e10vq

10-Q 1 c07642e10vq.htm QUARTERLY REPORT e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2006, or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to .

Commission file number: 0-51438

RESIDENTIAL CAPITAL, LLC

(Exact name of registrant as specified in its charter)


Delaware		20-1770738
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8400 Normandale Lake Boulevard

Minneapolis, MN

55437

(Address of principal executive offices)

(Zip Code)

(952) 857-8700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of September 30, 2006, there were outstanding 1,000 shares of the issuer’s $0.01 par value common stock.

Reduced Disclosure Format

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

Explanatory Note

Residential Capital, LLC’s net income for the three months ended September 30, 2006, preliminarily indicated as $76 million as furnished in a Form 8-K dated October 25, 2006, has been increased by $7 million to $83 million. The increase in net income is primarily attributable to process improvements that identified amounts related to mortgage servicing rights that had not been recorded. These items have been recorded and are reflected in this Form 10-Q.

RESIDENTIAL CAPITAL, LLC

INDEX


		Page

Part I — Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheet as of September 30, 2006 and December 31, 2005		3
	Condensed Consolidated Statement of Income for the Three and Nine Months Ended September 30, 2006 and 2005		4
	Condensed Consolidated Statement of Changes in Stockholder’s Equity for the Nine Months Ended September 30, 2006 and 2005		5
	Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2006 and 2005		6
	Notes to Condensed Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		48
Item 4.	Controls and Procedures		49
Part II — Other Information
Item 1.	Legal Proceedings		51
Item 1A.	Risk Factors		51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55
Item 3.	Defaults Upon Senior Securities		55
Item 4.	Submission of Matters to a Vote of Security Holders		55
Item 5.	Other Information		55
Item 6.	Exhibits		55
Signatures			56
Index of Exhibits			57
Computation of Ratio of Earnings to Fixed Charges
Certification
Certification
Certification

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATED BALANCE SHEET


			September 30,		December 31,
			2006		2005

			(Unaudited)
			(Dollars in thousands)
ASSETS
Cash and cash equivalents			$	1,977,842	$	2,266,753
Mortgage loans held for sale				24,786,757		19,521,566
Trading securities				5,033,680		3,896,008
Available for sale securities				168,605		1,068,937
Mortgage loans held for investment, net				73,070,182		67,892,660
Lending receivables, net				14,189,249		13,401,047
Mortgage servicing rights				4,828,025		4,015,015
Accounts receivable				2,317,443		1,951,210
Investments in real estate and other				2,593,682		1,855,298
Goodwill				466,482		459,768
Other assets				3,146,426		2,556,830

Total assets			$	132,578,373	$	118,885,092


LIABILITIES
Borrowings:
	Affiliate borrowings		$	—	$	5,177,462
	Collateralized borrowings in securitization trusts			57,184,409		56,097,801
	Other borrowings			55,473,999		42,300,507

		Total borrowings		112,658,408		103,575,770
Deposit liabilities				6,257,663		4,123,304
Other liabilities				5,286,429		3,722,048

Total liabilities				124,202,500		111,421,122
STOCKHOLDER’S EQUITY
Common stock, $0.01 par value (1,000 shares authorized, issued and outstanding) and paid-in capital				3,457,405		3,367,677
Retained earnings				4,800,795		3,980,587
Accumulated other comprehensive income				117,673		115,706

Total stockholder’s equity				8,375,873		7,463,970

Total liabilities and stockholder’s equity			$	132,578,373	$	118,885,092

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATED STATEMENT OF INCOME


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2006			2005			2006			2005

	(Unaudited)
	(Dollars in thousands)
Revenue
Interest income	$	2,085,558		$	1,479,358		$	5,958,845		$	4,151,095
Interest expense		1,703,606			1,037,422			4,696,869			2,653,393

Net interest income		381,952			441,936			1,261,976			1,497,702
Provision for loan losses		238,723			163,870			484,060			461,796

Net interest income after provision for loan losses		143,229			278,066			777,916			1,035,906
Gain on sale of mortgage loans, net		236,755			306,818			878,788			787,065
Servicing fees		401,095			360,955			1,162,263			1,046,978
Amortization and impairment of servicing rights		—			(68,955	)		—			(515,664	)
Servicing asset valuation and hedge activities, net		(331,338	)		(1,445	)		(687,611	)		47,991

Net servicing fees		69,757			290,555			474,652			579,305
Gain on investment securities, net		141,729			23,632			124,768			243,047
Real estate related revenues		162,228			201,835			493,458			526,894
Gain on sale of equity investments		—			—			414,508			—
Other income		38,943			72,716			144,259			227,387

Total net revenue		792,641			1,173,622			3,308,349			3,399,604

Expenses
Compensation and benefits		298,949			387,020			981,410			1,071,826
Professional fees		74,752			47,330			193,563			143,713
Data processing and telecommunications		48,140			51,058			140,630			148,131
Advertising		34,396			38,151			119,548			124,069
Occupancy		33,962			32,075			100,641			92,479
Other		153,471			146,686			405,353			360,187

Total expenses		643,670			702,320			1,941,145			1,940,405

Income before income tax expense		148,971			471,302			1,367,204			1,459,199
Income tax expense		65,538			191,197			534,129			556,873

Net Income	$	83,433		$	280,105		$	833,075		$	902,326

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY

Nine Months Ended September 30, 2006 and 2005


		Common								Accumulated
		Stock and								Other			Total
		Paid-in		Retained			Comprehensive			Comprehensive			Stockholder’s
		Capital		Earnings			Income			Income			Equity

		(Unaudited)
		(Dollars in thousands)
Balance at January 1, 2006		$	3,367,677	$	3,980,587					$	115,706		$	7,463,970
Cumulative effect of change in accounting principle as of January 1, 2006, net of tax:
	Transfer of unrealized loss for certain available for sale securities to trading securities		—		(16,717	)	$	—			16,717			—
	Recognize mortgage servicing rights at fair value		—		3,850			3,850			—			3,850
Net income			—		833,075			833,075			—			833,075
Capital contributions			89,728		—			—			—			89,728
Other comprehensive income, net of tax:
	Unrealized gain on available for sale securities		—		—			1,190			—			1,190
	Foreign currency translation adjustment		—		—			27,758			—			27,758
	Unrealized loss on cash flow hedges		—		—			(43,698	)		—			(43,698	)

Other comprehensive income			—		—			(14,750	)		(14,750	)		—

Comprehensive income			—		—		$	822,175			—			—

Balance at September 30, 2006		$	3,457,405	$	4,800,795					$	117,673		$	8,375,873

Balance at January 1, 2005		$	1,246,778	$	2,959,961					$	159,006		$	4,365,745
Net income			—		902,326		$	902,326			—			902,326
Capital contributions			2,103,681		—			—			—			2,103,681
Other comprehensive income, net of tax:
	Unrealized loss on available for sale securities		—		—			(25,657	)		—			(25,657	)
	Foreign currency translation adjustment		—		—			(26,949	)		—			(26,949	)
	Unrealized gain on cash flow hedges		—		—			17,654			—			17,654

Other comprehensive income			—		—			(34,952	)		(34,952	)		—

Comprehensive income			—		—		$	867,374			—			—

Balance at September 30, 2005		$	3,350,459	$	3,862,287					$	124,054		$	7,336,800

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


		Nine Months Ended September 30,

		2006			2005

		(Unaudited)
		(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	833,075		$	902,326
Reconciliation of net income to net cash used in operating activities:
	Amortization and impairment of mortgage servicing rights		—			515,664
	Depreciation and amortization		517,939			448,234
	Provision for loan losses		484,060			461,796
	Gain on sale of mortgage loans, net		(878,788	)		(787,065	)
	Gain on sale of equity investments		(414,508	)		—
	Net gain on sale of other assets		(37,834	)		(45,937	)
	Pension curtailment gain		(42,630	)		—
(Gain) loss on valuation of derivatives			230,579			(7,740	)
Gain on investment securities, net			(124,768	)		(243,047	)
Equity in earnings of investees in excess of cash received			(76,283	)		(93,294	)
Loss on valuation of mortgage servicing rights			469,301			17,599
Originations and purchases of mortgage loans held for sale			(128,562,265	)		(119,203,250	)
Proceeds from sales and repayments of mortgage loans held for sale			110,519,623			105,589,462
Deferred income tax			395,903			30,842
Net change in:
	Trading securities		510,405			(173,765	)
	Accounts receivable		(410,634	)		214,462
	Other assets		54,982			723,870
	Other liabilities		204,712			(969,842	)

	Net cash used in operating activities		(16,327,131	)		(12,619,685	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in lending receivables			(711,078	)		(1,894,223	)
Originations and purchases of mortgage loans held for investment			(13,316,455	)		(14,538,710	)
Proceeds from sales and repayments of mortgage loans held for investment			18,963,106			21,502,337
Purchases of available for sale securities			(43,041	)		(570,903	)
Proceeds from sales and repayments of available for sale securities			18,042			451,971
Additions to mortgage servicing rights			(11,772	)		(149,912	)
Sales of mortgage servicing rights			—			207,591
Purchase of and advances to investments in real estate and other			(1,453,387	)		(685,433	)
Proceeds from sales of and returns of investments in real estate and other			1,194,851			661,486
Acquisitions, net of cash acquired			(2,219	)		—
Other, net			658,088			416,551

	Net cash provided by investing activities		5,296,135			5,400,755

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS — (Continued)


		Nine Months Ended September 30,

		2006			2005

		(Unaudited)
		(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in affiliate borrowings		$	(5,177,462	)	$	(1,350,884	)
Net increase in other short-term borrowings			2,762,517			1,921,717
Proceeds from issuance of collateralized borrowings in securitization trusts			17,682,004			16,146,955
Repayments of collateralized borrowings in securitization trusts			(16,947,238	)		(16,943,441	)
Proceeds from secured aggregation facilities, long-term			18,956,393			497,868
Repayments of secured aggregation facilities, long-term			(19,962,782	)		(31,368	)
Proceeds from other long-term borrowings			11,835,110			7,211,850
Repayments of other long-term borrowings			(406,716	)		(190,000	)
Payment of debt issuance costs			(101,814	)		(78,178	)
Increase in deposit liabilities			2,134,359			1,970,592

	Net cash provided by financing activities		10,774,371			9,155,111
Effect of foreign exchange rates on cash and cash equivalents			(32,286	)		(21,593	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(288,911	)		1,914,588
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			2,266,753			899,083

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,977,842		$	2,813,671

SUPPLEMENTAL DISCLOSURES FOR NON-CASH TRANSACTIONS:
Available for sale securities transferred to trading securities		$	927,141		$	—
Mortgage loans held for sale transferred to mortgage loans held for investment			13,257,100			9,414,973
Mortgage loans held for investment transferred to mortgage loans held for sale			2,148,876			3,654,994
Mortgage loans held for investment transferred to other assets			1,206,233			625,627
Originations of mortgage servicing rights from sold loans			1,269,212			995,414
Capital contribution through forgiveness of affiliate borrowings			—			2,000,000
Capital contributions of lending receivables			89,728			103,681

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Basis of Presentation

Effective October 24, 2006, Residential Capital Corporation converted its form of organization from a corporation to a limited liability company and changed its name to Residential Capital, LLC as contemplated by the previously announced April 2, 2006 definitive agreement among General Motors Corporation (GM), GM Finance Co. Holdings, Inc., FIM Holdings LLC and GMAC LLC (formerly General Motors Acceptance Corporation). Residential Capital, LLC (the Company) is a wholly-owned subsidiary of GMAC Mortgage Group, LLC (the Group), which is a wholly-owned subsidiary of GMAC LLC (GMAC). GMAC is a wholly-owned subsidiary of GM.

The Company did not conduct any operations prior to the contribution of GMAC Residential Holding Corp. and GMAC-RFC Holding Corp. in March of 2005 by the Group to the Company. Prior to the contribution, all of the entities, including the Company, were under the common control of the Group. Accordingly, the contribution of the net assets of GMAC Residential Holding Corp. and GMAC-RFC Holding Corp. were accounted for at their historical carrying values at the date of transfer. All prior periods have been presented as if the previously separate entities were combined.

The condensed consolidated financial statements as of September 30, 2006 and for the three- and nine-month periods ended September 30, 2006 and 2005 are unaudited but, in management’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods.

The interim period consolidated financial statements, including the related notes, are condensed and do not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). These interim period condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, filed with the United States Securities and Exchange Commission.

Change in Accounting Principle

As of January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (SFAS No. 156), which provides the following: (1) revised guidance on when a servicing asset and servicing liability should be recognized, (2) requires all separately recognized servicing assets and liabilities to be initially measured at fair value, if practicable, (3) permits an entity to elect to measure servicing assets and liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur, (4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities that are identified as offsetting an entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value, and (5) requires separate presentation of servicing assets and liabilities subsequently measured at fair value in the balance sheet and additional disclosures. The Company has elected to subsequently measure servicing assets and liabilities at fair value and report changes in fair value in earnings in the period in which the changes occur. In addition, the Company made a onetime reclassification of $927.1 million of available for sale securities to trading securities for securities identified as offsetting the Company’s exposure to changes in the fair value of servicing assets or liabilities. The adoption of SFAS No. 156 resulted in a $12.9 million reduction in the beginning of the year retained earnings, net of tax, as a cumulative effect of change in accounting principle. However, the impact to total stockholder’s equity was a $3.9 million increase, net of tax.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

Since quoted market prices for mortgage servicing rights are not available, the Company estimates the fair value of mortgage servicing rights by determining the present value of future expected cash flows using modeling techniques that incorporate management’s best estimates of key variables, including expected cash flows, credit losses, prepayment speeds and return requirements commensurate with the risks involved. Cash flow assumptions are based on the Company’s actual performance and, where possible, the reasonableness of assumptions is periodically validated through comparisons to other market participants. Credit loss assumptions are based upon historical experience and the characteristics of individual loans underlying the mortgage servicing rights. Prepayment speed estimates are determined from historical prepayment rates on similar assets or obtained from third-party data. Return requirement assumptions are determined using data obtained from market participants, where available, or based on current relevant interest rates plus a risk-adjusted spread. Since many factors can affect the estimate of the fair value of mortgage servicing rights, the Company regularly evaluates the major assumptions and modeling techniques used in its estimate and reviews such assumptions against market comparables, if available.

The Company monitors the actual performance of its mortgage servicing rights by regularly comparing actual cash flow, credit and prepayment experience to modeled estimates. In addition to the use of derivative financial instruments, the Company periodically invests in trading securities to mitigate the effect of changes in fair value from the interest rate risk inherent in the mortgage servicing rights.

Recently Issued Accounting Standards

Statement of Financial Accounting Standards No. 155 — In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS No. 155), which provides the following: (1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, (3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (4) clarifies the concentrations of credit in the form of subordination are not embedded derivatives, and (5) amends Statement of Financial Accounting Standards No. 140 to eliminate the prohibition of a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. Adoption of SFAS No. 155 is not expected to have a material impact on the Company’s financial position or results of operations.

Financial Accounting Standards Board Staff Position — FIN 46(R)-6 — In April 2006, the FASB issued FIN 46(R)-6, Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R), which requires the variability of an entity to be analyzed based on the design of the entity. The nature and risks in the entity, as well as the purpose for the entity’s creation, are examined to determine the variability in applying FIN 46(R). The variability is used in applying FIN 46(R) to determine whether an entity is a variable interest entity, which interests are variable interests in the entity and who is the primary beneficiary of the variable interest entity. This interpretation is applied prospectively and is effective for all reporting periods after June 15, 2006. The interpretation did not have a material impact on the Company’s consolidated financial position or results of operations.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

recognized only if it is more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. At adoption, companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment would be recorded directly to retained earnings in the period of adoption and reported as a change in accounting principle. FIN 48 is effective as of the beginning of the first fiscal year beginning after December 15, 2006. Management is assessing the potential impact on the Company’s financial condition and results of operations.

Staff Accounting Bulletin No. 108 — In September 2006, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Quantifying Financial Misstatements (SAB No. 108), which provides guidelines regarding the process of quantifying financial statement misstatements. Registrants are required to quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The techniques most commonly used in practice to accumulate and quantify misstatements are generally referred to as the rollover (current year income statement perspective) and iron curtain (year-end balance sheet perspective) approaches. With the new guidelines, financial statements would require adjustment when either approach results in quantifying a misstatement as material, after considering all relevant quantitative and qualitative factors. SAB No. 108 is effective for annual financial statements for the first fiscal year ending after November 15, 2006. Management does not expect this guidance to have a material effect on the Company’s consolidated financial condition or results of operations.

Statement of Financial Accounting Standards No. 157 — In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157), which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions of SFAS 157 should be applied prospectively. Management is assessing the potential impact on the Company’s consolidated financial condition and results of operations.

Statement of Financial Accounting Standards No. 158 — In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158), which requires companies to recognize an asset or liability for the overfunded or underfunded status of their benefit plans in their financial statements. SFAS No. 158 also requires the measurement date for plan assets and liabilities to coincide with the sponsor’s year-end and provides two transition alternatives for companies to make the measurement-date provisions. The recognition of the asset or liability related to funded status provision is effective for fiscal years ending after December 15, 2006 and the change in measurement date provisions is effective for fiscal years ending after December 15, 2008. Management is assessing the potential impact on the Company’s consolidated financial condition and results of operations.


2.	Pending Sale of Majority Interest in GMAC

On April 2, 2006 GM and GMAC entered into a definitive agreement among GM Finance Co. Holdings, Inc., a wholly-owned subsidiary of GM, and FIM Holdings LLC. FIM Holdings LLC is an investment vehicle formed for purposes of the transactions contemplated by the definitive agreement by Cerberus Capital

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

Management, L.P., Aozora Bank Limited, Citigroup Inc. and a subsidiary of PNC Financial Services Group, Inc. (the Consortium). Pursuant to the definitive agreement, and subject to the terms and conditions set forth therein, among other things:


	•	GMAC and most of its U.S. direct and indirect subsidiaries (other than GMAC Insurance Holdings Inc. and its subsidiaries), including the Company and most of its U.S. direct and indirect subsidiaries, will convert into limited liability companies (whether by statutory conversion or merger);

	•	The Company will dispose of its interest in GMAC Bank and is exploring options to preserve some of the benefits the Company obtains from GMAC Bank, which may include the creation or acquisition (in whole or in part) of, or the development of a relationship with, an industrial bank; and

	•	GM will sell to FIM Holdings common limited liability company interests of GMAC representing 51% of the common limited liability company interests of GMAC.

Upon conversion to a multi-member LLC, the deferred tax assets and liabilities existing at the time of the conversion will be eliminated, with the impact being recognized in current period earnings.

The sale and other transactions described above are subject to the satisfaction or waiver of customary and other closing conditions, including, among other things, (i) reasonable satisfaction by the members of the purchaser, pursuant to an agreement with, or other writing from, the Pension Benefit Guaranty Corporation that, following the closing, GMAC and its subsidiaries will not have any liability with respect to the ERISA plans of GM, which writing was received by the Consortium in July 2006, (ii) receipt of ratings for the senior unsecured long-term indebtedness of GMAC and the Company, after giving effect to the transactions contemplated by the definitive agreement, of at least BB and BBB- (or their respective equivalents), respectively, and an A.M. Best rating for GMAC’s significant insurance subsidiaries of at least B++, (iii) that no material adverse effect will have occurred with respect to the business, financial condition or results of operations of GMAC, which includes any actual downgrading by any of the major rating agencies of GM’s unsecured long-term indebtedness rating below CCC or its equivalent, and (iv) the receipt of required regulatory approvals and licenses. The definitive agreement may be terminated upon the occurrence of certain events, including the failure to complete the acquisition by March 31, 2007. GM has announced that it expects the transactions described above to be completed in the fourth quarter of 2006, but it is possible that delays in obtaining such approvals or in satisfying other required conditions could defer the closing until 2007.

One of the regulatory approvals referred to in (i) above is Federal Deposit Insurance Corporation (FDIC) approval of the change of control of GMAC’s industrial loan company (ILC). On July 28, 2006, the FDIC announced a six-month moratorium on the acceptance of, or final decisions on, notices filed under the Change in Bank Control Act with regard to ILCs. The Consortium filed notices prior to the moratorium. GM and GMAC are currently evaluating the effect of the FDIC’s action on the pending notices, but it appears that the timing of any approval of the notices is likely to be affected by the moratorium. GM and GMAC are working with the Consortium to consider ways to avoid delaying the targeted closing date until 2007.

There can be no assurance that the transaction will be completed or if it is completed, that the terms of the transaction will not be different from those set forth in the definitive agreement.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)


3.	Trading Securities

Trading securities were as follows:


	September 30,		December 31,
	2006		2005

	(In thousands)
Mortgage and asset-backed securities	$	1,641,137	$	1,042,548
U.S. Treasury securities		1,084,742		1,173,792
Principal-only securities		956,171		651,309
Residual interests		893,792		763,713
Interest-only securities		455,510		264,646
Other		2,328		—

Total	$	5,033,680	$	3,896,008

Net unrealized gains	$	50,939	$	131,019
Pledged as collateral		3,584,245		2,721,189

Interests that continue to be held by the Company from the Company’s off-balance sheet securitizations are retained in the form of mortgage-backed securities, residual interests, interest-only strips and principal-only strips. At September 30, 2006, trading securities totaling $1.4 billion are interests that continue to be held by the Company from the Company’s off-balance sheet securitizations.


4.	Available for Sale Securities

The cost, fair value, and gross unrealized gains and losses on available for sale securities were as follows:


		September 30, 2006

				Gross Unrealized

		Cost		Gains		Losses			Fair Value

		(In thousands)
Debt securities:
	Mortgage-backed securities	$	111,871	$	156	$	(1,547	)	$	110,480
	Interest-only securities(a)		1,676		3,366		—			5,042
	Principal-only securities		197		140		—			337
	States & political subdivisions		4,668		—		(61	)		4,607
	Other		47,410		232		(318	)		47,324

Total debt securities			165,822		3,894		(1,926	)		167,790
Equity securities			900		—		(85	)		815

Total		$	166,722	$	3,894	$	(2,011	)	$	168,605

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)


		December 31, 2005

				Gross Unrealized

		Cost		Gains		Losses			Fair Value

		(In thousands)
Debt securities:
	U.S. Treasury securities	$	952,860	$	—	$	(25,719	)	$	927,141
	Mortgage-backed securities		99,113		20		(1,907	)		97,226
	Interest-only securities(a)		3,031		2,240		—			5,271
	Principal-only securities		212		159		—			371
	States & political subdivisions		4,882		—		(33	)		4,849
	Other		33,607		36		(284	)		33,359

Total debt securities			1,093,705		2,455		(27,943	)		1,068,217
Equity securities			900		—		(180	)		720

Total		$	1,094,605	$	2,455	$	(28,123	)	$	1,068,937


(a)	These interest-only securities are interests that continue to be held by the Company from the Company’s off-balance sheet securitizations.

The following table presents gross gains and losses realized upon the sales of available for sale securities reported in gain on investment securities:


	Nine Months Ended
	September 30,

	2006			2005

	(In thousands)
Gross realized gains	$	—		$	22,512
Gross realized losses		(22	)		(1,379	)

Net realized gains (losses)	$	(22	)	$	21,133

Investment securities that were in an unrealized loss position as of September 30, 2006 had a fair value of $118.6 million and gross unrealized losses of $2.0 million. The fair value of these securities in a continuous loss position less than twelve months was $37.4 million with gross unrealized losses of $0.3 million.

The Company has pledged as collateral available for sale investment securities with carrying amounts totaling $10.6 million at September 30, 2006 in connection with certain borrowings.


5.	Mortgage Loans Held for Investment

Mortgage loans held for investment were as follows:


		September 30,			December 31,
		2006			2005

		(In thousands)
Prime conforming		$	1,002,539		$	1,517,456
Prime non-conforming			8,808,866			6,186,374
Nonprime			56,860,428			56,923,366
Prime second-lien			7,485,807			4,330,537
Government			727			833

	Total		74,158,367			68,958,566
Less allowance for loan losses			(1,088,185	)		(1,065,906	)

Total, net		$	73,070,182		$	67,892,660

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

At September 30, 2006, the unpaid principal balance of mortgage loans held for investment relating to securitization transactions accounted for as collateralized borrowings in securitization trusts and pledged as collateral totaled $59.2 billion. The investors in these on-balance sheet securitizations and the securitization trusts have no recourse to the Company’s other assets beyond the loans pledged as collateral. Additionally, the Company pledged mortgage loans held for investment of $13.7 billion as collateral for other secured borrowings at September 30, 2006.

At September 30, 2006, mortgage loans held for investment on nonaccrual status totaled $6.8 billion. If nonaccrual mortgage loans held for investment had performed in accordance with their original terms, the Company would have recorded additional interest income of approximately $211.1 and $195.1 million during the nine months ended September 30, 2006 and 2005, respectively.

The Company mitigates some of the credit risk associated with holding certain of the mortgage loans held for investment by purchasing mortgage insurance. Mortgage loans with an unpaid principal balance of $2.1 billion at September 30, 2006 have limited protection through this insurance.


6.	Lending Receivables

Lending receivables were as follows:


		September 30,			December 31,
		2006			2005

		(In thousands)
Warehouse		$	8,559,486		$	9,003,196
Construction			3,160,556			2,677,301
Commercial business			1,685,971			1,026,572
Healthcare			602,898			593,230
Commercial real estate			259,820			212,272
Other			116,659			75,883

	Total		14,385,390			13,588,454
Less allowance for loan losses			(196,141	)		(187,407	)

Total, net		$	14,189,249		$	13,401,047

At September 30, 2006, the Company pledged lending receivables of $11.5 billion as collateral for certain borrowings.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)


7.	Allowance for Loan Losses

The following is a summary of the activity in the allowance for loan losses for the nine months ended September 30, 2006 and 2005:


	Mortgage Loans
	Held for			Lending
	Investment			Receivables			Total

	(In thousands)
Balance at January 1, 2006	$	1,065,906		$	187,407		$	1,253,313
Provision for loan losses		470,479			13,581			484,060
Charge-offs		(482,413	)		(5,642	)		(488,055	)
Recoveries		34,213			795			35,008

Balance at September 30, 2006	$	1,088,185		$	196,141		$	1,284,326

Balance at January 1, 2005	$	872,954		$	141,723		$	1,014,677
Provision for loan losses		425,706			36,090			461,796
Charge-offs		(356,221	)		(2,537	)		(358,758	)
Recoveries		29,251			476			29,727

Balance at September 30, 2005	$	971,690		$	175,752		$	1,147,442


8.	Mortgage Servicing Rights

The Company defines its classes of servicing rights based on both the availability of market inputs and the manner in which the Company manages its risks of its servicing assets and liabilities. The Company manages its servicing rights at the reportable operating segment level and sufficient market inputs exist to determine the fair value of the Company’s recognized servicing assets and servicing liabilities. The following table summarizes the Company’s activity related to mortgage servicing rights carried at fair value:


		Mortgage Servicing Rights Managed By

					Residential			International
		GMAC			Capital			Business
		Residential			Group			Group			Total

		(In thousands)
Estimated fair value at January 1, 2006		$	3,056,446		$	959,708		$	4,850		$	4,021,004
Additions obtained from sales of mortgage loans			864,197			403,110			1,905			1,269,212
Additions from purchases of servicing assets			11,772			—			—			11,772
Changes in fair value:
	Due to changes in valuation inputs or assumptions used in the valuation model		81,915			(2,341	)		(407	)		79,167
	Other changes in fair value		(321,915	)		(226,019	)		(534	)		(548,468	)
Other changes that affect the balance			—			(5,031	)		369			(4,662	)

Estimated fair value at September 30, 2006		$	3,692,415		$	1,129,427		$	6,183		$	4,828,025

Changes in fair value due to changes in valuation inputs or assumptions used in the valuation models include all changes due to a revaluation by a model or by a benchmarking exercise. This line item also includes changes in fair value due to a change in valuation assumptions and/or model calculations. Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic run-off of the portfolio. Other changes that affect the balance primarily include foreign

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

currency adjustments and the extinguishment of mortgage servicing rights related to clean-up calls of securitization transactions.

The following are key assumptions used by the Company in valuing its mortgage servicing rights:


				Residential			International
	GMAC			Capital			Business
September 30, 2006	Residential			Group			Group

Weighted average prepayment speed		14.0	%		28.0	%		10.4	%
Range of prepayment speeds		12.2-43.2	%		13.0- 38.6	%		5.2-20.7	%
Weighted average discount rate		8.8	%		12.4	%		8.0	%
Range of discount rates		8.5-12.9	%		12.0- 14.0	%		8.0	%

The Company’s servicing rights’ primary risk is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher than expected prepayments, which could reduce the value of the mortgage servicing rights. The Company economically hedges the income statement impact of these risks with both derivative and non-derivative financial instruments. These instruments include interest rate swaps, caps and floors, options to purchase these items, futures and forward contracts, and/or purchasing or selling U.S. Treasury and principal-only securities. At September 30, 2006, the fair value of derivative financial instruments and non-derivative financial instruments used to mitigate these risks amounted to $343.9 million and $2.0 billion, respectively. The change in the fair value of the derivative financial instruments amounted to a loss of $218.3 million for the nine months ended September 30, 2006 and is included in servicing asset valuation and hedge activities, net in the Condensed Consolidated Statement of Income.

The components of servicing fees were as follows for the nine months ended September 30, 2006:


	(In thousands)
Contractual servicing fees (net of guarantee fees and including subservicing)	$	972,185
Late fees		96,096
Ancillary fees		93,982

Total	$	1,162,263

At September 30, 2006, the Company had pledged mortgage servicing rights of $2.4 billion as collateral for borrowings.

The following table summarizes the Company’s activity related to mortgage servicing rights which prior to January 1, 2006 were carried at the lower of cost or fair value:


	(In thousands)
Balance at January 1, 2005	$	4,294,846
Originations and purchases, net of sales		929,912
Amortization		(744,114	)
Valuation adjustments for hedge accounting		(17,599	)
Other than temporary impairment		(36,522	)

Balance at September 30, 2005		4,426,523
Valuation allowance		(663,882	)

Carrying value at September 30, 2005	$	3,762,641

Estimated fair value at September 30, 2005	$	3,763,030

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

The following table summarizes the Company’s activity related to changes in the valuation allowance for impairment of mortgage servicing rights:


	(In thousands)
Balance at January 1, 2005	$	928,854
Impairment		(228,450	)
Other than temporary impairment		(36,522	)

Balance at September 30, 2005	$	663,882

The Company’s other than temporary impairment recorded during the nine months ended September 30, 2005 had no impact on the results of operations or financial condition of the Company.


9.	Borrowings

Borrowings were as follows:


			September 30,		December 31,
			2006		2005

			(In thousands)
Affiliate borrowings			$	—	$	5,177,462
Collateralized borrowings in securitization trusts(a)				57,184,409		56,097,801
Other borrowings:
	Secured aggregation facilities — short-term			15,552,842		10,959,581
	Secured aggregation facilities — long-term(a)			3,732,217		4,738,606
	Repurchase agreements — short-term			9,319,541		9,896,658
	Repurchase agreements — long-term(a)			649,426		—
	Senior unsecured notes(a)			11,113,484		5,150,519
	Subordinated unsecured notes(a)			1,000,000		—
	FHLB advances — short-term			—		1,506,000
	FHLB advances — long-term(a)			6,203,000		2,922,000
	Third-party bank credit facilities — short-term			400,000		450,000
	Third-party bank credit facilities — long-term(a)			1,750,000		1,750,000
	Debt collateralized by mortgage loans			2,728,316		2,150,529
	Servicing advances			614,238		571,532
	Investor custodial funds			119,288		120,985
	Other — short-term			1,475,010		1,802,789
	Other — long-term(a)			816,637		281,308

		Total other borrowings		55,473,999		42,300,507

Total borrowings			$	112,658,408	$	103,575,770


(a)	Represents borrowings with an original contractual maturity in excess of one year.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

The following summarizes assets that are restricted as collateral for the payment of certain debt obligations:


		September 30,		December 31,
		2006		2005

		(In thousands)
Mortgage loans held for investment		$	72,924,856	$	67,798,758
Mortgage loans held for sale			20,270,826		16,147,391
Trading securities			3,584,245		2,696,896
Available for sale securities			10,624		929,112
Mortgage servicing rights			2,359,206		2,220,657
Lending receivables			11,540,639		11,020,766
Accounts receivable			890,124		795,149
Investments in real estate and other			576,808		357,644
Other assets			787,530		238,758

	Total assets restricted as collateral	$	112,944,858	$	102,205,131

Related secured debt		$	97,158,681	$	89,939,405

GMAC Bank has entered into an advances agreement with the Federal Home Loan Bank of Pittsburgh (FHLB). Under the agreement, GMAC Bank had assets restricted as collateral totaling $14.1 billion at September 30, 2006. However, the FHLB will allow GMAC Bank to freely encumber any assets restricted as collateral not needed to collateralize existing FHLB advances notwithstanding the FHLB’s existing lien on such assets. At September 30, 2006, GMAC Bank had $5.8 billion of assets restricted as collateral that were available to be encumbered elsewhere.

The assets that were pledged as collateral in the preceding table include assets that can be sold or repledged by the secured party. The assets that could be sold or repledged were as follows:


		September 30,		December 31,
		2006		2005

		(In thousands)
Mortgage loans held for sale		$	4,092,710	$	3,880,448
Trading securities			2,875,006		2,126,393
Mortgage loans held for investment			2,302,901		2,429,880
Available for sale securities			—		927,140
Investments in real estate and other			26,000		6,276

	Total	$	9,296,617	$	9,370,137


10.	Deposit Liabilities

Deposit liabilities were as follows:


	September 30,		December 31,
	2006		2005

	(In thousands)
Non-interest bearing deposits	$	1,920,159	$	1,368,345
NOW and money market checking accounts		1,460,858		508,830
Certificates of deposit		2,876,646		2,246,129

Total	$	6,257,663	$	4,123,304

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

Non-interest bearing deposits primarily represent third-party escrows associated with the Company’s loan servicing portfolio. At September 30, 2006, certificates of deposit included $1.5 billion of brokered certificates of deposit.


11.	Derivative Instruments

The Company’s risk management objectives are to minimize market risk and cash flow volatility associated with interest rate, prepayment, and basis risks related to certain assets and liabilities. Derivative financial instruments are used as part of the Company’s risk management policy to manage risk related to specific groups of assets and liabilities, including trading securities, mortgage loans held for sale, mortgage loans held for investment, mortgage servicing rights and collateralized borrowings in securitization trusts. The Company also utilizes foreign currency swaps and forward contracts to hedge foreign currency denominated assets and liabilities. In addition, the Company holds derivative instruments such as commitments to purchase or originate mortgage loans that it has entered into in the normal course of business.

The following table summarizes the pretax earnings impact of the ineffectiveness portion of the changes in fair value for each type of accounting hedge classification segregated by the asset or liability hedged:


		Nine Months Ended
		September 30,

		2006			2005			Income Statement Classification

		(In millions)
Fair value hedge ineffectiveness gain (loss):
	Mortgage servicing rights	$	—		$	34.7		Servicing asset valuation and hedge activities
	Mortgage loans held for sale		(5.5	)		(24.3	)	Gain on sale of mortgage loans
	Senior unsecured notes		0.3			(1.6	)	Gain (loss) on investment securities
Cash flow hedge ineffectiveness gain:
	Debt and future debt issuance		0.1			5.1		Interest expense

Total		$	(5.1	)	$	13.9

In addition, net gains on fair value hedges excluded from assessment of effectiveness totaled $53.7 million for the nine months ended September 30, 2005. There were no net gains on fair value hedges excluded from assessment of effectiveness for the nine months ended September 30, 2006.


12.	Related Party Transactions

The Company incurred interest expense of $114.6 and $305.7 million for the nine months ended September 30, 2006 and 2005, respectively, related to borrowings from GMAC.

The Company entered into an agreement with GM to provide certain services through its call center operations. In exchange for these services, the Company recorded income of $2.9 million from GM during the nine months ended September 30, 2005. There was no income from GM for this activity in 2006 as the Company no longer provides these services to GM.

The Company provides global relocation services to GM and GMAC for certain relocations of their employees. The Company recorded income of $6.3 and $4.4 million for such services in the nine months ended September 30, 2006 and 2005, respectively. In addition, GM and GMAC incurred mortgage-related fees for certain of their employees resulting in income of $7.0 and $4.4 million for the nine months ended September 30, 2006 and 2005, respectively.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

GMAC provided the Company with certain services for which a management fee was charged. The Company had GMAC management fees expense of $19.3 and $6.3 million for the nine months ended September 30, 2006 and 2005, respectively. In addition, the Company received $6.0 million from GMAC for certain services related to risk management activities for both the nine months ended September 30, 2006 and 2005.

During the nine months ended September 30, 2006, the Company received cash payments totaling $363.3 million from GMAC for its intercompany tax receivable balance from GM. During the nine months ended September 30, 2006, the Company agreed to settle certain prior year foreign intercompany tax liabilities with GM. The settlement was final for 2001 through 2003 and tentative for 2004 and 2005. The accrued tax liability exceeded the tax settlement by $9.9 million, which reduced tax expense for the nine months ended September 30, 2006.

The Company provides working capital funding and construction lending financing for affiliates of equity method investees. The affiliates of the investees did not have any outstanding working capital balances at September 30, 2006. The Company recognized interest income of $2.1 and $2.7 million for the nine months ended September 30, 2006 and 2005, respectively, on these balances. The affiliates of the investees had outstanding construction lending receivable balances of $108.6 million at September 30, 2006. The Company recognized interest income on these receivables of $11.3 and $5.7 million for the nine months ended September 30, 2006 and 2005, respectively.

The Company provides warehouse funding to other equity method investees. The outstanding warehouse lending receivable balance for the investees was $231.7 million as of September 30, 2006. The Company recognized interest income on these receivables of $9.8 and $6.2 million for the nine months ended September 30, 2006 and 2005, respectively. The Company purchased $502.2 and $238.5 million of loans at market prices from the investees during the first nine months of 2006 and 2005, respectively.

The Company had short-term receivables from unconsolidated affiliates of $10.8 million included within accounts receivable at September 30, 2006.


13.	Defined Benefit Retirement Plan

In May 2006, the Company approved the freezing of the benefit accrual of GMAC Mortgage Group, LLC’s noncontributory defined benefit retirement plan as of December 31, 2006. No further participant benefits will accrue subsequent to that date and no new entrants will be permitted to enter the plan. A curtailment gain for the freezing of the benefit accrual of $42.6 million was recorded during the three months ended September 30, 2006. After the curtailment gain, the plan’s fair value of assets exceeded the plan’s projected benefit obligation by $60.8 million.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)


14.	Segment Information

Financial results for the Company’s reportable operating segments were as follows:


				Residential			Business			International
	GMAC			Capital			Capital			Business			Corporate
Three Months Ended September 30,	Residential			Group			Group			Group			and Other		Eliminations			Consolidated

	(In thousands)
2006
Net interest income	$	51,472		$	250,444		$	23,741		$	46,719		$	9,530	$	46		$	381,952
Provision for loan losses		96			(214,626	)		(8,341	)		(15,867	)		15		—			(238,723	)
Other revenue		294,588			169,264			60,791			24,545			111,725		(11,501	)		649,412

Total net revenue		346,156			205,082			76,191			55,397			121,270		(11,455	)		792,641
Operating expenses		237,362			242,078			21,571			65,790			77,583		(714	)		643,670

Income (loss) before income tax expense		108,794			(36,996	)		54,620			(10,393	)		43,687		(10,741	)		148,971
Income tax expense (benefit)		41,968			(12,912	)		23,431			(1,687	)		18,676		(3,938	)		65,538

Net income (loss)	$	66,826		$	(24,084	)	$	31,189		$	(8,706	)	$	25,011	$	(6,803	)	$	83,433

Total assets	$	26,836,001		$	83,495,464		$	7,192,330		$	13,387,621		$	22,857,654	$	(21,190,697	)	$	132,578,373

Net interest income (expense) from other segments	$	(79,490	)	$	(63,315	)	$	(73,293	)	$	(19,015	)	$	235,067	$	46		$	—


				Residential			Business			International
	GMAC			Capital			Capital			Business		Corporate
Three Months Ended September 30,	Residential			Group			Group			Group		and Other			Eliminations			Consolidated

	(In thousands)
2005
Net interest income (expense)	$	74,702		$	291,638		$	37,900		$	44,467	$	(6,771	)	$	—		$	441,936
Provision for loan losses		(2,380	)		(156,438	)		(5,306	)		240		14			—			(163,870	)
Other revenue		412,580			234,022			71,385			44,084		135,260			(1,775	)		895,556

Total net revenue		484,902			369,222			103,979			88,791		128,503			(1,775	)		1,173,622
Operating expenses		290,772			198,470			18,119			62,911		132,048			—			702,320

Income (loss) before income tax expense		194,130			170,752			85,860			25,880		(3,545	)		(1,775	)		471,302
Income tax expense (benefit)		80,787			71,780			35,613			8,977		(5,236	)		(724	)		191,197

Net income	$	113,343		$	98,972		$	50,247		$	16,903	$	1,691		$	(1,051	)	$	280,105

Total assets	$	20,427,529		$	67,463,437		$	5,385,478		$	8,863,585	$	18,485,868		$	(16,007,192	)	$	104,618,705

Net interest income (expense) from other segments	$	(59,039	)	$	(48,309	)	$	(40,518	)	$	1,573	$	146,293		$	—		$	—

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)


				Residential			Business			International
Nine Months Ended	GMAC			Capital			Capital			Business			Corporate
September 30,	Residential			Group			Group			Group			and Other		Eliminations			Consolidated

	(In thousands)
2006
Net interest income	$	155,210		$	890,361		$	66,954		$	130,573		$	18,736	$	142		$	1,261,976
Provision for loan losses		(8,509	)		(439,975	)		(13,137	)		(22,493	)		54		—			(484,060	)
Other revenue		814,189			618,865			632,998			169,681			308,067		(13,367	)		2,530,433

Total net revenue		960,890			1,069,251			686,815			277,761			326,857		(13,225	)		3,308,349
Operating expenses		709,917			702,174			57,667			183,994			288,702		(1,309	)		1,941,145

Income before income tax expense		250,973			367,077			629,148			93,767			38,155		(11,916	)		1,367,204
Income tax expense		117,635			142,737			244,739			20,949			12,418		(4,349	)		534,129

Net income	$	133,338		$	224,340		$	384,409		$	72,818		$	25,737	$	(7,567	)	$	833,075

Net interest income (expense) from other segments	$	(213,742	)	$	(190,786	)	$	(201,238	)	$	(26,955	)	$	632,579	$	142		$	—


				Residential			Business			International
Nine Months Ended	GMAC			Capital			Capital			Business			Corporate
September 30,	Residential			Group			Group			Group			and Other		Eliminations			Consolidated

	(In thousands)
2005
Net interest income	$	218,443		$	1,042,903		$	110,871		$	121,925		$	3,560	$	—		$	1,497,702
Provision for loan losses		519			(436,876	)		(24,969	)		(504	)		34		—			(461,796	)
Other revenue		991,652			579,843			187,684			188,164			418,130		(1,775	)		2,363,698

Total net revenue		1,210,614			1,185,870			273,586			309,585			421,724		(1,775	)		3,399,604
Operating expenses		720,360			613,424			56,158			182,022			368,441		—			1,940,405

Income before income tax expense		490,254			572,446			217,428			127,563			53,283		(1,775	)		1,459,199
Income tax expense		204,886			224,442			85,253			39,491			3,525		(724	)		556,873

Net income	$	285,368		$	348,004		$	132,175		$	88,072		$	49,758	$	(1,051	)	$	902,326

Net interest income (expense) from other segments	$	(82,952	)	$	(110,634	)	$	(97,247	)	$	3,451		$	287,382	$	—		$	—


15.	Regulatory Matters

Certain subsidiaries of the Company associated with the Company’s mortgage and real estate operations are required to maintain certain regulatory net worth requirements. Failure to meet minimum capital requirements can initiate certain mandatory actions by federal, state and foreign agencies that could have a material effect on the Company’s results of operations and financial condition. These entities were in compliance with these requirements throughout the nine months ended September 30, 2006.

As a federally chartered savings bank regulated by the Office of Thrift Supervision, GMAC Bank has complied with the following regulatory capital guidelines:


	Minimum			Minimum to be			September 30,
	Required			Well-Capitalized			2006

Tier 1 leverage		4	%		5	%		8.1	%
Tier 1 risk-based capital		4			6			11.8
Total risk-based capital		8			10			12.0


16.	Subsequent Event

As described in Note 1, the Company changed its form of organization to a limited liability company and name on October 24, 2006. The Company has elected to be treated as a corporation for federal income tax

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

purposes and continues to be part of GM’s consolidated federal income tax return. Upon conversion to a multi-member limited liability company, which is planned for two business days prior to the closing of the sale transaction as further described in Note 2, the existing deferred tax assets and liabilities for converting companies will be eliminated with the impact recognized in current period earnings. With respect to the conversion of the Company to a multi-member limited liability company, the Company may declare a dividend to GMAC after consideration of the impacts to income and equity resulting from the conversion.


17.	Supplemental Financial Information

The following supplemental financial information presents the condensed consolidating balance sheet, statement of income and statement of cash flows for the Company and the guarantor and non-guarantor subsidiaries. The senior and subordinated unsecured notes issued by the Company are unconditionally and jointly and severally guaranteed by certain domestic subsidiaries.

As a holding company, the Company is dependent upon dividends and other payments from its subsidiaries to generate the funds necessary to meet potential future obligations. The Company and any guarantor subsidiary are able to control receipt of dividends and other payments from its respective subsidiaries subject to the satisfaction of covenants and conditions contained in any existing and future financing documents. Certain statutory restrictions or regulatory constraints may also restrict the payment of amounts to the Company or any guarantor subsidiary.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2006


					Guarantor		Non-Guarantor
			Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated

			(Dollars in thousands)
ASSETS
Cash and cash equivalents			$	1,102,856	$	163,694	$	748,077	$	(36,785	)	$	1,977,842
Mortgage loans held for sale				—		6,500,440		18,267,036		19,281			24,786,757
Trading securities				—		2,910,099		2,123,581		—			5,033,680
Available for sale securities				—		563,829		162,411		(557,635	)		168,605
Mortgage loans held for investment, net				—		3,121,424		70,030,308		(81,550	)		73,070,182
Lending receivables, net				—		1,846,465		12,342,272		512			14,189,249
Mortgage servicing rights				—		4,821,842		6,183		—			4,828,025
Accounts receivable				4,529		1,373,087		1,429,529		(489,702	)		2,317,443
Investments in real estate and other				—		117,840		2,475,842		—			2,593,682
Goodwill				—		218,803		247,679		—			466,482
Other assets				264,054		6,486,036		1,895,659		(5,499,323	)		3,146,426
Investment in and loans to subsidiaries				21,179,019		4,376,100		—		(25,555,119	)		—

Total assets			$	22,550,458	$	32,499,659	$	109,728,577	$	(32,200,321	)	$	132,578,373


LIABILITIES
Borrowings:
	Affiliate borrowings		$	—	$	12,025,000	$	1,684,411	$	(13,709,411	)	$	—
	Collateralized borrowings in securitization trusts			—		—		57,184,409		—			57,184,409
	Other borrowings			13,863,484		9,241,948		33,415,392		(1,046,825	)		55,473,999

		Total borrowings		13,863,484		21,266,948		92,284,212		(14,756,236	)		112,658,408
Deposit liabilities				—		—		6,320,948		(63,285	)		6,257,663
Other liabilities				311,101		3,763,103		6,768,923		(5,556,698	)		5,286,429

Total liabilities				14,174,585		25,030,051		105,374,083		(20,376,219	)		124,202,500

STOCKHOLDER’S EQUITY
Common stock and paid-in capital				3,457,405		2,557,405		1,690,633		(4,248,038	)		3,457,405
Retained earnings				4,800,795		4,794,522		2,547,273		(7,341,795	)		4,800,795
Accumulated other comprehensive income				117,673		117,681		116,588		(234,269	)		117,673

Total stockholder’s equity				8,375,873		7,469,608		4,354,494		(11,824,102	)		8,375,873

Total liabilities and stockholder’s equity			$	22,550,458	$	32,499,659	$	109,728,577	$	(32,200,321	)	$	132,578,373

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2006


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

	(Dollars in thousands)
Revenue
Interest income	$	243,170		$	323,077		$	1,747,563		$	(228,252	)	$	2,085,558
Interest expense		243,477			272,963			1,426,441			(239,275	)		1,703,606

Net interest income (expense)		(307	)		50,114			321,122			11,023			381,952
Provision for loan losses		—			34,985			204,482			(744	)		238,723

Net interest income (expense) after provision for loan losses		(307	)		15,129			116,640			11,767			143,229
Gain (loss) on sale of mortgage loans, net		—			264,924			(37,964	)		9,795			236,755
Servicing fees		—			405,958			(1,842	)		(3,021	)		401,095
Servicing asset valuation and hedge activities, net		—			(330,321	)		(1,017	)		—			(331,338	)

Net servicing fees		—			75,637			(2,859	)		(3,021	)		69,757
Gain on investment securities, net		—			88,835			52,894			—			141,729
Real estate related revenues		—			2,166			160,062			—			162,228
Other income		712			69,705			(6,303	)		(25,171	)		38,943

Total net revenue		405			516,396			282,470			(6,630	)		792,641
Expenses
Compensation and benefits		—			164,426			134,523			—			298,949
Professional fees		—			73,651			1,190			(89	)		74,752
Data processing and telecommunications		—			33,931			14,209			—			48,140
Advertising		—			27,001			7,395			—			34,396
Occupancy		—			21,428			12,534			—			33,962
Other		998			98,750			79,999			(26,276	)		153,471

Total expenses		998			419,187			249,850			(26,365	)		643,670

Income (loss) before income tax expense		(593	)		97,209			32,620			19,735			148,971
Income tax expense (benefit)		(227	)		43,238			13,544			8,983			65,538

Income (loss) before equity in net earnings of subsidiaries		(366	)		53,971			19,076			10,752			83,433
Equity in net earnings of subsidiaries		83,799			29,828			—			(113,627	)		—

Net income	$	83,433		$	83,799		$	19,076		$	(102,875	)	$	83,433

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2005


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

	(Dollars in thousands)
Revenue
Interest income	$	166,356		$	331,387		$	1,140,994		$	(159,379	)	$	1,479,358
Interest expense		164,512			238,510			809,447			(175,047	)		1,037,422

Net interest income		1,844			92,877			331,547			15,668			441,936
Provision for loan losses		—			31,477			140,979			(8,586	)		163,870

Net interest income after provision for loan losses		1,844			61,400			190,568			24,254			278,066
Gain on sale of mortgage loans, net		—			278,997			45,193			(17,372	)		306,818
Servicing fees		—			357,337			3,133			485			360,955
Amortization and impairment of servicing rights		—			(67,943	)		(1,012	)		—			(68,955	)
Servicing asset valuation and hedge activities, net		—			(1,444	)		(1	)		—			(1,445	)

Net servicing fees		—			287,950			2,120			485			290,555
Gain (loss) on investment securities, net		—			(6,270	)		29,902			—			23,632
Real estate related revenues		—			32,779			169,056			—			201,835
Other income		—			42,258			71,087			(40,629	)		72,716

Total net revenue		1,844			697,114			507,926			(33,262	)		1,173,622
Expenses
Compensation and benefits		—			234,588			152,432			—			387,020
Professional fees		—			36,567			10,763			—			47,330
Data processing and telecommunications		—			32,381			18,677			—			51,058
Advertising		—			30,454			7,697			—			38,151
Occupancy		—			20,220			11,855			—			32,075
Other		2,029			111,183			62,472			(28,998	)		146,686

Total expenses		2,029			465,393			263,896			(28,998	)		702,320

Income (loss) before income tax expense		(185	)		231,721			244,030			(4,264	)		471,302
Income tax expense (benefit)		(70	)		98,015			91,269			1,983			191,197

Income (loss) before equity in net earnings of subsidiaries		(115	)		133,706			152,761			(6,247	)		280,105
Equity in net earnings of subsidiaries		280,220			146,514			—			(426,734	)		—

Net income	$	280,105		$	280,220		$	152,761		$	(432,981	)	$	280,105

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine Months Ended September 30, 2006


			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiaries			Eliminations			Consolidated

	(Dollars in thousands)
Revenue
Interest income	$	668,009	$	1,063,571		$	4,844,036		$	(616,771	)	$	5,958,845
Interest expense		666,393		801,280			3,881,421			(652,225	)		4,696,869

Net interest income		1,616		262,291			962,615			35,454			1,261,976
Provision for loan losses		—		63,232			422,440			(1,612	)		484,060

Net interest income after provision for loan losses		1,616		199,059			540,175			37,066			777,916
Gain on sale of mortgage loans, net		—		728,176			156,953			(6,341	)		878,788
Servicing fees		—		1,174,324			(6,474	)		(5,587	)		1,162,263
Servicing asset valuation and hedge activities, net		—		(686,684	)		(927	)		—			(687,611	)

Net servicing fees		—		487,640			(7,401	)		(5,587	)		474,652
Gain (loss) on investment securities, net		286		(4,404	)		128,886			—			124,768
Real estate related revenues		—		50,974			442,484			—			493,458
Gain on sale of equity investments		—		414,508			—			—			414,508
Other income		1,307		138,365			74,384			(69,797	)		144,259

Total net revenue		3,209		2,014,318			1,335,481			(44,659	)		3,308,349
Expenses
Compensation and benefits		—		598,655			382,755			—			981,410
Professional fees		—		169,899			23,664			—			193,563
Data processing and telecommunications		—		101,209			39,421			—			140,630
Advertising		—		93,396			26,152			—			119,548
Occupancy		—		63,163			37,478			—			100,641
Other		3,089		263,774			209,503			(71,013	)		405,353

Total expenses		3,089		1,290,096			718,973			(71,013	)		1,941,145

Income before income tax expense		120		724,222			616,508			26,354			1,367,204
Income tax expense		46		319,013			205,555			9,515			534,129

Income before equity in net earnings of subsidiaries		74		405,209			410,953			16,839			833,075
Equity in net earnings of subsidiaries		833,001		427,792			—			(1,260,793	)		—

Net income	$	833,075	$	833,001		$	410,953		$	(1,243,954	)	$	833,075

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine Months Ended September 30, 2005


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

	(Dollars in thousands)
Revenue
Interest income	$	233,894		$	802,205		$	3,364,280		$	(249,284	)	$	4,151,095
Interest expense		221,978			528,851			2,168,564			(266,000	)		2,653,393

Net interest income		11,916			273,354			1,195,716			16,716			1,497,702
Provision for loan losses		—			119,924			350,458			(8,586	)		461,796

Net interest income after provision for loan losses		11,916			153,430			845,258			25,302			1,035,906
Gain on sale of mortgage loans, net		—			529,401			273,409			(15,745	)		787,065
Servicing fees		—			1,058,990			(10,339	)		(1,673	)		1,046,978
Amortization and impairment of servicing rights		—			(515,218	)		(446	)		—			(515,664	)
Servicing asset valuation and hedge activities, net		—			47,992			(1	)		—			47,991

Net servicing fees		—			591,764			(10,786	)		(1,673	)		579,305
Gain (loss) on investment securities, net		(1,553	)		138,181			106,419			—			243,047
Real estate related revenues		—			85,422			441,472			—			526,894
Other income		—			132,447			186,930			(91,990	)		227,387

Total net revenue		10,363			1,630,645			1,842,702			(84,106	)		3,399,604
Expenses
Compensation and benefits		—			661,094			410,732			—			1,071,826
Professional fees		15			111,037			32,661			—			143,713
Data processing and telecommunications		—			101,708			46,423			—			148,131
Advertising		—			98,875			25,194			—			124,069
Occupancy		—			57,982			34,497			—			92,479
Other		2,113			272,827			181,950			(96,703	)		360,187

Total expenses		2,128			1,303,523			731,457			(96,703	)		1,940,405

Income before income tax expense		8,235			327,122			1,111,245			12,597			1,459,199
Income tax expense		3,150			163,369			381,955			8,399			556,873

Income before equity in net earnings of subsidiaries		5,085			163,753			729,290			4,198			902,326
Equity in net earnings of subsidiaries		897,241			733,488			—			(1,630,729	)		—

Net income	$	902,326		$	897,241		$	729,290		$	(1,626,531	)	$	902,326

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2006


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

	(Dollars in thousands)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	190,461		$	(13,204,679	)	$	(3,356,216	)	$	43,303		$	(16,327,131	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in lending receivables		—			(127,333	)		(583,745	)		—			(711,078	)
Originations and purchases of mortgage loans held for investment		—			(8,511,950	)		(6,167,781	)		1,363,276			(13,316,455	)
Proceeds from sales and repayments of mortgage loans held for investment		—			3,050,644			17,279,450			(1,366,988	)		18,963,106
Purchases of available for sale securities		—			(18	)		(43,023	)		—			(43,041	)
Proceeds from sales and repayments of available for sale securities		—			1,388			16,654			—			18,042
Additions to mortgage servicing rights		—			(11,772	)		—			—			(11,772	)
Purchase of and advances to investments in real estate and other		—			(39,037	)		(1,414,350	)		—			(1,453,387	)
Proceeds from sales of and returns of investments in real estate and other		—			636,423			558,428			—			1,194,851
Acquisitions, net of cash acquired		—			—			(2,219	)		—			(2,219	)
Payment of capital contribution		(100,000	)		(270,977	)		—			370,977			—
Net increase in affiliate lending		(3,302,948	)		—			21,509			3,281,439			—
Other, net		(63,800	)		74,505			647,383			—			658,088

Net cash provided by (used in) investing activities		(3,466,748	)		(5,198,127	)		10,312,306			3,648,704			5,296,135
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in affiliate borrowings		(4,130,000	)		1,597,028			636,949			(3,281,439	)		(5,177,462	)
Net increase (decrease) in other short-term borrowings		—			(900,557	)		3,660,459			2,615			2,762,517
Proceeds from issuance of collateralized borrowings in securitization trusts		—			17,611,862			70,142			—			17,682,004
Repayments of collateralized borrowings in securitization trusts		—			—			(16,947,238	)		—			(16,947,238	)
Proceeds from secured aggregation facilities, long-term		—			—			18,956,393			—			18,956,393
Repayments of secured aggregation facilities, long-term		—			—			(19,962,782	)		—			(19,962,782	)
Proceeds from other long-term borrowings		6,956,965			—			4,878,145			—			11,835,110
Repayments of other long-term borrowings		—			—			(406,716	)		—			(406,716	)
Payments of debt issuance costs		(46,122	)		—			(55,692	)		—			(101,814	)
Proceeds from capital contribution		—			100,000			270,977			(370,977	)		—
Dividends paid		—			—			30,706			(30,706	)		—
Increase in deposit liabilities		—			—			2,108,164			26,195			2,134,359

Net cash provided by (used in) financing activities		2,780,843			18,408,333			(6,760,493	)		(3,654,312	)		10,774,371
Effect of foreign exchange rates on cash and cash equivalents		(28,514	)		—			(3,772	)		—			(32,286	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(523,958	)		5,527			191,825			37,695			(288,911	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		1,626,814			158,167			556,252			(74,480	)		2,266,753

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,102,856		$	163,694		$	748,077		$	(36,785	)	$	1,977,842

SUPPLEMENTAL DISCLOSURES FOR NON-CASH TRANSACTIONS:

Transfer of $18.1 billion of mortgage loans held for investment from guarantor subsidiaries to non-guarantor subsidiaries.

Transfer of $17.6 billion of collateralized borrowings in securitization trusts from guarantor subsidiaries to non-guarantor subsidiaries.

RESIDENTIAL CAPITAL, LLC

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) — (Continued)

RESIDENTIAL CAPITAL, LLC

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2005


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

	(Dollars in thousands)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	10,226		$	(13,047,468	)	$	781,448		$	(363,891	)	$	(12,619,685	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in lending receivables		—			(190,316	)		(1,703,907	)		—			(1,894,223	)
Originations and purchases of mortgage loans held for investment		—			(10,862,508	)		(3,765,153	)		88,951			(14,538,710	)
Proceeds from sales and repayments of mortgage loans held for investment		—			4,744,179			16,758,158			—			21,502,337
Purchases of available for sale securities		—			(551,531	)		(19,372	)		—			(570,903	)
Proceeds from sales and repayments of available for sale securities		—			435,416			16,555			—			451,971
Additions to mortgage servicing rights		—			(152,162	)		2,250			—			(149,912	)
Sales of mortgage servicing rights		—			207,591			—			—			207,591
Purchase of and advances to investments in real estate and other		—			(43,209	)		(642,224	)		—			(685,433	)
Proceeds from sales of and returns of investments in real estate and other		—			88,885			572,601			—			661,486
Payment of capital contribution		—			(10,000	)		—			10,000			—
Net increase in affiliate lending		(2,662,744	)		—			—			2,662,744			—
Other, net		(19,010	)		61,152			374,409			—			416,551

Net cash provided by (used in) investing activities		(2,681,754	)		(6,272,503	)		11,593,317			2,761,695			5,400,755
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in affiliate borrowings		(1,009,000	)		2,502,000			(233,884	)		(2,610,000	)		(1,350,884	)
Net increase (decrease) in other short-term borrowings		—			1,914,817			(233,089	)		239,989			1,921,717
Proceeds from issuance of collateralized borrowings in securitization trusts		—			14,463,450			1,683,505			—			16,146,955
Repayments of collateralized borrowings in securitization trusts		—			—			(16,899,368	)		(44,073	)		(16,943,441	)
Proceeds from secured aggregation facilities, long-term		—			—			497,868			—			497,868
Repayments from secured aggregation facilities, long-term		—			—			(31,368	)		—			(31,368	)
Proceeds from other long-term borrowings		5,752,850			—			1,459,000			—			7,211,850
Repayments of other long-term borrowings		—			—			(190,000	)		—			(190,000	)
Proceeds from capital contribution		—			—			10,000			(10,000	)		—
Payment of debt issuance cost		(29,048	)					(49,130	)					(78,178	)
Increase in deposit liabilities		—			—			1,970,592			—			1,970,592

Net cash provided by (used in) financing activities		4,714,802			18,880,267			(12,015,874	)		(2,424,084	)		9,155,111
Effect of foreign exchange rates on cash and cash equivalents		—			—			(21,593	)		—			(21,593	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2,043,274			(439,704	)		337,298			(26,280	)		1,914,588
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		—			648,511			293,712			(43,140	)		899,083

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,043,274		$	208,807		$	631,010		$	(69,420	)	$	2,813,671

SUPPLEMENTAL DISCLOSURES FOR NON-CASH TRANSACTIONS:

Transfer of $14.9 billion of mortgage loans held for investment from guarantor subsidiaries to non-guarantor subsidiaries.

Transfer of $14.5 billion of collateralized borrowings in securitization trusts from guarantor subsidiaries to non-guarantor subsidiaries.

Transfer of affiliate debt of subsidiaries to parent of $8.0 billion.

Transfer of ownership of subsidiaries from GMAC Mortgage Group to parent of $4.4 billion.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a leading real estate finance company focused primarily on the residential real estate market. Our businesses include the origination, purchase, service, sale and securitization of residential mortgage loans. 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. The majority 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.

	•	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.

	•	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.

	•	International Business Group. Our International Business Group includes substantially all of our operations outside of the United States.

Our other business operations include our real estate brokerage and relocation business, which is not significant to our consolidated results of operations. This business is included with certain holding company activities and other adjustments to conform the reportable segment information to our consolidated results of operations.

Results of Operations


	*Consolidated Results*

Our net income was $83.4 million for the three months ended September 30, 2006, compared to $280.1 million for the same period in 2005, and $833.1 million for the nine months ended September 30, 2006, compared to $902.3 million for the same period in 2005.

Our mortgage loan production increased to $51.5 billion for the three months ended September 30, 2006, compared to $51.3 billion for the same period in 2005. During the first nine months of 2006, our loan production increased to $140.1 billion from $130.3 billion in 2005. These increases were primarily due to the continued expansion of our international operations. Our domestic loan production declined 6.0% during the

three months ended September 30, 2006, and increased 1.7% for the first nine months of 2006, compared to the same periods in 2005. The following summarizes domestic mortgage loan production by type:


		U.S. Mortgage Loan Production by Type

		Three Months Ended September 30,								Nine Months Ended September 30,

		2006				2005				2006				2005

		No. of		Dollar Amt		No. of		Dollar Amt		No. of		Dollar Amt		No. of		Dollar Amt
		Loans		of Loans		Loans		of Loans		Loans		of Loans		Loans		of Loans

		(Dollars in millions)
Prime conforming			64,897	$	12,002		80,405	$	14,832		175,640	$	32,536		217,724	$	39,532
Prime non-conforming			55,444		16,411		60,508		17,292		140,795		42,776		148,743		42,358
Government			6,460		942		7,984		1,141		19,971		2,884		24,939		3,382
Nonprime			53,774		8,467		60,244		9,884		155,987		23,623		152,106		23,821
Prime second-lien			102,314		6,100		67,808		3,588		315,994		18,500		180,041		9,262

	Total U.S. production		282,889	$	43,922		276,949	$	46,737		808,387	$	120,319		723,553	$	118,355

The following table summarizes our U.S. mortgage loan production by purpose and interest rate type:


		For the Three Months				For the Nine Months
		Ended September 30,				Ended September 30,

		2006		2005		2006		2005

		(In millions)
Purpose:
	Purchase	$	19,185	$	19,471	$	49,753	$	48,065
	Non-purchase		24,737		27,266		70,566		70,290

		$	43,922	$	46,737	$	120,319	$	118,355


Interest rate type:
	Fixed rate	$	25,219	$	24,981	$	67,335	$	61,224
	Adjustable rate		18,703		21,756		52,984		57,131

		$	43,922	$	46,737	$	120,319	$	118,355

The following summarizes domestic mortgage loan production by delivery channel:


		U.S. Mortgage Loan Production by Channel

		Three Months Ended September 30,								Nine Months Ended September 30,

		2006				2005				2006				2005

		No. of		Dollar Amt		No. of		Dollar Amt		No. of		Dollar Amt		No. of		Dollar Amt
		Loans		of Loans		Loans		of Loans		Loans		of Loans		Loans		of Loans

		(Dollars in millions)
Retail branches			26,481	$	3,865		35,790	$	5,537		81,091	$	11,697		98,242	$	14,940
Direct lending (other than retail branches)			34,212		3,147		44,937		4,963		105,501		9,417		125,455		13,737
Mortgage brokers			43,543		7,300		36,321		6,326		129,594		22,251		97,184		16,396
Correspondent lenders and secondary market purchases			178,653		29,610		159,901		29,911		492,201		76,954		402,672		73,282

	Total U.S. production		282,889	$	43,922		276,949	$	46,737		808,387	$	120,319		723,553	$	118,355

The following table summarizes our international mortgage loan production:

International Mortgage Loan Production

Three Months Ended September 30,

Nine Months Ended September 30,

2006

2005

2006

2005

Dollar

No. of

Amount of

No. of

Amount of

No. of

Amount of

No. of

Amount of

Loans

(Dollars in millions)

Total International production

33,590

7,531

25,862

4,535

90,813

19,736

62,562

11,932

For the three months ended September 30, 2006, our domestic production was impacted by the slowing residential real estate market. The slowing residential real estate market, the inverted yield curve and reductions in home price appreciation impacted our financial results, resulting in lower net interest margin, higher provision for loan losses, lower gain on sale volumes and margins and reduced gains on dispositions of real estate acquired through foreclosure. As these domestic market conditions persist, these unfavorable impacts on our results of operations may continue.

Net interest income was $382.0 million for the three months ended September 30, 2006, compared to $441.9 million for the same period in 2005, a decrease of $59.9 million, or 13.6%. During the first nine months of 2006, our net interest income decreased to $1.3 billion from $1.5 billion in 2005. The increase in our interest expense more than offset the increase in interest income primarily due to short-term interest rates increasing faster than longer term interest rates. Interest income was higher in the three and nine months ended September 30, 2006 than in the same periods of 2005 primarily due to an increase in our average interest-earning assets, including mortgage loans held for sale, mortgage loans held for investment and lending receivables. The increase in interest expense in the three and nine months ended September 30, 2006 compared to the same periods of 2005 was due to increases in the average amount of interest-bearing liabilities outstanding to fund our asset growth along with the cost of these funds. The increase in our funding cost was primarily due to the increase in market interest rates.

The provision for loan losses was $238.7 million for the three months ended September 30, 2006, compared to $163.9 million for the same period in 2005 and $484.1 million for the nine months ended September 30, 2006, compared to $461.8 million for the same period in 2005. The increases in the provision for loan losses were driven by an increase in delinquent loans, including nonaccrual loans, when compared to the prior year period. In addition, during the three months ended September 30, 2005, we recorded lower loss provisions to reflect favorable severity results from home price appreciation we observed at that time. For our new production, our loan loss provision includes higher loss severity assumptions from weakening home price appreciation. If home price appreciation continues to weaken, it may have a continued negative effect on our provision for loan loss.

Gain from the sale of mortgage loans was $236.8 million for the three months ended September 30, 2006 compared to $306.8 million for the same period in 2005, a decrease of $70.0 million, or 22.8%. For the nine months ended September 30, 2006, gain from the sale of mortgage loans was $878.8 million compared to $787.1 million for the same period in 2005, an increase of $91.7 million, or 11.7%. The decrease in the gain for the three months ended September 30, 2006 compared to the same period in 2005 was due to a significant margin reduction for prime non-conforming and nonprime products due to competitive pressures. The decline in margin was partially offset by an increase in volume sold. The increase in the gain for the nine months ended September 30, 2006 compared to the same period in 2005 was due to an increase in volume and margin. These increases reflected a product mix shift toward higher margin products, which were primarily payment option adjustable rate mortgage loans. For the nine months ended September 30, 2005, the gain from the sale of mortgage loans included the sale of our Mexican distressed loan business in the first quarter of 2005.

Net servicing fees were $69.8 million for the three months ended September 30, 2006 compared to $290.6 million for the same period in 2005, a decrease of $220.8 million, or 76.0%. For the nine months ended

September 30, 2006, net servicing fees were $474.7 million compared to $579.3 million for the same period in 2005, a decrease of $104.6 million, or 18.1%. The decreases in net servicing fees were driven by negative servicing valuations, net of derivative hedging activity, which were partially offset by increases in the size of our mortgage servicing rights portfolio. The negative servicing valuation was primarily due to an increase in prepayment speeds due to a decline in the 30-year base mortgage rate during the three months ended September 30, 2006. Derivative hedging results were negatively impacted by lower market volatility and the flattening of the yield curve. During the three months ended September 30, 2005, we changed the discount rate assumption on 30-year prime conforming mortgage loans, which resulted in an approximately $150 million increase to the mortgage servicing rights asset. The domestic servicing portfolio was $402.4 billion as of September 30, 2006, an increase of $30.6 billion, or 8.2%, from $371.8 billion as of September 30, 2005. The adoption of Statement of Financial Accounting Standards No. 156 on January 1, 2006 resulted in the recording of our mortgage servicing rights at fair value. Prior to the adoption, a significant portion of our mortgage servicing rights was effectively recorded at fair value due to previously recorded impairment and the effects of applying hedge accounting. The after-tax impact of the adoption at January 1, 2006 was to increase stockholders equity $3.9 million reflecting the recording of the mortgage servicing rights at fair value. With the adoption of fair value accounting, mortgage servicing rights are no longer amortized and the changes in fair value are reported in earnings in those periods that those changes occur and classified as “Servicing asset valuation and hedge activities” on the income statement and the “Amortization and impairment of servicing rights” income statement line is no longer utilized. On a prospective basis, under fair value accounting, the impact of amortization is recorded in the change in fair value of the mortgage servicing rights.

The following table summarizes the primary domestic mortgage loan servicing portfolio for which we hold the corresponding mortgage servicing rights:


		U.S. Mortgage Loan Servicing Portfolio

		September 30, 2006				December 31, 2005

		No. of		Dollar Amt		No. of		Dollar Amt
		Loans		of Loans		Loans		of Loans

		(Dollars in millions)
Prime conforming mortgage loans			1,449,123	$	200,632		1,393,379	$	186,405
Prime non-conforming mortgage loans			310,937		96,851		257,550		76,980
Government mortgage loans			183,058		18,866		181,679		18,098
Nonprime mortgage loans			478,130		57,494		493,486		56,373
Prime second-lien mortgage loans			694,654		28,584		500,534		17,073

	Total Primary Servicing Portfolio*		3,115,902	$	402,427		2,826,628	$	354,929


*	Excludes loans for which we acted as a subservicer. Subserviced loans totaled 280,003 with an unpaid principal balance of $47.5 billion at September 30, 2006 and 271,489 with an unpaid principal balance of $38.9 billion at December 31, 2005.

Our international servicing portfolio was comprised of $31.5 billion of mortgage loans as of September 30, 2006, compared to $23.7 billion as of December 31, 2005.

Gain on investment securities increased by $118.1 million in the three months ended September 30, 2006 and decreased $118.3 million for the nine months ended September 30, 2006, compared to the same periods in 2005. These variances were primarily due to gains and losses on U.S. Treasury securities and principal-only securities. These securities are used as an economic hedge to changes in fair value of mortgage servicing rights and other prepayment sensitive assets.

Gain on sale of equity investments represents the cash sale of our investment in a regional homebuilder in the second quarter of 2006. Under the equity method of accounting prior to the sale, our share of pretax income recorded in real estate related revenues totaled $28.6 million for the three months ended September 30, 2005, $39.1 million and $63.8 million for the nine months ended September 30, 2006 and 2005, respectively, and $95.8 million for the year ended December 31, 2005.

Other income decreased $33.8 million, or 46.4%, in the three months ended September 30, 2006 and $83.1 million, or 36.6%, in the nine months ended September 30, 2006, compared to the same periods in 2005. These declines were primarily caused by lower income from sales of real estate owned and lower valuations of real estate owned due to lower home prices and lower management fee income due to the elimination of an off-balance sheet warehouse lending facility during the fourth quarter of 2005 and a decline in earnings from an equity investment in a partnership that invests in government mortgage loans.

Expenses declined $58.7 million, or 8.4%, in the three months ended September 30, 2006 and increased $0.7 million in the nine months ended September 30, 2006, compared to the same periods in 2005. For both periods, compensation and benefits expense decreased due to a $42.6 million gain from the curtailment of the pension plan and lower real estate commissions due to the softening of the residential real estate market. These declines were offset by increased professional fees. Professional fees increased primarily due to consulting and contractor expenses related to our integration of GMAC Residential and Residential Capital Group into the U.S. Residential Finance Group. A management team for U.S. Residential Finance Group has been established and we are exploring opportunities to better utilize the competitive advantages of each operating segment.

The effective tax rate was 44.0% for the three months ended September 30, 2006, compared to 40.6% for the same period in 2005 and 39.1% for the nine months ended September 30, 2006, compared to 38.2% for the same period in 2005. These increases were primarily due to changes in pretax income in various jurisdictions and certain state tax net operating loss limitations.


	*Segment Results*


	GMAC Residential

The following table presents the results of operations for GMAC Residential:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2006			2005			2006			2005

	(In millions)
Net interest income	$	51.5		$	74.7		$	155.2		$	218.4
Provision for loan losses		0.1			(2.4	)		(8.5	)		0.5
Gain on sales of mortgage loans, net		139.9			151.3			350.0			348.5
Servicing fees		264.0			247.7			767.0			725.7
Amortization and impairment of servicing rights		—			(50.3	)		—			(350.3	)
Servicing asset valuation and hedge activities, net		(231.1	)		43.0			(434.7	)		79.6

Net servicing fees		32.9			240.4			332.3			455.0
Other income		121.6			20.9			131.8			188.3
Operating expenses		(237.3	)		(290.8	)		(709.9	)		(720.4	)
Income tax expense		(41.9	)		(80.8	)		(117.6	)		(204.9	)

Net income	$	66.8		$	113.3		$	133.3		$	285.4

GMAC Residential’s net income declined $46.5 million, or 41.0%, to $66.8 million for the three months ended September 30, 2006, compared to $113.3 million for the same period in 2005 and declined $152.1 million, or 53.3%, to $133.3 million for the nine months ended September 30, 2006, compared to $285.4 million for the same period in 2005.

Loan originations totaled $20.0 billion and $57.1 billion in the three and nine months ended September 30, 2006, compared to $26.7 billion and $72.1 billion during the same periods in 2005.

Net interest income declined by $23.2 million, or 31.1%, in the three months ended September 30, 2006 and by $63.2 million, or 28.9%, in the nine months ended September 30, 2006, compared to the same periods in 2005. These declines were caused by cost of funds increasing faster than asset yields.

The provision for loan losses decreased $2.5 million in the three months ended September 30, 2006 and increased $9.0 million in the nine months ended September 30, 2006, compared to the same periods in 2005. The increase for the nine months ended September 30, 2006 was primarily due to recoveries of the provision for loan losses in 2005 and the increase in the mortgage loans held for investment portfolio in 2006.

Net servicing fees decreased $207.5 million, or 86.3%, in the three months ended September 30, 2006 and $122.7 million, or 27.0%, in the nine months ended September 30, 2006, compared to the same periods in 2005. These decreases were primarily due to an increase in prepayment speeds due to a decline in the 30-year base mortgage rate during the three months ended September 30, 2006 and our derivative hedging activities, which included negative impacts from lower market volatility on hedge instruments from the flattening of the yield curve. During the three months ended September 30, 2005, the discount rate was lowered on 30-year prime conforming mortgage loans in response to various price points observed in the marketplace. This change in estimate resulted in approximately $150 million of additional mortgage servicing rights value.

Other income increased $100.7 million in the three months ended September 30, 2006 and declined $56.5 million, or 29.9%, in the nine months ended September 30, 2006, compared to the same periods of 2005. These variances were primarily due to gains and losses on U.S. Treasury securities and principal-only securities used to economically hedge mortgage servicing rights and other prepayment sensitive assets.

Operating expenses decreased $53.5 million, or 18.4%, in the three months ended September 30, 2006 and $10.5 million, or 1.4%, in the nine months ended September 30, 2006, compared to the same periods in the prior year. These decreases were primarily due to a decrease in compensation expense as both the number of employees and incentive compensation expense declined in response to the softening of the residential real estate market.

The effective tax rate was 38.6% for the three months ended September 30, 2006, compared to 41.6% for the same period in 2005. The effective tax rate was 46.9% for the nine months ended September 30, 2006, compared to 41.8% for the same period in 2005. The increase for the nine-month period was primarily due to certain state tax net operating loss limitations.


	Residential Capital Group

The following table presents the results of operations for Residential Capital Group:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2006			2005			2006			2005

	(In millions)
Net interest income	$	250.5		$	291.6		$	890.4		$	1,042.9
Provision for loan losses		(214.6	)		(156.4	)		(440.0	)		(436.9	)
Gain on sales of mortgage loans, net		84.5			128.1			412.0			208.5
Servicing fees		130.4			108.9			381.6			327.5
Amortization and impairment of servicing rights		—			(17.0	)		—			(165.3	)
Servicing asset valuation and hedge activities, net		(99.2	)		(43.9	)		(252.0	)		(31.6	)

Net servicing fees		31.2			48.0			129.6			130.6
Other income		53.6			58.0			77.3			240.7
Operating expenses		(242.1	)		(198.5	)		(702.2	)		(613.4	)
Income tax (expense) benefit		12.9			(71.8	)		(142.7	)		(224.4	)

Net income (loss)	$	(24.0	)	$	99.0		$	224.4		$	348.0

Residential Capital Group recorded a net loss of $24.0 million for the three months ended September 30, 2006, compared to net income of $99.0 million for the same period in 2005 and net income decreased to $224.4 million for the nine months ended September 30, 2006, compared to $348.0 million for the same period in 2005.

Loan originations totaled $27.5 billion in the three months ended September 30, 2006 and $72.0 billion for the nine months ended September 30, 2006, compared to $21.8 billion and $49.9 billion during the same periods in 2005. Loan production during 2006 continued to be positively impacted by the growth in the payment option adjustable rate loan mortgage product, which accounted for $3.7 billion and $11.3 billion of the growth for the three-and nine-month periods.

Net interest income declined $41.1 million, or 14.1%, in the three months ended September 30, 2006 and $152.5 million, or 14.6%, for the nine months ended September 30, 2006, compared to the same periods in 2005. The declines were due to the cost of funds increasing faster than asset yields.

The provision for loan losses increased $58.2 million, or 37.2%, in the three months ended September 30, 2006 and $3.1 million, or 0.7%, in the nine months ended September 30, 2006, compared to the same periods in 2005. The increases in the provision for loan losses were primarily driven by an increase in delinquent loans, including nonaccrual loans, when compared to the prior year period. In addition, during the three months ended September 30, 2005, we recorded lower loss provisions to reflect favorable severity results from home price appreciation we observed at that time. For our new production, our loan loss provision includes higher loss severity assumptions from weakening home price appreciation. If home price appreciation continues to weaken, it may have a continued negative effect on our provision for loan loss.

Gain on sales of mortgage loans decreased by $43.6 million, or 34.1%, in the three months ended September 30, 2006 and increased $203.5 million, or 97.6%, in the nine months ended September 30, 2006, compared to the same periods in 2005. The decrease for the three months ended September 30, 2006 was primarily driven by tightening margins on nonprime and certain prime non-conforming products due to competitive pressures in 2006, which was partially offset by higher sales volume of payment option adjustable rate mortgage loans. The increase for the nine months ended September 30, 2006 was due to an increase in gain on sale of mortgage loan volume and margin. The increased volume and margin reflect a product mix shift toward higher margin products, including payment option adjustable rate mortgage loans.

Net servicing fees decreased $16.8 million, or 35.4%, in the three months ended September 30, 2006 and $1.0 million, or 0.8%, in the nine months ended September 30, 2006, compared to the same periods in 2005. Servicing fees increased due to the growth of the servicing portfolio. However, these increases were more than offset by an increased valuation loss, net of derivative hedging activities, due to increasing prepayment speeds during the three months ended September 30, 2006 due to a decline in mortgage rates. For the three months ended September 30, 2005, mortgage rates increased. Derivative hedging results were negatively impacted by lower market volatility and the flattening of the yield curve.

Other income decreased $4.4 million, or 6.8%, for the three months ended September 30, 2006 and $163.4 million, or 67.9%, for the nine months ended September 30, 2006, compared to the same periods in 2005. These decreases were primarily caused by lower income from sales of real estate owned and lower valuations of real estate owned due to lower home prices and lower management fee income due to the elimination of an off-balance sheet warehouse lending facility during the fourth quarter of 2005 and a decline in earnings from an equity investment in a partnership that invests in government mortgage loans.

Operating expenses increased $43.6 million, or 22.0%, for the three months ended September 30, 2006 and $88.8 million, or 14.5%, for the nine months ended September 30, 2006, compared to the same periods in 2005. These increases were primarily caused by an increase in professional fees and a reduction in the representations and warranties liability in the second quarter of 2005. Professional fees increased primarily due to consulting and contractor expenses related to our integration of GMAC Residential and Residential Capital Group into the U.S. Residential Finance Group. A management team for U.S. Residential Finance Group has been established and we are exploring opportunities to better utilize the competitive advantages of each operating segment.


	Business Capital Group

The following table presents the results of operations for the Business Capital Group:


	Three Months
	Ended						Nine Months Ended
	September 30,						September 30,

	2006			2005			2006			2005

	(In millions)
Net interest income	$	23.8		$	37.9		$	67.0		$	110.9
Provision for loan losses		(8.3	)		(5.3	)		(13.1	)		(25.0	)
Other income		60.7			71.3			632.9			187.7
Operating expenses		(21.6	)		(18.1	)		(57.7	)		(56.1	)
Income tax expense		(23.4	)		(35.6	)		(244.7	)		(85.3	)

Net income	$	31.2		$	50.2		$	384.4		$	132.2

Business Capital Group’s net income declined $19.0 million to $31.2 million for the three months ended September 30, 2006, compared to $50.2 million for the same period in 2005 and increased $252.2 million to $384.4 million for the nine months ended September 30, 2006, compared to $132.2 million for the same period in 2005. The decrease in the three months ended September 30, 2006 and the increase in the nine months ended September 30, 2006 were primarily due to the sale of our equity interest in a regional homebuilder, which resulted in a $258.6 million after-tax gain. We sold our entire equity interest in this regional homebuilder during the second quarter of 2006. Under the equity method of accounting prior to the sale, our share of pretax income for the homebuilder was $28.6 million for the three months ended September 30, 2005, and $39.1 million and $63.8 million for the nine months ended September 30, 2006 and 2005. The Business Capital Group regularly makes investments in real estate construction projects and other entities.

Net interest income declined $14.1 million, or 37.4%, in the three months ended September 30, 2006 and $43.9 million, or 39.6%, in the nine months ended September 30, 2006 compared to the same periods in 2005. These declines were due to an increase in funding costs and growth in borrowings related to increases in investments in real estate. The segment’s cost of funds increased due to higher short-term interest rates.

The provision for loan losses increased $3.0 million in the three months ended September 30, 2006 and declined $11.9 million in the nine months ended September 30, 2006, compared to the same periods in 2005. The changes were primarily due to changes in the portfolio growth rate and the assessment of incurred losses associated with the portfolio.

Other income decreased by $10.6 million, or 14.8%, in the three months ended September 30, 2006, compared to the same period in 2005, and increased by $445.2 million in the nine months ended September 30, 2006, compared to the same period in 2005. Excluding the gain on sale of the equity interest in the regional homebuilder, recorded during the second quarter of 2006, other income increased by $30.7 million, or 16.4%, in the nine months ended September 30, 2006. This increase was primarily due to real estate related revenues generated from equity investments, fee income and increases in our real estate portfolio consisting of model homes and residential lots.


	International Business Group

The following table presents the results of operations for International Business Group:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2006			2005			2006			2005

	(In millions)
Net interest income	$	46.7		$	44.5		$	130.6		$	121.9
Provision for loan losses		(15.9	)		0.2			(22.5	)		(0.5	)
Gain on sales of mortgage loans, net		22.6			26.8			129.0			163.5
Servicing fees		2.8			2.0			2.3			(9.9	)
Amortization and impairment of servicing rights		—			(1.0	)		—			(0.4	)
Servicing valuation and hedge activities, net		(1.0	)		—			(0.9	)		—

Net servicing fees (loss)		1.8			1.0			1.4			(10.3	)
Other income		0.2			16.3			39.3			35.0
Operating expenses		(65.8	)		(62.9	)		(184.0	)		(182.0	)
Income tax (expense) benefit		1.7			(9.0	)		(21.0	)		(39.5	)

Net income (loss)	$	(8.7	)	$	16.9		$	72.8		$	88.1

International Business Group recorded a net loss of $8.7 million for the three months ended September 30, 2006, compared to net income of $16.9 million for the same period in 2005 and net income declined $15.3 million, or 17.3%, to $72.8 million for the nine months ended September 30, 2006, compared to $88.1 million for the same period in 2005.

Loan originations totaled $7.5 billion during the three months ended September 30, 2006 and $19.7 billion in the nine months ended September 30, 2006, compared to $4.5 billion and $11.9 billion during the same periods in 2005. Origination volume in 2006 was positively impacted by the strategic launch of more competitively priced products in the United Kingdom and Continental Europe.

Net interest income increased $2.2 million in the three months ended September 30, 2006 and $8.7 million in the nine months ended September 30, 2006, compared to the same periods in 2005. The increase in interest income was driven primarily by an increase in average interest-earning assets, primarily mortgage loans held for investment and mortgage loans held for sale. The increase was due to increased production levels in the United Kingdom and Continental Europe. The increase in interest expense in the nine months ended September 30, 2006 was due to an increase in the average interest-bearing liabilities to fund asset growth.

Provision for loan losses increased $16.1 million in the three months ended September 30, 2006 and $22.0 million in the nine months ended September 30, 2006, compared to the same periods in 2005. The increases were primarily due to increased credit losses in the United Kingdom.

The gain on sales of mortgage loans declined $4.2 million, or 15.4%, in the three months ended September 30, 2006 and $34.5 million, or 21.1%, in the nine months ended September 30, 2006, compared to the same periods in 2005. The segment sold $5.1 billion and $17.7 billion of loans for the three and nine months ended September 30, 2006, compared to $3.2 billion and $10.4 billion of loans for the three and nine months ended September 30, 2005. These increases in volume of mortgage loans sold were more than offset by a significant decline in margins on loan sales due to competitive pressures.

Net servicing fees increased $0.8 million in the three months ended September 30, 2006 and $11.7 million in the nine months ended September 30, 2006 compared to the same periods in 2005. The increases were primarily due to an increase in servicing fees due to an increase in the servicing portfolio.

Other income declined $16.1 million in the three months ended September 30, 2006 and increased $4.3 million in the nine months ended September 30, 2006, compared to the same periods in 2005. The

decline for the three months ended September 30, 2006 was driven by gains from residual sales in 2005 in the United Kingdom and higher residual writedowns in 2006. The increase for the nine months ended September 30, 2006 was primarily due to an equity investment that was purchased in the fourth quarter of 2005.

The effective tax rate was 16.2% for the three months ended September 30, 2006, compared to 34.7% for the same period in 2005. The effective tax rate was 22.3% for the nine months ended September 30, 2006, compared to 31.0% for the same period in 2005. These declines were primarily due to favorable intercompany foreign tax settlements.


	Corporate and Other

The following table presents the results of operations for Corporate and Other:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2006			2005			2006			2005

	(In millions)
Net interest income	$	9.5		$	(6.8	)	$	18.7		$	3.6
Provision for loan losses		0.1			—			0.1			—
Gain (loss) on sales of loans		—			0.3			(1.8	)		65.1
Servicing fees		3.5			2.8			12.7			5.3
Amortization and impairment of mortgage servicing rights		—			(0.7	)		—			0.3
Servicing asset valuation and hedge activities, net		0.8			—			—			—

Net servicing fees		4.3			2.1			12.7			5.6
Other income		107.4			133.0			297.1			347.4
Operating expenses		(77.6	)		(132.1	)		(288.7	)		(368.4	)
Income tax (expense) benefit		(18.7	)		5.2			(12.4	)		(3.5	)

Net income	$	25.0		$	1.7		$	25.7		$	49.8

Corporate and Other represents our business operations outside of our four reportable operating segments and includes our real estate brokerage and relocation business, which are not significant to our consolidated results of operations. Corporate and Other also includes certain holding company activities and other adjustments to conform the reportable segment information to our consolidated results.

Other income and operating expenses include the revenues and expenses of the real estate brokerage and relocation business. A significant portion of other income is comprised of the gross commissions earned on the real estate brokerage business and a significant portion of operating expenses is comprised of the commissions due to the individual real estate brokers involved in the transactions. The net income from these activities is not significant.

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.

Operating expenses include a $42.6 million curtailment gain for the freezing of the defined benefit plan effective December 31, 2006. The gain was recorded during the three months ended September 30, 2006.

Gain (loss) on sales of loans primarily relates to our Mexican distressed mortgage loan business, which was sold in the first quarter of 2005 resulting in a pretax gain of $63.0 million.

Asset Quality


	*Allowance for Loan Losses*

The following table summarizes the activity related to the allowance for loan losses:


		Mortgage Loans
		Held for			Lending
		Investment			Receivables			Total

		(In millions)
Balance at January 1, 2006		$	1,065.9		$	187.4		$	1,253.3
Provision for loan losses			470.5			13.6			484.1
Charge-offs			(482.4	)		(5.7	)		(488.1	)
Recoveries			34.2			0.8			35.0

Balance at September 30, 2006		$	1,088.2		$	196.1		$	1,284.3

Balance at January 1, 2005		$	873.0		$	141.7		$	1,014.7
Provision for loan losses			425.7			36.1			461.8
Charge-offs			(356.2	)		(2.6	)		(358.8	)
Recoveries			29.2			0.5			29.7

Balance at September 30, 2005		$	971.7		$	175.7		$	1,147.4

Allowance as a percentage of total:
	September 30, 2006		1.47%			1.36%			1.45%
	December 31, 2005		1.55%			1.38%			1.52%

The following table summarizes the net charge-off information:


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2006			2005			2006			2005

		(In millions)
Mortgage loans:
	Prime conforming	$	(0.2	)	$	(0.2	)	$	(1.0	)	$	(0.2	)
	Prime non-conforming		(5.6	)		(24.0	)		(22.6	)		(26.1	)
	Prime second-lien		(8.1	)		(2.0	)		(10.8	)		(5.6	)
	Nonprime		(171.0	)		(84.9	)		(413.8	)		(295.1	)
Lending receivables:
	Warehouse		0.1			0.2			(0.1	)		—
	Construction		0.3			—			0.3			(2.0	)
	Commercial real estate		—			—			(5.1	)		(0.1	)

Total net charge-offs		$	(184.5	)	$	(110.9	)	$	(453.1	)	$	(329.1	)


	*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 60 and 90 days past due, respectively, or when the timely collection of the principal of the loan, in whole or in part, is doubtful.

Nonperforming assets consisted of the following:


			September 30,			December 31,			September 30,
			2006			2005			2005

			(In millions)
Nonaccrual loans:
	Mortgage loans:
		Prime conforming	$	9.8		$	9.8		$	19.5
		Prime non-conforming		371.3			361.7			239.3
		Government		0.2			0.1			39.1
		Prime second-lien		132.6			84.8			71.8
		Nonprime*		6,274.8			5,730.7			5,110.3
	Lending receivables:
		Warehouse		9.5			41.8			1.0
		Construction		20.9			8.6			8.6
		Commercial real estate		—			17.0			—

Total nonaccrual loans				6,819.1			6,254.5			5,489.6
Restructured loans				12.1			22.8			—
Foreclosed assets				922.2			506.5			557.1

Total nonperforming assets			$	7,753.4		$	6,783.8		$	6,046.7

Total nonaccrual loans as a percentage of total mortgage loans held for investment and lending receivables				7.7	%		7.6	%		7.8	%

Total nonperforming assets as a percentage of total consolidated assets				5.8	%		5.7	%		5.8	%


*	Includes $340.0 million as of September 30, 2006, $374.1 million as of December 31, 2005 and $461.9 million as of September 30, 2005 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.

The following table summarizes the delinquency information for our mortgage loans held for investment portfolio:


		As of September 30,					As of December 31,					As of September 30,

		2006					2005					2005

				Percent of					Percent of					Percent of
		Amount		Total			Amount		Total			Amount		Total

		(Dollars in millions)
Current		$	61,299		83.6	%	$	56,576		83.3	%	$	48,906		83.8	%
Past due:
	30 to 59 days		4,284		5.8			4,773		7.0			4,101		7.0
	60 to 89 days		1,830		2.5			1,528		2.2			1,335		2.3
	90 days or more		2,757		3.8			2,258		3.3			1,676		2.9
Foreclosures pending			1,937		2.6			1,356		2.0			1,205		2.0
Bankruptcies			1,250		1.7			1,520		2.2			1,159		2.0

Total unpaid principal balance			73,357		100.0	%		68,011		100.0	%		58,382		100.0	%

Net premiums			801					948					906

Total		$	74,158				$	68,959				$	59,288

The allowance for loan losses as a percentage of mortgage loans held for investment and lending receivables was 1.45% as of September 30, 2006 compared to 1.52% as of December 31, 2005. The allowance for loan losses related to mortgage loans held for investment as a percentage of those loans was 1.47% as of September 30, 2006, an 8 basis point decline from 1.55% as of December 31, 2005. The decline in the allowance as a percentage of mortgage loans held for investment was due to an increase in prime mortgage loans as a percentage of total mortgage loans held for investment. Prime mortgage loans represented 23.3% of the total mortgage loans held for investment portfolio as of September 30, 2006, compared with 17.5% as of December 31, 2005. In addition, the percentage of delinquent mortgage loans held for investment, including nonaccrual loans, relative to unpaid principal balance declined to 16.4% as of September 30, 2006, compared to 16.7% as of December 31, 2005.

Nonprime mortgage loan net charge-offs were $413.8 million for the nine months ended September 30, 2006, compared to $295.1 million for the same period of the prior year. Nonprime mortgage loans held for investment increased approximately 20% during 2005 from $47.4 billion as of December 31, 2004 to $56.9 billion as of December 31, 2005. As of September 30, 2006, nonprime mortgage loans held for investment were substantially unchanged from December 31, 2005. The increase in the nonprime charge-offs was primarily due to both the increase in the nonprime mortgage loan held for investment portfolio during 2005 along with the seasoning of the portfolio that occurred in 2006 with fewer new nonprime loans being added to the portfolio. As a nonprime mortgage loan ages, our loan loss provisioning for the establishment of an allowance precedes any charge-off of that loan due to the time lag between the recognition of the loss event, which is generally when a loan becomes delinquent, and the resolution of the loan resulting in charge-off, which is generally upon foreclosure. Accordingly, during periods of stable nonprime mortgage loan held for investment balances, as occurred during the first nine months of 2006, charge-offs are expected to increase in relation to provision levels absent a substantial change in the delinquency trend or product mix of the portfolio when compared to periods of loan growth.

The allowance for loan loss related to total lending receivables as a percentage of lending receivables outstanding was 1.36% as of September 30, 2006, compared to 1.38% as of December 31, 2005. This decline was due to a decline in the assessment of incurred losses inherent in the portfolio.

We originate and purchase mortgage loans that have contractual features that may increase our exposure to credit risk and thereby result in a concentration of credit risk. These loan products include interest-only mortgage loans, payment option adjustable rate mortgage loans, high loan-to-value mortgage loans and teaser rate mortgage loans. Our exposure related to these products recorded in mortgage loans held for sale and mortgage loans held for investment (unpaid principal balance) was as follows:


		Unpaid Principal Balance

		As of September 30,		As of December 31,
		2006		2005

		(In millions)
*Mortgage Loans Held for Sale — Domestic*
	Interest-only mortgage loans	$	3,860.0	$	3,316.3
	Payment option adjustable rate mortgage loans		2,744.0		1,097.6
	High loan-to-value (100% or more) mortgage loans		542.6		391.7
	Below market initial rate (“teaser”) mortgage loans		14.9		16.6

*Mortgage Loans Held for Investment — Domestic*
	Interest-only mortgage loans	$	13,298.9	$	11,118.9
	Payment option adjustable rate mortgage loans		99.0		16.3
	High loan-to-value (100% or more) mortgage loans		11,894.9		12,904.7
	Below market initial rate (“teaser”) mortgage loans		187.7		394.8

*Mortgage Loans — Held for Sale and Investment — International*
	Interest-only mortgage loans	$	5,167.2	$	4,925.9
	Payment option adjustable rate mortgage loans		—		—
	High loan-to-value (100% or more) mortgage loans		23.0		67.9
	Below market initial rate (“teaser”) mortgage loans		—		—

Our total production related to these products was as follows:


	Loan Production
	for the
	Nine Months Ended
	September 30,

	2006		2005

	(In millions)
Interest-only mortgage loans	$	35,017.5	$	30,198.4
Payment option adjustable rate mortgage loans		14,045.0		2,151.2
High loan-to-value (100% or more) mortgage loans		6,294.1		4,883.2
Below market initial rate (“teaser”) mortgage loans		194.6		26.1

Our underwriting guidelines for these products take into consideration the borrower’s capacity to repay the loan and credit history. We believe our underwriting procedures adequately consider the unique risks which may come from these products. We conduct a variety of quality control procedures and periodic audits to ensure compliance with our underwriting standards.

Liquidity and Capital Resources


	*Liquidity and Capital Management*

We have significant financing requirements 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.

Our funding and liquidity strategy includes issuing additional secured and unsecured debt as our needs dictate and market conditions allow. We plan to continue to further diversify our funding sources.

With respect to our conversion to a multi-member limited liability company, we may declare a dividend to GMAC after consideration of the impacts to income and equity resulting from the conversion.


	*Funding Sources*

The following table sets forth our sources of funding as of September 30, 2006 and December 31, 2005:


		Outstanding as of

		September 30,		December 31,
		2006		2005

		(In millions)
Collateralized borrowings in securitization trusts		$	57,184.4	$	56,097.8
Short-term secured borrowings			29,224.0		24,675.0
Short-term unsecured non-affiliate borrowings			985.3		1,277.1
Long-term secured borrowings			4,547.3		4,738.6
Long-term unsecured non-affiliate borrowings			14,514.4		7,181.8
FHLB advances — short-term			—		1,506.0
FHLB advances — long-term			6,203.0		2,922.0
Affiliate borrowings — short-term			—		1,047.5
Affiliate subordinated borrowings — long-term			—		4,130.0

	Total borrowings		112,658.4		103,575.8
Bank deposits			6,257.7		4,123.3

	Total borrowings and deposits		118,916.1		107,699.1
Off-balance sheet financings			102,636.7		78,290.7

	Total	$	221,552.8	$	185,989.8

The following table shows the amount of secured committed and unused liquidity facilities as of September 30, 2006 and December 31, 2005:


		Secured Committed				Unused Secured Committed
		Liquidity Facilities as of				Liquidity Facilities as of

		September 30,		December 31,		September 30,		December 31,
		2006		2005		2006		2005

		(In millions)
Mortgage loans and warehouse lending(a)		$	24,145.9	$	23,739.8	$	11,933.9	$	9,456.0
Residential construction lending receivables(b)			1,575.0		1,275.0		—		220.0
Other(c)			2,524.4		2,625.0		251.6		246.9

	Total	$	28,245.3	$	27,639.8	$	12,185.5	$	9,922.9


(a)	Facilities to fund mortgage loan and warehouse lending receivables.

(b)	Facilities to fund residential construction and resort finance.

(c)	Facilities to fund servicing advances, servicing rights and interests that continue to be held from our off-balance sheet securitizations.

collateral not needed to collateralize existing FHLB advances notwithstanding the FHLB’s existing lien on such assets. At September 30, 2006, GMAC Bank had $5.8 billion of assets restricted as collateral that were available to be encumbered elsewhere.

The Company maintains $3.5 billion in syndicated bank credit facilities. These facilities are comprised of a $1.75 billion term loan due in 2008, an unsecured committed $875.0 million 364-day revolving credit facility due in 2007 and an unsecured committed $875.0 million revolving credit facility due in 2008. As of September 30, 2006, there were no outstanding balances under the revolving credit facilities.

During the three months ended September 30, 2006, MINT II, LLC (MINT II) was created. MINT II is a secured aggregation vehicle that provides us with financing for mortgage loans during the aggregation period and for warehouse lending receivables. MINT II obtains financing through the issuance of extendable notes, which are secured by the mortgage loans and warehouse lending receivables. As of September 30, 2006, MINT II had uncommitted liquidity of $25.0 billion with $7.9 billion of extendable notes outstanding.

Off-Balance Sheet Financings

Our total off-balance sheet financings were $102.6 billion as of September 30, 2006 and $78.3 billion as of December 31, 2005. 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 debt balances of $101.8 billion as of September 30, 2006 and $77.6 billion as of December 31, 2005.

We also have off-balance sheet structured facilities that fund mortgage loans during the aggregation period. These facilities provide funding for these assets through the issuance of commercial paper from multi- and single-seller asset-backed commercial paper conduits. The structured facilities had aggregate outstanding balances of $753.1 million as of September 30, 2006 and $717.2 million as of December 31, 2005.

Credit Ratings

The following table summarizes our current credit ratings from the major credit rating agencies:


	Commercial	Senior
Rating Agency	Paper	Debt	Outlook

Fitch	F3	BBB-	Positive
Moody’s	P-3	Baa3	Possible Downgrade
S&P	A-3	BBB-	Developing
DBRS	R-2 (middle)	BBB	Developing

The credit ratings of GM and GMAC have been adversely affected in recent years because of concerns as to the financial outlook of GM, including its overall market position in the automotive industry and its burdensome health care obligations, and each of Fitch, Moody’s and S&P currently rate GM’s and GMAC’s unsecured debt as non-investment grade. Any action with respect to the credit ratings of GM or GMAC could impact our ratings because of our position as a wholly-owned subsidiary of GMAC.

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.

Recently Issued Accounting Standards

Statement of Financial Accounting Standards No. 155 — In February 2006, the FASB issued Statement of Financial Accounting Standards 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155), which provides the following: (1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, (3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation,

(4) clarifies the concentrations of credit in the form of subordination are not embedded derivatives, and (5) amends Statement 140 to eliminate the prohibition of a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. Adoption of SFAS 155 is not expected to have a material impact on our financial position or results of operations.

Financial Accounting Standards Board Staff Position — FIN 46(R)-6 — In April 2006, the FASB issued FIN 46(R)-6, Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R), which requires the variability of an entity to be analyzed based on the design of the entity. The nature and risks in the entity, as well as the purpose for the entity’s creation, are examined to determine the variability in applying FIN 46(R). The variability is used in applying FIN 46(R) to determine whether an entity is a variable interest entity, which interests are variable interests in the entity and who is the primary beneficiary of the variable interest entity. This interpretation is applied prospectively and is effective for all reporting periods after June 15, 2006. The interpretation did not have a material impact on our consolidated financial position or results of operations.

Financial Accounting Standards Board Interpretation No. 48 — In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which supplements Statement of Financial Accounting Standard No. 109 by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires that the tax effects of a position be recognized only if it is more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. At adoption, companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment would be recorded directly to retained earnings in the period of adoption and reported as a change in accounting principle. FIN 48 is effective as of the beginning of the first fiscal year beginning after December 15, 2006. We are assessing the potential impact on our financial condition and results of operations.

Staff Accounting Bulletin No. 108 — In September 2006, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Quantifying Financial Misstatements (SAB No. 108), which provides guidelines regarding the process of quantifying financial statement misstatements. Registrants are required to quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The techniques most commonly used in practice to accumulate and quantify misstatements are generally referred to as the rollover (current year income statement perspective) and iron curtain (year-end balance sheet perspective) approaches. With the new guidelines, financial statements would require adjustment when either approach results in quantifying a misstatement as material, after considering all relevant quantitative and qualitative factors. SAB No. 108 is effective for annual financial statements for the first fiscal year ending after November 15, 2006. Management does not expect this guidance to have a material effect on our consolidated financial condition or results of operations.

Statement of Financial Accounting Standards No. 157 — In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157), which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about fair value measurements. SFAS No. 57 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions of SFAS 157 should be applied prospectively. Management is assessing the potential impact on our consolidated financial condition and results of operations.

Statement of Financial Accounting Standards No. 158 — In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension

and Other Postretirement Plans (SFAS No. 158), which requires companies to recognize an asset or liability for the overfunded or underfunded status of their benefit plans in their financial statements. SFAS No. 158 also requires the measurement date for plan assets and liabilities to coincide with the sponsor’s year-end and provides two transition alternatives for companies to make the measurement-date provisions. The recognition of the asset or liability related to funded status provision is effective for fiscal years ending after December 15, 2006 and the change in measurement date provisions is effective for fiscal years ending after December 15, 2008. Management is assessing the potential impact on our consolidated financial condition and results of operations.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

We perform various sensitivity analyses that quantify the net financial impact of changes in interest rates on our interest rate-sensitive assets, liabilities and commitments. These analyses incorporate assumed changes in the interest rate environment, including selected hypothetical, instantaneous parallel shifts in the yield curve.

We employ various commonly used modeling techniques to value our financial instruments in connection with these sensitivity analyses. We use option-adjusted spread models to value mortgage loans, mortgage-backed securities, mortgage-backed securities forward contracts, collateralized mortgage obligations and mortgage servicing rights. The primary assumptions used in these models for purpose of these sensitivity analyses are the implied market volatility of interest rates and prepayment speeds. We use an option-pricing model to value options and interest rate floors. The primary assumption used in this model is implied market volatility of interest rates. We use zero volatility discounted cash-flow models to value other retained interests. The primary assumptions used in these models are prepayment rates, discount rates and credit losses. All relevant cash flows associated with the financial instruments are incorporated in the various models.

Based upon this modeling, the following table summarizes the estimated change in fair value of our interest rate-sensitive assets, liabilities and commitments as of September 30, 2006, given several hypothetical, instantaneous, parallel-shifts in the yield curve:


				Change in Fair Value

Change in Interest Rate (basis points)				-100			-50			+50			+100

				(In millions)
Mortgage servicing rights and other financial instruments:
	Mortgage servicing rights and other retained interests			$	(1,212	)	$	(540	)	$	380		$	617
	Impact of servicing hedge:
		Swap-based			460			195			(125	)		(196	)
		Treasury-based			115			56			(54	)		(105	)
		Others			528			242			(205	)		(384	)

			Mortgage servicing rights and other retained interests, net		(109	)		(47	)		(4	)		(68	)

	Committed pipeline				34			23			(46	)		(122	)
	Mortgage loan inventory				273			146			(174	)		(376	)
	Impact of associated derivative instruments:
		Mortgage-based			(77	)		(49	)		78			187
		Eurodollar-based			(11	)		(6	)		6			11
		Others			(194	)		(100	)		124			240

			Committed pipeline and mortgage loan inventory, net		25			14			(12	)		(60	)

Net change in fair value related to other businesses					5			3			(3	)		(7	)

GMAC Bank:
	Mortgage loans				173			98			(114	)		(237	)
	Deposit liabilities				(11	)		(5	)		5			11
	Federal Home Loan Bank advances				(151	)		(78	)		82			166
	Other liabilities				(22	)		(11	)		11			22

		GMAC Bank, net			(11	)		4			(16	)		(38	)

Notes payable and capital securities					(287	)		(142	)		138			272
Impact of associated derivative instruments:
		Swap-based			331			163			(160	)		(315	)

		Notes payable and capital securities, net			44			21			(22	)		(43	)

Insurance company investment portfolios					3			2			(2	)		(4	)

Net change in fair value related to mortgage servicing rights and other financial instruments				$	(43	)	$	(3	)	$	(59	)	$	(220	)

Net change in fair value related to broker-dealer trading securities				$	(3	)	$	(1	)	$	1		$	2

These sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate certain movements in interest rates; do not incorporate changes in interest rate volatility or changes in the relationship of one interest rate index to another; are subject to the accuracy of various assumptions used, including prepayment forecasts and discount rates; and do not incorporate other factors that would impact our overall financial performance in such scenarios, most significantly the impact of changes in loan production earnings that result from changes in interest rates. In addition, not all of the changes in fair value would impact current-period earnings. For example, our debt is carried at its unpaid principal balance net of issuance discount or premium; therefore, absent hedge accounting, changes in the market value of our debt are not recorded in current-period earnings. For these reasons, the preceding estimates should not be viewed as an earnings forecast.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our

disclosure controls and procedures. Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that our disclosure controls and procedures were effective as of September 30, 2006.

As previously disclosed in our Form 10-K for the year ended December 31, 2005, management concluded that our disclosure controls and procedures were not effective because of a material weakness in internal control over financial reporting with respect to the preparation, review, presentation and disclosure of the Consolidated Statement of Cash Flows.

Subsequently, during 2006, we implemented enhancements to our internal controls over financial reporting with respect to our Consolidated Statement of Cash Flows. These enhancements include improving our review and oversight procedures to ensure proper preparation, review, presentation and disclosure of our Consolidated Statement of Cash Flows. We believe the controls have been effective during the period.

There were no other changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to potential liability under laws and government regulations and various claims and legal actions that are pending or may be asserted against us. We did not become party to, and there were no material developments in, any material pending legal proceedings during the three-month period ended September 30, 2006, or during the period from September 30, 2006 to the filing date of this report, except as described below.

Kessler. This putative class action was consolidated for settlement purposes with five other cases, all alleging that the plaintiffs obtained second-lien mortgage loans from either Community Bank of Northern Virginia or Guaranty National Bank of Tallahassee and that they were charged interest rates and fees violating the Pennsylvania Secondary Mortgage Loan Act. Plaintiffs additionally claim that the banks were not the actual lenders on the loans, but rather that the banks “rented” their banking charters to affiliates for the purpose of facilitating the assessment of “illegal” fees and that the affiliates either split the fees or kicked back the fees in violation of Real Estate Settlement Procedures Act (RESPA). Plaintiffs sought to hold our subsidiary liable primarily on the basis that the subsidiary was an assignee of the mortgage loans. In December 2003, the U.S. District Court for the Western District of Pennsylvania gave its final approval to a proposed $41.1 million settlement for all six cases, inclusive of attorney’s fees. The settlement contemplated payment to approximately 44,000 borrowers nationwide. A group of seven plaintiffs’ class action counsel appealed the settlement in part on the grounds that the underlying litigation did not address possible Truth in Lending Act (TILA) or Home Ownership and Equity Protection Act (HOEPA) claims. On August 11, 2005, the U.S. Court of Appeals for the Third Circuit vacated the district court’s approval of the settlement and remanded the matter to the district court for further proceedings, in part to determine the “viability” of the TILA and HOEPA claims made by the objectors. On October 9, 2006, the district court issued an opinion holding that the asserted TILA and HOEPA claims were not “viable” under the facts and circumstances of this litigation. The district court scheduled a status conference for December 1, 2006.


Item 1A.	Risk Factors

The risk factors set forth below update and should be considered in addition to the risk factors previously disclosed in our report on Form 10-K for the year ended December 31, 2005.

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, public note issuances and bank credit facilities. As of December 31, 2005, we had approximately $27.6 billion of liquidity commitments for asset-backed commercial paper facilities, secured aggregation facilities and repurchase agreements.

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 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. The only guarantees not yet replaced relate to our international operations.

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.


	Rating agencies may downgrade their ratings for us in the future, which would adversely affect our ability to raise capital in the debt markets at attractive rates and increase the interest that we pay on our outstanding publicly traded notes, 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 rates our debt. Standard & Poor’s and Dominion Bond Rating Service currently maintains a developing outlook with respect to our ratings, while Moody’s has our ratings on watch for a possible downgrade. A reduction in our rating by any of these rating agencies 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 rate that we would have to pay to raise money in the capital markets, making it more expensive for us to borrow money. In addition, our outstanding public notes contain provisions that would increase the interest rate on the notes if our ratings are downgraded. As a result, a decrease in our ratings may have a material adverse effect on our business, results of operations and financial condition.


	Our financial results could be materially adversely affected if we are required to incur a charge for loan losses or reductions in carrying value of mortgage loans held for investment if a large number of homeowners to whom we have lent money were to suffer uninsured catastrophic damage to their property due to a terrorist attack or natural disaster.

The occurrence of a terrorist attack or a natural disaster, such as a hurricane, earthquake or wildfire, in a city, metropolitan area or other densely populated location in the United States could decrease the value of mortgaged properties in that location. This, in turn, would increase the risk of delinquency, default or foreclosure on our mortgage loans held for investment or with respect to which we are exposed to the credit risk. 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. Increases in our provision for loan losses and reductions in carrying value relating to certain assets as a result of Hurricane Katrina in 2005 represents an example of the adverse impact that a natural disaster can have upon our profitability and financial condition.


	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 adversely impact our business in several ways, including underwriting or other delays, fewer loan applications being received, slower or incorrect 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 immediately detected or 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.


	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 provide capital to homebuilders through the leasing of model homes. We also make equity investments in residential

development and construction projects as well as entities that conduct those projects. Our investments in and financings of these projects and entities 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. With regard to investments in residential developers, builders and similar entities, the success or failure of an investment is dependent on the financial performance of the entity. If any entity in which we invest fails, we could lose all or part of our investment in that entity. Furthermore, we may not be able to dispose of our investment on favorable terms or at all, particularly if our investments are in non-marketable equity securities of a private company or are otherwise illiquid.

With regard to development and construction projects, the success or failure of any such 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.


	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 2005, we derived approximately 9% of our revenues and 9% of our net income from our businesses in Canada, Mexico and Europe. We have also recently entered markets in South America as well as Australia, and 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 legal and regulatory requirements;

	•	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.

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 in the international markets in which we operate.

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 continue 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 and accurately interpret all of these laws and regulations, properly program our technology systems and effectively train our staff. Any failure to do so will potentially increase our exposure to the risks of noncompliance with these laws and regulations.

Our failure to comply with these laws and regulations 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;

	•	governmental investigations and 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, as well as some governmental investigations relating to certain of our business practices. An adverse result in one or more of these legal proceedings and investigations could harm our results of operations, financial condition, reputation and business prospects. See “Legal Proceedings” for more information.


	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 and thereafter. Many of our residential mortgage loans are subject to the expanded reporting requirements.

The expanded reporting does not include 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, investigations and enforcement actions by federal and state agencies, especially with respect to compliance with equal credit and fair lending laws. This

increased reporting has also attracted media coverage and governmental inquiries, including with respect to our information, and further media coverage and governmental inquiries are possible. An adverse result in any legal action or proceeding, or negative media coverage, could adversely affect our business or reputation.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Omitted.

Item 3. Defaults Upon Senior Securities.

Omitted.

Item 4. Submission of Matters to a Vote of Security Holders.

Omitted.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits — The exhibits listed on the accompanying Index of Exhibits are filed or incorporated by reference as a part of this report. Such Index is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, this 6th day of November, 2006.


	Residential Capital, LLC
	(Registrant)

	/s/ Bruce J. Paradis

	Bruce J. Paradis
	Chief Executive Officer

	/s/ James N. Young

	James N. Young
	Chief Accounting Officer and Controller

INDEX OF EXHIBITS


Exhibit		Description

	3.1	Certificate of Formation of Residential Capital, LLC dated October 24, 2006 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, dated October 24, 2006)
	3.2	Certificate of Conversion to Limited Liability Company of Residential Capital, LLC dated October 24, 2006 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, dated October 24, 2006)
	3.3	Limited Liability Company Agreement of Residential Capital, LLC dated October 24, 2006 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K, dated October 24, 2006)
	12.1	Computation of ratio of earnings to fixed charges
	31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
	31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)

The following exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section. In addition Exhibit No. 32 shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.


	32			Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350