Nov. 4 (Bloomberg) -- GMAC Inc., the auto and mortgage lender negotiating a third round of government aid, reported a third-quarter loss tied to mortgage defaults.

The net loss from continuing operations was $671 million, compared with $2.5 billion a year earlier, Detroit-based GMAC said in a statement. GMAC’s net loss was $767 million; the auto finance unit swung to a profit, while mortgage operations posted a smaller deficit.

Chief Executive Officer Alvaro de Molina is struggling to return the lender to profitability amid losses at its home mortgage operations, which include the Residential Capital LLC unit. GMAC’s loss was the eighth in nine quarters. Analysts including Adam Steer at CreditSights Inc. have called on the company to put ResCap into bankruptcy.

“Our focus is on growing operations where we can leverage our strengths,” de Molina said in the statement.

The Obama administration regards the lender as crucial to the survival of the U.S. auto industry. General Motors Co., its former parent, and Chrysler Group LLC rely on the firm to finance their vehicle buyers. GMAC received $13.5 billion in two rounds of government bailout funds and was negotiating a third infusion last month with federal regulators. An agreement is expected around Nov. 9, the company told analysts today during a conference call.

The mortgage unit’s pretax net loss from continuing operations narrowed to $747 million from $1.95 billion a year earlier; ResCap cut its deficit to $649 million from $1.91 billion. Originations dropped compared with the second quarter as refinancing slowed, GMAC said.

Auto Finance

The auto finance unit earned $395 million before taxes on continuing operations, compared with a $379 million loss a year earlier. Originations were lower than the third quarter of 2008 and 26 percent higher than this year’s second quarter, aided by the “cash-for-clunkers” incentive program and an increase in business from Chrysler.

GMAC handled more than $720 million in retail loans for Chrysler customers, more than triple the second quarter’s $200 million, for a 21 percent share of all retail sales.

“A big piece of the balance sheet is starting to shift to the auto side,” Chief Executive Officer Robert Hull said on the conference call. “It will continue to grow.”

Filing Costs

The company’s statement and subsequent conference call didn’t include decisions on the fate of ResCap and the size and timing of the government’s third bailout. Both topics drew repeated inquiries from analysts, who criticized GMAC’s decision to stop public filings of ResCap’s quarterly results. GMAC said holders could get results from the company.

Hull said the change was a “cost-saving measure, pure and simple,” citing the burden of preparing the filing for a shrinking number of investors. The decision doesn’t imply anything about ResCap’s future, which will be decided by the end of this year, he said. The company ranked among the biggest U.S. subprime lenders during 2006, according to trade journal Inside Mortgage Finance; defaults on such mortgages were among the highest in the industry.

Analysts on the call, including Kevin Eng of Columbus Hill Capital Management LP, said the lack of transparency would alarm current and potential bondholders. The U.S. holds a 35.4 percent stake in GMAC.

The next infusion by the U.S. could total $5.6 billion, and a decision may take a few days longer than the government’s Nov. 9 deadline, Hull said.

“I’ve been assured by the administration that this is the last of it,” Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, told reporters today in Washington. “By keeping this moving forward, our hope is to recapture those investments we’ve made to allow GMAC to continue to function.”

Home Prices

Housing prices in 20 U.S. cities fell 11.3 percent in August from a year earlier and foreclosures rose 22.5 percent in the third quarter, according to the S&P/Case-Shiller home-price index and RealtyTrac.com. not counting the third quarter, ResCap has lost $10.8 billion since 2007, CreditSights Inc. analysts led by Steer wrote Oct. 29.

“The question on the earnings front is how big a drag will ResCap be on earnings going forward,” Steer said in an interview before the results were announced.

The lender’s 6.875 percent notes maturing in 2011 fell $1.50, or 1.6 percent, to 95.5 cents on the dollar yesterday to yield 9.57 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They’ve climbed 25 percent this year.

The company has $52.6 billion in bonds outstanding with more than half coming due by 2012, according to Bloomberg data. GMAC doesn’t have publicly traded stock.

‘Miserable’ Results

“GMAC is probably too important to fail,” analysts at Egan-Jones Rating Co. wrote Oct. 28. “Recent operating results are miserable, but will be trumped if federal support covers the bulk of the losses.”

GMAC, which became a bank-holding company in December, is boosting deposits at its Ally Bank unit to help fund new loans. The bank, whose accounts are insured by the Federal Deposit Insurance Corp., held $15.9 billion in retail deposits at the end of the quarter, up from $14.5 billion last quarter.

Rival banks have said GMAC boosted deposits at the bank by advertising some of the highest rates in the country. As of Nov. 2, Ally bank’s 1.95 percent rate on a 12-month certificate of deposit ranks fourth among lenders on bankrate.com.

GMAC relies on government-guaranteed debt. The lender sold $2.9 billion in debt last week guaranteed by the FDIC. It has issued the full $7.4 billion approved under the agency’s program.

Moody’s Investors Service said it’s reviewing GMAC’s credit rating for a possible upgrade. Moody’s assigns a Ca rating, below investment grade.

“Moody’s will also examine GMAC’s plans regarding further support of ResCap,” Moody’s analysts led by Mark Wasden wrote in the Nov. 2 report. “ResCap’s string of large quarterly losses and consequent need for capital support has significantly limited GMAC’s financial flexibility.”

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

Last Updated: November 4, 2009 16:54 EST