans are acquired from previously sold or securitized pools that have been paid down to less than 10% of their original aggregate principal balance, and were therefore “called” out of these deals because administering such a small pool is economically inefficient. The Residential Capital Group purchases other seasoned loans in the secondary market. We purchase distressed residential mortgage loans with the goal of resolving or restructuring them through special servicing activities, and then selling them through securitizations or whole-loan transactions. The Residential Capital Group obtains resolution of these mortgage loans by working with the borrower to return the loan to performing status (in some cases under renegotiated terms), obtaining a payoff of the loan or selling the underlying residential property. In 2004, the Residential Capital Group acquired more than $5.2 billion of face-amount seasoned mortgage loans, of which $3.5 billion were called loans and $1.7 billion were distressed mortgage loans. The Residential Capital Group also securitized approximately $2.2 billion of seasoned and reperforming distressed mortgage loans in 2004.
Business Capital
      Our Business Capital Group conducts the following business activities: residential construction finance, residential equity, model home finance, resort finance and health capital. The residential construction finance, residential equity and model home finance businesses all provide capital to residential land developers and homebuilders to finance residential real estate projects for sale, using a variety of capital structures. The resort finance business provides debt capital to resort and timeshare developers and the health capital business provides debt capital to health care providers, primarily in the health care services sector. We have historically retained and serviced most of the loans and investments that we originate in the Business Capital Group.
      In almost all cases, we source our transactions either through our loan officers or referrals. Our residential construction finance, residential equity and model home finance businesses have relationships with many large homebuilders and residential land developers across the United States. Our resort finance business has relationships primarily with large private timeshare developers and our health capital business has relationships with physician groups and other healthcare service providers. We believe that we have been able to provide creative capital solutions tailored to our customers’ individual needs, resulting in strong relationships with our customers. Because of these relationships, we have been able to conduct multiple and varied transactions with these customers to expand our business.
      A principal risk for our business capital lending activities is credit risk. We review potential business capital transactions through separate credit committees for each of the five businesses. Each credit committee is composed of the president, chief financial officer and chief credit officer of our Business Capital Group as well as the senior executive of that business. The credit committees review all transactions and significant amendments and modifications to size, term, credit, structure and other material terms of the transactions. Our lending products are underwritten by reviewing the client’s corporate and legal information and its historical operating performance, becoming familiar with and understanding the management teams and, in the case of specific projects to be financed, obtaining financial and legal information for the project including appraisals, pro forma cash flow statements and market analysis. See “Risk Factors — Risks Related to Our Business — Our business capital activities expose us to additional risks that may adversely affect our revenues and profitability” for more information regarding the risks from our business capital activities.

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Residential Construction Finance
      We provide capital to homebuilders, residential land developers and related market participants for the acquisition, development and construction of residential housing developments across the United States. Customers for the debt capital provided by our residential construction business generally have high credit quality and are among the largest 200 homebuilders in the United States or are large regional residential land developers. We also provide debt capital for joint ventures formed by two or more large homebuilders, which joint ventures develop the land into for sale lots to be sold to their homebuilding entities. The residential housing developments to which we provide debt capital generally consist of entry-level, first-time or second-time move-up housing. This debt capital primarily takes the form of first-lien loans and working capital loans to finance specific projects.
      Our residential construction loans generally range in size from $25 million up to $300 million, with most between $40 million and $50 million. The first-lien loans generally have terms of 36 months to 60 months. As of March 31, 2005, we had total first-lien and working capital commitments of approximately $3.5 billion, with $2.0 billion in outstanding principal.
      We also make equity investments with certain of our customers in specially created single purpose entities to acquire residential projects and a limited amount of other types of real estate. Our practice has been to not provide the debt financing for projects in which we have made an equity investment. We make these equity investments only with customers with which we have developed strong relationships after providing other capital solutions. We also own a large equity interest in one large regional homebuilder, although we do not control the management of that entity. As of March 31, 2005, we had total equity investments of approximately $229.2 million in specific project and entity investments.
Residential Equity
      We provide mezzanine debt financing to homebuilders and residential land developers. The financing generally covers 80% to 90% of the homebuilder’s or developer’s required equity contribution for a particular project. Projects for which we provide mezzanine financing comprise both single- and multi-family housing, including conversion of properties to condominiums. The borrowers under these loans are usually single-purpose entities specifically formed to acquire and own a single project. Our mezzanine loans are generally secured by the homebuilder’s or developer’s ownership interest in the single-purpose entity.
      Each of the projects to which we provide mezzanine debt financing has a senior lender that provides a much larger acquisition, development and/or construction loan that is secured by the project itself. Some of the loans also have partial payment and/or performance guarantees from related companies or the principals of the borrower. We have also provided mezzanine financing to the operator of a series of mobile home developments. The proceeds of these mezzanine loans are used to finance a portion of the land acquisition costs, but not for costs of operating the developments. These loans are secured by the operator’s equity interest in the financed developments.
      Customers of our residential equity business are typically privately owned and are smaller than customers of our residential construction finance business, although we do provide mezzanine loans to some of the customers of our residential construction finance business. These loans generally range in size from $4 million to $6 million, and have a term no longer than three years. As of March 31, 2005, we had commitments of approximately $333.5 million of mezzanine financings with $302.4 million in principal outstanding.
Model Home Finance
      Within the model home finance business, we offer two major products — a model home lease program and a lot option program. The customers in our model home finance business are generally larger, publicly owned homebuilders that have demonstrated strong financial performance. Our model home finance customers are often customers of our residential construction finance business.

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      In our model home lease program, the homebuilder builds the model home for us and we subsequently lease the model home to the homebuilder for use as a sales model. The homebuilder agrees to lease the model home at a lease rate tied to a monthly floating interest rate. The historical lease length has been approximately 18 months. We generally contract with the homebuilders to sell the model homes, for which we pay the homebuilder a market commission.
      In our lot option program, we purchase land that the homebuilder has designated and simultaneously enter into a contract with the homebuilder to develop the land into completed lots. We also enter into an option contract with the homebuilder to purchase the finished lots. We typically hold the lots for a period of 24 to 60 months. The customers for this program are the same customers to whom we offer the model home lease program.
      As of March 31, 2005, we had more than 2,900 model homes under lease with a net book value of approximately $689 million, and we owned approximately 7,300 residential lots through the lot option program, with a book value of approximately $390 million.
Resort Finance
      As part of our resort finance business, we provide revolving lines of credit secured by eligible timeshare receivables consisting of consumer timeshare notes. The term of these revolving lines of credit is typically 10 years. The timeshare and resort developers use the proceeds of these loans to provide operating funds. We have entered into custodial and servicing arrangements with third parties to manage certain aspects of the administration of these loans. For certain of these customers, we will also make loans to finance the acquisition, development and construction of the timeshare resorts themselves, which are secured by a first lien on the real estate. These loans have terms of approximately 36 to 60 months.
      Customers of our resort and timeshare financing are generally privately owned mid-size resort and timeshare developers. Although we have historically only provided financing for developments located in the United States, we may also consider projects outside the United States. Our commitments to any single customer are generally between $10 million and $250 million, with an amount outstanding of generally $10 million to $120 million. As of March 31, 2005, we had total committed working capital lines of credit of approximately $966 million, with $588 million in principal outstanding. We also had total committed facilities for the acquisition, development and construction of resort and timeshare facilities of approximately $310 million, with approximately $91 million in principal outstanding.
Health Capital
      We provide financing to healthcare-related enterprises for working capital and for acquiring other healthcare-related enterprises. Customers of our healthcare financing include physician groups, hospitals, in-home service providers, medical staffing companies, medical equipment manufacturers and distributors, in-patient/out-patient care facilities, other healthcare service providers and similar businesses. Our loans primarily take the form of working capital lines of credit secured by accounts receivable, loans based primarily on the cash flow generated by the healthcare-related enterprise or short-term loans secured by real estate.
      Customers of our accounts receivable secured lines of credit are generally not eligible for more traditional credit sources because of low equity capitalization, limited operating history, lack of profitability or small size. These lines of credit are typically between $5 million and $20 million.
      We offer cash flow loans to certain healthcare-related enterprises with better credit quality than the customers of our accounts receivable secured lines of credit. We typically require that these borrowers have financially strong equity sponsors who have contributed in cash a significant portion of the capital requirements of the enterprise. We often provide these loans in connection with the acquisition of a healthcare-related enterprise. The initial principal balance of the loans is generally between $25 million and $75 million. These loans are secured by all the assets of the enterprise, including ownership interests

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in all related entities, and all of the cash flow of the enterprise. These loans generally have terms of 36 to 60 months.
      The real estate loans we offer through our health capital business are generally short-term loans that serve as bridge financing while the borrower seeks financing insured by the U.S. Department of Housing and Urban Development. The HUD approval process may take up to 18 months or more from application to approval.
      As of March 31, 2005, our health capital business had total committed facilities of approximately $700 million with $463 million in principal outstanding.
International
      Outside the United States, our International Business Group conducts operations in the United Kingdom, The Netherlands, Germany, Canada and Mexico.
United Kingdom
      Our U.K. operations include residential mortgage loan origination, acquisition, sale and securitization. Although most loan applications are processed and underwritten at our facilities, a substantial proportion of applications are processed remotely using our automated underwriting technology in conjunction with traditional underwriting methods. Our U.K. business originated approximately $11.6 billion of residential mortgage loans in 2004, compared to approximately $8.0 billion in 2003 and $4.9 billion in 2002. We believe that we are the largest originator of nonprime residential mortgage loans in the United Kingdom.
      We securitize nonprime loans we originate in the United Kingdom and generally sell prime loans we originate through whole-loan sales to third-party investors. Although we retain primary mortgage servicing rights with respect to the loans we securitize in the United Kingdom, we outsource the servicing activities to a third party. We are the third largest issuer of residential mortgage-backed securities in the United Kingdom, with a volume of approximately $6.7 billion in 2004, $4.1 billion in 2003 and $1.7 billion in 2002.
      We distribute part of the securitizations sponsored by our U.K. and continental European businesses and part of the whole loans funded by those businesses through our U.K. securities broker. Our broker is regulated by the U.K. Financial Services Authority and distributes securities elsewhere in Europe under reciprocal regulatory arrangements of the European Union, and primarily underwrites mortgage-backed and mortgage-related asset-backed securities issued in securitizations that we sponsor.
Continental Europe
      Our operations in continental Europe are currently in The Netherlands and Germany. In The Netherlands, we originate residential mortgage loans through financial institutions and other intermediaries. We began our operations in The Netherlands in 2001 and originated approximately $1.7 billion in mortgage loans during 2004, $1.2 billion during 2003 and $600 million during 2002. As of March 31, 2005, we had conducted five securitizations of mortgage loans in The Netherlands with an aggregate principal balance of approximately $3.1 billion.
      We acquired the assets of several mortgage brokerage companies in Germany in 2002. We acquired GMAC-RFC Bank GmbH, a German bank, in 2004, and began lending operations in Germany through the bank in March 2004.
Canada
      We acquired Canada’s largest non-bank owned mortgage brokerage network in April 2002. Our mortgage brokerage network brokers loans to other Canadian lenders. We received approximately $3.6 million in brokerage fees in Canada in 2002, $6.1 million in 2003 and $9.1 million in 2004. We also originated approximately $176 million of mortgage loans through our mortgage broker network in Canada

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in 2003 and $625 million in 2004. In July 2004, we completed the first Canadian securitization of nonprime mortgage loans, which was also the first public securitization of mortgage loans in Canada since 1998. We completed an additional securitization of mortgage loans in December 2004.
Mexico
      In 2000, we began our Mexican lending operations, which provide capital to developers to acquire and develop land and build homes, mortgage lending through the acquisition of residential mortgage loans from other mortgage lenders, and warehouse facilities to other Mexican financial intermediaries to create an origination network. As of March 31, 2005, we had approximately $517 million in outstanding loans. We also co-issued the first mortgage-backed securities in Mexico in 2003, and issued additional mortgage-backed securities both on our own and with a co-issuer in 2004.
Other
      We provide real estate brokerage and full-service relocation to consumers. We provide real estate brokerage services through approximately 1,000 franchised offices with more than 21,000 sales professionals, as well as through approximately 100 company-owned offices with more than 3,400 sales professionals in markets including New England, Chicago, the New York City metropolitan area and San Francisco. Our networks of franchised real estate brokerage offices and company-owned offices are among the ten largest in the United States.
      Our global relocation services business is one of the largest providers of global relocation services with more than 25 years of experience in the United States and more than 10 years of experience outside the United States. In 2004, we provided relocation assistance for more than 12,700 households. These services include home finding, home selling, movement of goods and expense tracking for employees of our corporate clients, which include several Fortune 100 companies.
Competition
U.S. Residential Real Estate Finance
      In recent years, the level of complexity in the mortgage lending business has increased significantly due to several factors, including:
  •  Continuing evolution of the secondary mortgage market, resulting in a proliferation of mortgage products;
 
  •  Greater regulation imposed on the industry, resulting in increased costs and the need for higher levels of specialization; and
 
  •  Increasing interest rate volatility, compounded by homeowners’ increasing tendency to refinance their mortgages as the refinance process has become more efficient and cost-effective, resulting in large swings in the volume of mortgage loans originated from year to year. These swings in mortgage origination volume have placed significant operational and financial pressures on mortgage lenders.
      To compete effectively in this environment, mortgage lenders must have a very high level of operational, technological and managerial expertise. In addition, the residential mortgage business has become more capital-intensive and therefore access to capital at a competitive cost is critical. Primarily as a result of these factors, the industry has undergone considerable consolidation.
      Today, large, sophisticated financial institutions, primarily commercial banks operating through mortgage banking subsidiaries as well as Fannie Mae, Freddie Mac and Ginnie Mae, dominate the residential real estate finance industry. The largest 30 mortgage lenders combined had an 84% share of the residential mortgage loan origination market as of December 31, 2004, up from 61% as of December 31, 1999. Continued consolidation in the residential mortgage loan origination market may adversely impact our business in several respects, including increased pressure on pricing or a reduction in our sources of

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mortgage loan production if originators are purchased by our competitors. This consolidation trend has carried over to the loan servicing side of the mortgage business. The top 30 residential mortgage servicers combined had a 70% share of the total residential mortgages outstanding as of December 31, 2004, up from 58% as of December 31, 1999.
      We compete by offering a wide selection of mortgage loans through a variety of marketing channels on a national scale, striving to provide high-quality service, pricing our mortgage loans at competitive rates and providing warehouse lending facilities to other mortgage loan originators. Other industry leaders are less reliant than we are on the secondary mortgage market as an outlet for mortgage loans because they have a greater capacity to hold mortgage loans in their loan portfolio. This could place us at a competitive disadvantage if the secondary mortgage market does not provide a competitive outlet for these loans or we are unable to develop a portfolio lending capacity similar to that of our competitors.
      We face competition in our warehouse lending operations from banks and other warehouse lenders, including investment banks and other financial institutions. We compete by providing warehouse financing for a full complement of conforming and non-conforming mortgage loans, by pricing our warehouse lending facilities at competitive rates and by providing market-leading technology, efficient collateral handling and expedited service. Our broad knowledge of the residential mortgage market provides us with a high degree of insight into the credit needs of our clients, potential solutions to those needs and the risks associated with the warehouse lending market.
      The real estate brokerage industry is highly competitive, particularly in the metropolitan areas in which many of our real estate brokerage offices operate. In addition, the industry has relatively low barriers to entry for new participants, including participants pursuing non-traditional methods of marketing real estate, such as internet-based listing services. Companies compete for sales and marketing business primarily on the basis of services offered, reputation, personal contacts and the cost of brokerage commissions. We also compete by leveraging our ability to bundle real estate brokerage, mortgage financing and closing services. We compete primarily with franchisees of local and regional real estate franchisors, franchisees of other national real estate franchisors, regional independent real estate organizations, discount brokerages, websites and smaller niche companies competing in local areas.
      As a federally chartered thrift, GMAC Bank nominally competes in the retail banking sector, which includes approximately 8,000 commercial banks and approximately 1,400 savings institutions in the retail deposit market. However, in light of its role within our business, until recently GMAC Bank has not actively competed in the retail banking industry.
Business Capital
      Our primary competitors in our residential construction finance business are banks. We compete in this business primarily by establishing strategic relationships with, and providing creative and customized capital solutions for, companies involved in the development and construction of residential real estate projects. Because many of the banks that compete with us have a lower cost of funds than we do, they often are able to profitably offer conventional loans and other forms of financing at lower costs than we can.
      Our residential equity business primarily competes with other unregulated capital providers. We compete in this business by developing strategic relationships with our customers.
      Our model home finance business faces competition from high net-worth individuals residing near the development containing the model homes to be financed. These high net-worth individuals are often willing to purchase the model home with a higher cash value than we are. Our lot option business faces competition from pension and endowment funds and their advisors. We compete in this business by developing strategic relationships with homebuilders and maintaining a focus on product innovation to meet those clients’ varying and changing needs.

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      The primary competitors in our resort finance business are large financial institutions including several banks. We compete in this business by targeting privately held timeshare developers in the middle market tier of the industry, and providing those customers a broad array of financing products.
      Our health capital business faces significant competition from numerous other capital providers, including several large banks. We compete in this business by developing long-term relationships and seeking to deliver creative financial solutions to our clients.
International
      Our competitors outside the United States include commercial banks, savings and loan and mutual financial institutions, multinational corporations and other financial institutions. Many of these competitors have recently entered global mortgage markets, particularly in Europe, in recognition of the opportunities presented by less mature mortgage markets. We compete by leveraging our experience and skills as a creator of innovative mortgage products and a developer of secondary mortgage markets that previously lacked liquidity. In addition, we compete by providing responsive customer service enhanced by proprietary technology.
Regulation
      Our business is highly regulated. Regulatory and legal requirements are subject to change and may become more restrictive, making our compliance more difficult or expensive or otherwise restricting our ability to conduct our business as it is now conducted. Changes in these regulatory and legal requirements, including changes in their enforcement, could materially and adversely affect our business and our financial condition, liquidity and results of operations.
U.S. Residential Real Estate Finance
      Our U.S. residential real estate finance business is subject to extensive federal, state and local laws, rules and regulations. We are also subject to judicial and administrative decisions that impose requirements and restrictions on our business. At the federal level, these laws and regulations include the:
  •  Equal Credit Opportunity Act;
 
  •  Federal Truth-In-Lending Act;
 
  •  Home Ownership and Equity Protection Act;
 
  •  Real Estate Settlement Procedures Act, or RESPA;
 
  •  Fair Credit Reporting Act;
 
  •  Fair Debt Collection Practices Act;
 
  •  Home Mortgage Disclosure Act;
 
  •  Fair Housing Act;
 
  •  Telephone Consumer Protection Act;
 
  •  Gramm-Leach-Bliley Act;
 
  •  Fair and Accurate Credit Transactions Act;
 
  •  CAN-SPAM Act;
 
  •  Flood Disaster Protection Act;
 
  •  National Flood Insurance Reform Act;
 
  •  Homeowners Protection Act;
 
  •  National Housing Act;

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  •  Federal Trade Commission Credit Practice Rules;
 
  •  USA PATRIOT Act; and
 
  •  Federal securities laws and regulations.
      As a Federal Housing Administration lender, we are required to submit to the Department of Housing and Urban Development, on an annual basis, audited financial statements. We are also subject to examination by the Federal Housing Commissioner to assure compliance with Federal Housing Administration regulations, policies and procedures.
      The federal, state and local laws, rules and regulations to which we are subject, among other things:
  •  impose licensing obligations and financial requirements on us;
 
  •  limit the interest rates, finance charges and other fees that we may charge or pay;
 
  •  regulate the use of credit reports and the reporting of credit information;
 
  •  prohibit discrimination;
 
  •  impose underwriting requirements;
 
  •  mandate disclosures and notices to consumers;
 
  •  mandate the collection and reporting of statistical data regarding our customers;
 
  •  regulate our marketing techniques and practices;
 
  •  require us to safeguard non-public information about our customers;
 
  •  regulate our servicing practices, including the assessment, collection, foreclosure, claims handling and investment and interest payments on escrow accounts; and
 
  •  require us to take precautions against money-laundering and doing business with suspected terrorists.
      Our failure to comply with these laws can lead to:
  •  civil and criminal liability:
 
  •  loss of licenses and approvals;
 
  •  damage to our reputation in the industry;
 
  •  inability to sell or securitize our loans, or otherwise raise capital;
 
  •  demands for indemnification or loan repurchases from purchasers of our loans;
 
  •  fines and penalties and litigation, including class action lawsuits;
 
  •  administrative enforcement actions; and
 
  •  claims that an allegedly non-compliant loan is rescindable or unenforceable.
      The recent trend among federal, state and local lawmakers and regulators has been toward increasing laws and regulations with regard to the residential real estate finance industry. Over the past few years, these lawmakers and regulators adopted a variety of new or expanded laws and regulations, particularly in the areas of privacy and consumer protection.
Privacy
      The Gramm-Leach-Bliley Act imposes additional obligations on us to safeguard the information we maintain on our customers and permits customers to “opt-out” of information sharing with third parties. Regulations have been enacted by several agencies that may increase our obligations to safeguard information. In addition, several federal agencies are considering regulations that require more stringent

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“opt-out” notices or even require “opt-in” notices. Also, several states have enacted even more stringent privacy legislation. For example, California has passed legislation known as the California Financial Information Privacy Act and the California On-Line Privacy Protection Act. Both pieces of legislation became effective July 2004, and impose additional notification obligations on us that are not preempted by existing federal law. If a variety of inconsistent state privacy rules or requirements are enacted, our compliance costs could increase substantially.
Fair Credit Reporting Act
      The Fair Credit Reporting Act provides a national legal standard for lenders to share information with affiliates and certain third parties and to provide pre-approved offers of credit to consumers. In late 2003, the Fair and Accurate Credit Transactions Act was enacted, making this preemption of conflicting state and local laws permanent. The Fair Credit Reporting Act was also amended to place further restrictions on the use of information sharing between affiliates, to provide new disclosures to consumers when risk based pricing is used in the credit decision, and to help protect consumers from identity theft. All of these new provisions impose additional regulatory and compliance costs on us and reduce the effectiveness of our marketing programs.
      In July 2004, the U.S. District Court for the Eastern District of California ruled that the Fair and Accurate Credit Transactions Act and the Fair Credit Reporting Act do not preempt the affiliate sharing provisions in the California Financial Information Privacy Act. In California, affiliate sharing is currently more restricted than in other states, which increases our compliance costs and reduces the effectiveness of our marketing programs.
Home Mortgage Disclosure Act
      In 2002, the Federal Reserve Board adopted changes to Regulation C promulgated under the Home Mortgage Disclosure Act. Among other things, the new regulations require lenders to report the rate spread between the annual percentage rate on a loan and the yield on U.S. Treasury securities with comparable maturities if the spread equals or exceeds 3% for first lien loans and 5% for subordinate lien loans. This requirement applies to loans we originate, but not to loans we purchase. The expanded reporting took effect in 2004 for reports filed in 2005. Many of our mortgage loans will be subject to the expanded reporting requirements.
      The expanded reporting does not provide for additional loan information, such as credit risk, debt-to-income ratio, loan-to-value ratio, documentation level or other salient loan features. As a result, we are concerned, as are many other residential mortgage participants, that this reporting obligation may lead to increased litigation, especially with respect to equal credit and fair lending, as this information could be misinterpreted by third parties.
Predatory Lending Legislation
      The Home Ownership and Equity Protection Act of 1994, or HOEPA, identifies a category of high-cost mortgage loans and subjects them to more stringent restrictions and disclosure requirements. In addition, if a loan is covered by HOEPA, an assignee can be held liable if the loan violates any federal or state law. The law generally covers loans with either (1) total points and fees upon origination in excess of the greater of 8% of the loan amount or $499 (adjusted annually), or (2) an annual percentage rate of more than 8% above the yield on Treasury securities of comparable maturity for first-lien loans or 10% above the yield on Treasury securities of comparable maturity for junior-lien mortgage loans. Less than 0.1% of the mortgage loans we originated or acquired through our correspondent lenders were covered by HOEPA in 2004, and we expect to originate or acquire even fewer mortgage loans covered by HOEPA in 2005. We occasionally purchase mortgage loans covered by the law from other entities in the secondary market.
      Several other state and local laws and regulations have been adopted or are under consideration that are intended to eliminate so-called “predatory” lending practices. Some of these laws impose liability on

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assignees of mortgage loans such as loan buyers and securitization trusts. Such provisions generally deter loan buyers from purchasing loans covered by the laws and have interrupted the secondary market for loans that are subject to such laws. In addition, these provisions impose additional regulatory and compliance costs on us. In particular, these new laws have required us to devote significant resources to loan-by-loan analysis of points, fees, and other factors set forth in the laws, which often differ depending on the state, and in some cases the city or county, in which the mortgaged property is located.
      Except for the limited number of mortgage loans covered by HOEPA noted above, we do not originate or purchase loans from correspondent lenders that are deemed high cost under these laws or that impose assignee or similar liability, and we have quality control procedures to test our purchased loans for compliance with this policy. Some of our mortgage loan purchases made in the secondary market may occasionally contain a small number of these loans. There can be no assurance that other, similar laws, rules or regulations will not be adopted in the future. Adoption of such laws and regulations could have a material adverse effect on our business by substantially increasing the costs of compliance with a variety of inconsistent federal, state and local rules. Adoption of these laws could also have a material adverse effect on our loan production volume and overall business, especially if our lenders and secondary market buyers elect not to finance or purchase loans covered by the new laws.
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003
      The CAN-SPAM Act of 2003 applies to businesses such as ours that use electronic mail for advertising and solicitation. This law establishes, among other things, a national uniform standard that gives consumers the right to stop unwanted emails. New requirements are imposed for the header caption in email, as well as return email addresses, and consumers are granted the right to “opt out” from receiving further emails from the sender. These new provisions impose additional regulatory and compliance costs on us and reduce the effectiveness of our marketing programs.
The Alternative Mortgage Transactions Parity Act of 1982
      This law was enacted to enable state-chartered housing creditors to make, purchase and enforce alternative mortgage transactions (e.g., loans that are not fixed-rate or fully amortizing) despite a variety of state law restrictions so long as the creditor complied with the same regulatory guidelines as federally chartered lenders. The Office of Thrift Supervision amended its regulations, effective July 2003, to require non-depository lenders (including our operations other than GMAC Bank) to comply with state law restrictions on prepayment penalties and late charges on alternative mortgages. Approximately 40 states have laws prohibiting or restricting prepayment penalties. Because our federally chartered competitors continue to have the flexibility to offer products with the features addressed by the Alternative Mortgage Transactions Parity Act, we may be at a competitive disadvantage and our loan origination volume may be reduced.
Telephone Consumer Protection Act and Telemarketing Consumer Fraud and Abuse Prevention Act
      These laws are designed to restrict unsolicited advertising using the telephone and facsimile machine. The Federal Communications Commission and the Federal Trade Commission have responsibility for regulating various aspects of these laws, such as regulating unwanted telephone solicitations and the use of automated telephone dialing systems, prerecorded or artificial voice messages and telephone facsimile machines. In 2003, both agencies adopted “do-not-call” registry requirements which, in part, mandate that companies such as us maintain and regularly update lists of consumers who have chosen not to be called. These requirements also mandate that we do not call consumers who have chosen to be on a state or national do-not-call list. During this same time, over 25 states have also adopted similar laws, with which we must also comply. As with other regulatory requirements, these provisions impose additional regulatory and compliance costs on us and reduce the effectiveness of our marketing programs.

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USA PATRIOT Act
      The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, or the USA PATRIOT Act, was enacted following the events of September 11, 2001. The USA PATRIOT Act contains numerous provisions designed to prevent, detect and prosecute terrorism, to fight international money laundering and to block terrorist access to the U.S. financial system. The USA PATRIOT Act covers a broad range of financial activities and institutions. It requires that these institutions, including us, conduct due diligence and recordkeeping practices with respect to borrowers, including verifying an applicant’s identifying information such as name, address, phone number and social security number and ascertaining that the applicant is not named on any terrorist list.
      The U.S. Department of Treasury has implemented the USA PATRIOT Act for application to financial institutions, including us, and (in consultation with the Office of Thrift Supervision and the other federal banking regulators) banking institutions, including GMAC Bank. We have established policies and procedures to ensure compliance with the USA PATRIOT Act’s provisions, and the USA PATRIOT Act has not had a material impact on our operations.
Non-Federally Chartered Entities
      Federal statutes and rules governing federally chartered banks and thrifts allow those entities to engage in mortgage lending in multiple states on a substantially uniform basis and without the need to comply with most state licensing and other laws (including new state “predatory lending” laws described above) affecting mortgage lenders. Federal regulators have expressed their position that these preemption provisions benefit mortgage subsidiaries of federally chartered institutions as well. Moreover, at least one national rating agency has announced that, in recognition of the benefits of federal preemption, it will not require additional credit enhancement by federally chartered institutions when they issue securities backed by mortgage loans that may be subject to a state high-cost loan law. We generally do not benefit from these federal preemptions because we conduct most of our mortgage finance business outside of our subsidiary GMAC Bank. Accordingly, we are subject to state legal requirements and risks under state laws to which our federally regulated competitors are not. This disparity may have the effect of giving these entities legal and competitive advantages.
GMAC Bank
      GMAC Bank, a federal savings bank, is regulated by the Office of Thrift Supervision, or OTS, which is the primary federal regulator of savings associations such as GMAC Bank under the savings and loan holding company provisions of the Home Owners’ Loan Act, and the FDIC, in its role as a federal deposit insurer. By reason of our ownership of GMAC Bank, we are considered, for regulatory purposes, a savings and loan holding company and subject to regulation, supervision and examination by the OTS. Both we and GMAC Bank are required to file periodic reports with the OTS concerning our activities and financial condition.
      The OTS has substantial enforcement authority with respect to savings and loan holding companies and savings associations, including authority to bring enforcement actions against a savings association and any of its directors, officers, employees, controlling stockholders, agents and other persons who participate in the conduct of the affairs of the institution. In addition, GMAC Bank is subject to regulations of the Federal Reserve Board relating to, among other things, affiliate transactions, equal credit opportunity, electronic fund transfers, collection of checks, truth in lending, truth in savings and availability of funds for deposit customers.
Savings and Loan Holding Company Regulations and Affiliate Transactions
      As a savings and loan holding company, our financial relationships with our affiliates are subject to examination by the OTS. In addition, we are subject to certain restrictions with respect to our activities and investments. Among other things, we are generally prohibited, either directly or indirectly, from acquiring more than 5% of the voting shares of any savings association or savings and loan holding

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company that is not our subsidiary. OTS approval must also be obtained prior to any person or entity acquiring control of us or GMAC Bank.
      Section 23A of the Federal Reserve Act limits GMAC Bank’s ability to enter into transactions with affiliates, including any entity that directly or indirectly controls or is under common control with GMAC Bank. Specifically, Section 23A prohibits GMAC Bank from purchasing low-quality assets from its affiliates or engaging in specified transactions with any one affiliate that exceed 10% of the bank’s capital stock and surplus or with all of its affiliates that, in the aggregate, exceed 20% of the bank’s capital stock and surplus. Section 23A also requires that all transactions with affiliates be on terms and conditions that are consistent with safe and sound banking practices. Section 23B of the Federal Reserve Act primarily requires GMAC Bank’s transactions with its affiliates to be conducted on market terms.
      Regulation W, formerly known as Regulation 250.250, provides a limited exemption from most requirements of Section 23A for a bank’s purchase of loans from an affiliate. This exemption applies if the bank independently evaluates a borrower’s creditworthiness before the affiliate originates the loan or issues a commitment, the bank commits to buy the loan before the affiliate originates the loan or issues the commitment, the bank does not make a blanket advance commitment to buy loans from the affiliate and the aggregate dollar amount of loans purchased by the bank from the affiliate within a twelve-month period does not exceed 50% of the dollar amount of the affiliates’ loan production during that period. In addition, GMAC Bank has committed to the OTS that such purchases from affiliates will not account for more than 50% of GMAC Bank’s balance sheet.
Qualified Thrift Lender Test and Regulatory Capital Requirements
      GMAC Bank is required to meet a qualified thrift lender, or QTL, test to avoid certain restrictions on its operations. A savings association satisfies the QTL test if (1) at least 65% of a specified asset base of the savings association consists of loans to small businesses, credit card loans, educational loans or certain assets related to U.S. residential real estate, including residential mortgage loans and mortgage securities; or (2) at least 60% of the savings association’s total assets consist of cash, U.S. government or governmental agency debt or equity securities, fixed assets, or loans secured by deposits, real property used for residential, educational, church, welfare or health purposes, or real property in certain urban renewal areas. GMAC Bank is currently, and expects to remain, in compliance with QTL standards.
      GMAC Bank complies with OTS capital regulations, which require savings associations to satisfy three minimum capital ratio requirements: tangible capital, Tier 1 core (leverage) capital and risk-based capital. GMAC Bank also currently meets, and expects to continue to meet, all of the requirements of a “well-capitalized institution.” The OTS regulations establish five categories of capital classification for this purpose, ranging from “well-capitalized” or “adequately capitalized” through “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” These classifications are used for regulatory purposes only, and are not to be viewed as necessarily indicative of the financial condition of GMAC Bank.
      OTS regulations contain prompt corrective action provisions that require certain mandatory remedial actions and authorize the OTS to take certain other discretionary actions against a savings association that falls within specified categories of capital deficiency. In general, the prompt corrective action regulations prohibit an OTS-regulated institution from declaring any dividends, making any other capital distributions or paying a management fee to a controlling person, such as its parent holding company, if, following the distribution or payment, the institution would be within any of the three undercapitalized categories.
Capital Distribution Regulations
      OTS regulations limit “capital distributions” by savings associations, which include, among other things, dividends and payments for stock repurchases. A savings association that is a subsidiary of a savings and loan holding company must either notify the OTS of a capital distribution at least 30 days prior to the proposed declaration of dividend or the approval by the association’s board of directors of the proposed capital distribution. The 30-day period provides the OTS an opportunity to object to the proposed

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distribution if it believes that the distribution would not be advisable. In the event of such an objection our resources available to support payments on the notes would be reduced.
Insurance of Deposit Accounts
      Deposits of GMAC Bank are presently insured by the Savings Association Insurance Fund, which is administered by the FDIC, up to $100,000 per depositor. Insurance of deposits may be terminated by the FDIC upon a finding that the savings association has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The FDIC also has the statutory authority to levy assessment payments based on our deposits. Imposition of any of these sanctions would impair, and could severely impair, our ability to do business through GMAC Bank.
Community Reinvestment Act and the Fair Lending Laws
      Savings associations are examined under the Community Reinvestment Act and related regulations of the OTS on the extent of their efforts to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act, together known as the “Fair Lending Laws,” prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes, such as race, ethnicity, religion or gender. A failure by GMAC Bank to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in adverse action on certain corporate applications, and regulatory restrictions on its activities, and failure to comply with the Fair Lending Laws could result in enforcement actions by the OTS, other federal regulatory agencies and the Department of Justice. GMAC Bank received an overall “outstanding” rating during its most recent Community Reinvestment Act evaluation.
Privacy Protection
      The OTS has adopted privacy protection regulations which require each savings association to adopt procedures to protect consumers’ “nonpublic personal information.” It is GMAC Bank’s policy not to share customers’ information with any unaffiliated third party except as expressly permitted by law, or to allow third party companies to provide marketing services on our behalf, or under joint marketing agreements between us and other unaffiliated financial institutions. In addition to federal laws and regulations, GMAC Bank is required to comply with any privacy requirements prescribed by California and other states in which it does business that afford consumers with protections greater than those provided under federal law.
Broker-Dealers
      Our U.S. broker-dealer operations are subject to federal and state securities laws as well as the rules of both the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. State and federal securities law requirements include the maintenance of required levels of net capital, the monthly and annual reporting of operating and financial data to regulators, the approval and documentation of trading activity, the retention of records and the governance of the manner in which business may be conducted with customers. Our U.S. broker-dealer conducts business only with institutional investors and does not maintain or carry customer funds or securities. Sanctions for violations of applicable regulations include monetary penalties for our broker-dealer and its managers and possible revocation of authority to transact securities business. Imposition of any of these sanctions could impair our ability to distribute mortgage-backed and mortgage-related asset-backed securities in the United States and promote a secondary market in such securities.
Business Capital
      Our business capital lending activities are subject to some of the same regulations that our U.S. real estate finance business is subject to, including the Gramm-Leach-Bliley Act and other laws and

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regulations relating to the privacy of consumer information. Our business capital lending activities are also subject to various laws and judicial and administrative decisions imposing requirements and restrictions regarding our credit granting activities, including our ability to obtain and enforce our security interests. In addition, the projects and entities to which we lend or in which we invest are subject to their own regulatory requirements that, if not adhered to by our customers, could adversely affect our business.
International