Edgar Filing: GMAC INC.

Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 June 30, 2009, or

¨	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: 1-3754

GMAC INC.

(Exact name of registrant as specified in its charter)

Delaware

38-0572512

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

200 Renaissance Center

P.O. Box 200, Detroit, Michigan

48265-2000

(Address of principal executive offices)

(Zip Code)

(313) 556-5000

(Registrant’s telephone number, including area code)

Former name of Registrant: GMAC LLC

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 for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

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


Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer þ	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

At August 7, 2009, the number of shares outstanding of the Registrant’s common stock was 539,920 shares.

GMAC INC.

INDEX


		Page
Part I — Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Income (unaudited) for the Three and Six Months Ended June 30, 2009 and 2008	3
	Condensed Consolidated Balance Sheet (unaudited) as of June 30, 2009, and December 31, 2008	4
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Six Months Ended June 30, 2009 and 2008	5
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Six Months Ended June 30, 2009 and 2008	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	65
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	108
Item 4.	Controls and Procedures	108
Part II — Other Information
Item 1.	Legal Proceedings	110
Item 1A.	Risk Factors	110
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	111
Item 3.	Defaults Upon Senior Securities	111
Item 4.	Submission of Matters to a Vote of Security Holders	111
Item 5.	Other Information	112
Item 6.	Exhibits	112
Signatures		113
Index of Exhibits		114

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

GMAC INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)


	Three months ended June 30,						Six months ended June 30,
($ in millions)	2009			2008			2009			2008
Revenue
Consumer	$	1,270		$	1,764		$	2,599		$	3,585
Commercial		455			611			896			1,259
Loans held-for-sale		148			312			280			672
Operating leases		1,631			2,135			3,356			4,238
Interest and dividends on investment securities		102			166			198			375
Other interest income		33			393			121			667

Total financing revenue and other interest income		3,639			5,381			7,450			10,796
Interest expense
Interest on deposits		180			179			357			352
Interest on short-term borrowings		144			566			291			1,106
Interest on long-term debt		1,708			2,133			3,502			4,443
Other interest expense		56			(9	)		119			147

Total interest expense		2,088			2,869			4,269			6,048
Depreciation expense on operating lease assets		1,256			1,401			2,409			2,797
Impairment of investment in operating leases		—			716			—			716

Net financing revenue		295			395			772			1,235
Other revenue
Servicing fees		399			465			807			936
Servicing asset valuation and hedge activities, net		(240	)		(185	)		(600	)		225
Insurance premiums and service revenue earned		818			1,123			1,682			2,232
Loss on mortgage and automotive loans, net		(362	)		(1,099	)		(66	)		(1,698	)
Gain on extinguishment of debt		14			616			657			1,104
Other gain (loss) on investments, net		98			(49	)		81			(444	)
Other income, net of losses		4			49			(108	)		134

Total other revenue		731			920			2,453			2,489
Total net revenue		1,026			1,315			3,225			3,724
Provision for loan losses		1,161			771			2,004			1,244
Noninterest expense
Compensation and benefits expense		441			591			860			1,204
Insurance losses and loss adjustment expenses		481			714			1,034			1,344
Other operating expenses		1,126			1,548			2,308			2,811
Impairment of goodwill		607			—			607			—

Total noninterest expense		2,655			2,853			4,809			5,359
Loss before income tax expense		(2,790	)		(2,309	)		(3,588	)		(2,879	)
Income tax expense		1,113			173			990			192

Net loss	$	(3,903	)	$	(2,482	)	$	(4,578	)	$	(3,071	)

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

GMAC INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)


($ in millions)	June 30, 2009			December 31, 2008
Assets
Cash and cash equivalents	$	18,655		$	15,151
Investment securities
Trading		783			1,207
Available-for-sale		9,206			6,234
Held-to-maturity		3			3

Total investment securities		9,992			7,444
Loans held-for-sale		11,440			7,919
Finance receivables and loans, net of unearned income
Consumer ($1,587 and $1,861 at fair value)		57,983			63,963
Commercial		32,838			36,110
Allowance for loan losses		(3,301	)		(3,433	)

Total finance receivables and loans, net		87,520			96,640
Investment in operating leases, net		21,597			26,390
Notes receivable from General Motors		1,071			1,655
Mortgage servicing rights		3,509			2,848
Premiums receivable and other insurance assets		4,532			4,507
Other assets		22,932			26,922

Total assets	$	181,248		$	189,476

Liabilities
Debt
Unsecured	$	48,335		$	53,213
Secured ($1,574 and $1,899 at fair value)		56,840			73,108

Total debt		105,175			126,321
Interest payable		1,680			1,517
Unearned insurance premiums and service revenue		4,170			4,356
Reserves for insurance losses and loss adjustment expenses		2,814			2,895
Deposit liabilities		26,152			19,807
Accrued expenses and other liabilities		15,211			12,726

Total liabilities		155,202			167,622
Equity
Common stock and paid-in capital (Members’ interests at December 31, 2008)		10,917			9,670
Preferred stock held by U.S. Department of Treasury (Preferred interests held by U.S. Department of Treasury at December 31, 2008)		12,500			5,000
Preferred stock (Preferred interests at December 31, 2008)		1,287			1,287
Retained earnings		1,234			6,286
Accumulated other comprehensive income (loss)		108			(389	)

Total equity		26,046			21,854

Total liabilities and equity	$	181,248		$	189,476

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

GMAC INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Six Months Ended June 30, 2009 and 2008


($ in millions)	Members’ interests		Preferred interests held by U.S. Department of Treasury		Preferred interests		Retained earnings			Accumulated other comprehensive income (loss)			Total equity			Comprehensive income (loss)
Balance at January 1, 2008, before cumulative effect of adjustments	$	8,912			$	1,052	$	4,649		$	952		$	15,565
Cumulative effect of a change in accounting principle, net of tax
Adoption of Statement of Financial Accounting Standards No. 157 (a)								23						23
Adoption of Statement of Financial Accounting Standards No. 159 (a)								(178	)					(178	)

Balance at January 1, 2008, after cumulative effect of adjustments		8,912				1,052		4,494			952			15,410
Capital contributions		7												7
Net loss								(3,071	)					(3,071	)	$	(3,071	)
Dividends to members (b)								(27	)					(27	)
Other								6						6
Other comprehensive loss											(9	)		(9	)		(9	)

Balance at June 30, 2008	$	8,919			$	1,052	$	1,402		$	943		$	12,316		$	(3,080	)

Balance at January 1, 2009	$	9,670	$	5,000	$	1,287	$	6,286		$	(389	)	$	21,854
Capital contributions (b)		1,247												1,247
Net loss								(4,578	)					(4,578	)	$	(4,578	)
Preferred interest dividends paid to the U.S. Department of Treasury								(160	)					(160	)
Preferred interests dividends								(195	)					(195	)
Dividends to members (b)								(119	)					(119	)
Issuance of preferred interests held by U.S. Department of Treasury				7,500										7,500
Other comprehensive income											497			497			497

Balance at June 30, 2009, before conversion from limited liability company to a corporation (c)	$	10,917	$	12,500	$	1,287	$	1,234		$	108		$	26,046		$	(4,081	)


($ in millions)	Common stock and paid-in capital		Preferred stock held by U.S. Department of Treasury		Preferred stock		Retained earnings			Accumulated other comprehensive income (loss)			Total equity			Comprehensive income (loss)
Balance at June 30, 2009, after conversion from limited liability company to a corporation (c)	$	10,917	$	12,500	$	1,287	$	1,234		$	108		$	26,046		$	(4,081	)

(a)	Refer to Note 15 to the Condensed Consolidated Financial Statements for further details.

(b)	Refer to Note 14 to the Condensed Consolidated Financial Statements for further details.

(c)

Effective June 30, 2009, GMAC LLC was converted from a Delaware limited liability company into a Delaware corporation and renamed GMAC Inc. Each unit of each class of common membership interest issued and outstanding by GMAC LLC immediately prior to the conversion was converted into an equivalent number of shares of common stock of GMAC Inc. with substantially the same rights and preferences as the common membership interests. Upon conversion, holders of GMAC LLC preferred interests also received an equivalent number of GMAC Inc. preferred stock with substantially the same rights and preferences as the former preferred interests. Refer to Note 1 to the Condensed Consolidated Financial Statement for further details.

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

GMAC INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

Six Months Ended June 30, 2009 and 2008


($ in millions)	2009			2008
Operating activities
Net cash provided by operating activities	$	2,281		$	10,309

Investing activities
Purchases of available-for-sale securities		(8,080	)		(9,665	)
Proceeds from sales of available-for-sale securities		2,722			11,282
Proceeds from maturities of available-for-sale securities		2,125			2,470
Net decrease (increase) in finance receivables and loans		9,608			(3,427	)
Proceeds from sales of finance receivables and loans		462			655
Purchases of operating lease assets		(302	)		(7,867	)
Disposals of operating lease assets		3,418			3,483
Sales of mortgage servicing rights		13			174
Net decrease (increase) in notes receivable from General Motors		647			(277	)
Proceeds from sales of business units, net		82			—
Other, net		(484	)		12

Net cash provided by (used in) investing activities		10,211			(3,160	)

Financing activities
Net decrease in short-term debt		(1,762	)		(10,222	)
Net increase in bank deposits		5,460			3,583
Proceeds from issuance of long-term debt		14,813			20,740
Repayments of long-term debt		(36,517	)		(24,913	)
Proceeds from issuance of preferred interests held by U.S. Department of Treasury		7,500			—
Proceeds from issuance of common membership interests		1,247			—
Dividends paid		(448	)		(62	)
Other, net		851			389

Net cash used in financing activities		(8,856	)		(10,485	)

Effect of exchange rate changes on cash and cash equivalents		(132	)		(16	)

Net increase (decrease) in cash and cash equivalents		3,504			(3,352	)
Cash and cash equivalents at beginning of year		15,151			17,677

Cash and cash equivalents at June 30,	$	18,655		$	14,325

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

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.	Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies

GMAC Inc. was founded in 1919 as a wholly owned subsidiary of General Motors Corporation. On November 30, 2006, General Motors Corporation sold a 51% interest in us (the Sale Transactions) to FIM Holdings LLC (FIM Holdings), an investment consortium led by Cerberus FIM Investors, LLC, the sole managing member. On December 24, 2008, the Board of Governors of the Federal Reserve System (the Board of Governors) approved our application to become a bank holding company under the Bank Holding Company Act of 1956, as amended (the BHC Act). In connection with this approval, General Motors Corporation and FIM Holdings were required to significantly reduce their voting equity ownership interests in GMAC. These reductions in ownership occurred in 2009. For further discussion of developments with General Motors Corporation, refer to the General Motors Emergence from Bankruptcy Protection section in this note. The terms “GMAC,” “the Company,” “we,” “our,” and “us” refer to GMAC Inc. and its subsidiaries as a consolidated entity except where it is clear that the terms mean only GMAC Inc.

The Condensed Consolidated Financial Statements as of June 30, 2009, and for the three months and six months ended June 30, 2009 and 2008, are unaudited but, in management’s opinion, include all normal recurring adjustments necessary for the fair presentation of the interim-period results.

The interim-period consolidated financial statements, including the related notes, are condensed and prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim reporting. Certain amounts in prior periods have been reclassified to conform to the current period’s presentation. We made these reclassifications and certain presentation changes to more closely conform to Article 9 of Regulation S-X as a result of the Federal Reserve System’s approval for us to become a bank holding company. In our Condensed Consolidated Statement of Income, we reclassified interest and dividends on investment securities from investment income (a component of total other revenue) to a separate financial statement line item within total financing revenue and other interest income. Additionally, we reclassified other interest income from other income, net of losses (a component of total other revenue), to a separate financial statement line item within total financing revenue and other interest income. Presentation changes were made to interest expense in the Condensed Consolidated Statement of Income and investment securities on the Condensed Consolidated Balance Sheet to provide detail on the composition of these financial statement line items. During the six months ended June 30, 2009, we also reclassified certain uncertificated investments from investment securities to other assets on the Condensed Consolidated Balance Sheet, consistent with industry practice. Additionally, we are in the process of modifying information systems to address Article 9 guidelines that are not reflected in this Form 10-Q. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim-period Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the United States Securities and Exchange Commission (SEC) on February 26, 2009.

Residential Capital, LLC

Residential Capital, LLC (ResCap), one of our mortgage subsidiaries, has been negatively impacted by the events and conditions in the mortgage banking industry and the broader economy. The market deterioration has led to fewer sources of, and significantly reduced levels of, liquidity available to finance ResCap’s operations. ResCap is highly leveraged relative to its cash flow and continues to recognize credit and valuation losses resulting in a significant deterioration in capital. During the first six months of 2009, ResCap received capital contributions from GMAC of $1.2 billion and recognized a gain on extinguishment of debt of $1.7 billion as a result of completed divestitures to GMAC and through contributions and forgiveness of ResCap’s outstanding notes, which GMAC previously repurchased in the open market at a discount or through our private debt exchange and cash tender offers. Accordingly, ResCap’s consolidated tangible net worth, as defined, was $1.05 billion as of June 30, 2009, and remained in compliance with all of its consolidated tangible net worth covenants. For this purpose, consolidated tangible net worth is defined as ResCap’s consolidated equity excluding intangible assets and any equity in Ally Bank to the extent included on ResCap’s consolidated balance sheet. There continues to be a risk that ResCap will not be able to meet its debt service obligations, default on its financial debt covenants due to insufficient capital, and/or be in a negative liquidity position in 2009 or future periods.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

ResCap actively manages its liquidity and capital positions and is continually working on initiatives to address its debt covenant compliance and liquidity needs, including debt maturing in the next twelve months and the identified risks and uncertainties. ResCap’s initiatives include, but are not limited to, the following: continuing to work with key credit providers to optimize all available liquidity options; continued reduction of assets and other restructuring activities; focusing production on government and prime conforming products; exploring strategic alternatives such as alliances, joint ventures, and other transactions with third parties; and continually exploring opportunities for funding and capital support from GMAC and its affiliates. The outcomes of most of these initiatives are outside of ResCap’s control resulting in increased uncertainty as to their successful execution.

ResCap remains heavily dependent on GMAC and its affiliates for funding and capital support, and there can be no assurance that GMAC or its affiliates will continue such actions. We have previously disclosed that ResCap is an important subsidiary and that we believe the support we have provided to ResCap was in the best interests of our stakeholders. We have further disclosed that if ResCap were to need additional support, we would provide that support so long as it was in the best interests of our stakeholders.

Although our continued actions through various funding and capital initiatives demonstrate support for ResCap, our status as a bank holding company, completion of our private debt exchange and cash tender offers in 2008, and further capital actions in 2009 better position us to be capable of supporting ResCap, there are currently no commitments or assurances for future funding and/or capital support. Consequently, there remains substantial doubt about ResCap’s ability to continue as a going concern. Should we no longer continue to support the capital or liquidity needs of ResCap or should ResCap be unable to successfully execute other initiatives, it would have a material adverse effect on ResCap’s business, results of operations, and financial position.

GMAC has extensive financing and hedging arrangements with ResCap that could be at risk of nonpayment if ResCap were to file for bankruptcy. As of June 30, 2009, we had approximately $3.5 billion in secured financing arrangements and secured hedging agreements with ResCap of which approximately $2.9 billion in loans and $32 million related to hedging agreements had been utilized. We also owned approximately $34 million of ResCap secured notes (with a ResCap book value of $42 million). Amounts outstanding under the secured financing and hedging arrangements fluctuate. If ResCap were to file for bankruptcy, ResCap’s repayments of its financing facilities, including those with us, could be slower than if ResCap had not filed for bankruptcy. In addition, we could be an unsecured creditor of ResCap to the extent that the proceeds from the sale of our collateral are insufficient to repay ResCap’s obligations to us. It is possible that other ResCap creditors would seek to recharacterize our loans to ResCap as equity contributions or to seek equitable subordination of our claims so that the claims of other creditors would have priority over our claims. As a holder of unsecured notes, we would not receive any distributions for the benefit of creditors in a ResCap bankruptcy before secured creditors are repaid. In addition, should ResCap file for bankruptcy, our $1.0 billion investment related to ResCap’s equity position would likely be reduced to zero. GMAC would also have potential exposure relative to the recoverability of other assets attributable to ResCap of $115 million, primarily related to deferred tax assets. If a ResCap bankruptcy were to occur and a substantial amount of our credit exposure not repaid to us, it would have an adverse impact on our near-term net income and capital position, but we do not believe it would have a materially adverse impact on GMAC’s consolidated financial position over the longer term.

Change in Reportable Segment Information

As a result of a change in management’s view of certain corporate intercompany activities, we have reclassified certain transactions between our Mortgage operations reportable segment and our Corporate and Other reportable segment. These transactions relate to intercompany gains and losses associated with GMAC’s forgiveness of ResCap debt that was obtained by GMAC in open market repurchases and the December 2008 bond exchange. Prior to this reporting period, gains associated with this forgiveness were reported as part of our Mortgage operations segment, which required offsetting eliminations to be reported as part of our Corporate and Other reportable segment. These gains represent the difference between ResCap’s carrying value of the debt and the market value of the debt at the time of forgiveness. This reclassification was made because management no longer includes these gains in its evaluation of the Mortgage operations results. Further, this reclassification is intended to clarify and simplify the presentation of our segment results. As a result of the change in this reporting period, the associated gains and eliminations have both been reported within the Corporate and Other reportable segment. Comparative amounts for 2008 have been reclassified to conform to the current management view. These reclassifications did not affect our consolidated results of operations.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Issuance of Preferred Equity

On May 21, 2009, GMAC entered into an agreement with the U.S. Department of the Treasury (the Treasury) pursuant to which GMAC issued and sold to the Treasury (1) 150,000,000 units of GMAC’s Fixed Rate Cumulative Mandatorily Convertible Preferred Membership Interests, Series F, having a capital amount of $50 per unit (the Series F Interests) and (2) a ten-year warrant to purchase up to 7,501,500 units of the Series F Interests at an initial exercise price of $0.01 per unit (the Warrant) for an aggregate purchase price of $7.5 billion in cash. The Treasury immediately exercised the Warrant for a net issuance of 7,500,000 units of the Series F Interests. As described below, as a result of the Conversion (as defined below) the Series F Interests have been converted into GMAC Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series F (Series F Preferred Stock).

The Series F Preferred Stock is convertible into GMAC common stock at the Conversion Rate (as defined below) either: (1) at GMAC’s option, at any time or from time to time, and subject to certain exceptions and requirements with the prior approval of the Board of Governors of the Federal Reserve System; or (2) at the Treasury’s option, upon the occurrence of (a) any public offering of GMAC common stock or (b) certain sales, mergers, or changes of control of GMAC. All units of the Series F Preferred Stock that remain outstanding on May 21, 2016, will convert into GMAC common stock at the Conversion Rate.

The “Conversion Rate” is equal to 0.00432, subject to customary anti-dilution adjustments, which represents the number of shares of common stock for which each unit of the Series F Preferred Stock will be exchanged upon conversion. The Conversion Rate was determined based on the valuation performed by an independent investment bank hired by GMAC with the consent of the Treasury.

GMAC Conversion

Effective June 30, 2009, GMAC was converted (the Conversion) from a Delaware limited liability company into a Delaware corporation pursuant to Section 18-216 of the Delaware Limited Liability Company Act and Section 265 of the Delaware General Corporation Law and was renamed “GMAC Inc.” In connection with the Conversion, each unit of each class of membership interest issued and outstanding immediately prior to the Conversion was converted into shares of capital stock of GMAC with substantially the same rights and preferences as such membership interests. Refer to Note 13 for additional information regarding the tax impact of the conversion.

Holders of GMAC’s common membership interests received an equivalent number of shares of common stock of GMAC Inc. Holders of GMAC’s GM Preferred Membership Interests received an equivalent number of shares of GMAC Fixed Rate Perpetual Preferred Stock, Series A. Holders of GMAC’s Class C Membership Interests received an equivalent number of shares of GMAC Preferred Stock, Series C-1. Holders of GMAC’s Class D-1 Fixed Rate Cumulative Perpetual Preferred Membership Interests received an equivalent number of shares of GMAC Fixed Rate Cumulative Perpetual Preferred Stock, Series D-1. Holders of GMAC’s Class D-2 Fixed Rate Cumulative Perpetual Preferred Membership Interests received an equivalent number of shares of GMAC Fixed Rate Cumulative Perpetual Preferred Stock, Series D-2. Holders of GMAC’s Class E Fixed Rate Perpetual Preferred Membership Interests received an equivalent number of shares of GMAC’s Fixed Rate Perpetual Preferred Stock, Series E. Holders of GMAC’s Class F Fixed Rate Cumulative Mandatorily Convertible Preferred Membership Interests received an equivalent number of shares of GMAC Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series F.

General Motors Emergence from Bankruptcy Protection

On July 10, 2009, General Motors Company (GM) completed the acquisition of substantially all of the assets of Motors Liquidation Company (formerly known as General Motors Corporation) and certain of its direct and indirect subsidiaries (collectively, the Sellers). The sale was consummated in connection with the Sellers’ filing of voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court), and was completed pursuant to Section 363(b) of the Bankruptcy Code and the Bankruptcy Court’s sale order dated July 5, 2009. We were notified that all material contracts that GM had with GMAC were transferred to the new GM entity including all of GM’s corresponding pre- and post-petition liabilities and payment obligations. Refer to Note 14 for further information.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Recently Adopted Accounting Standards

SFAS No. 141(R) — On January 1, 2009, we adopted SFAS No. 141(R), Business Combinations (SFAS 141(R)), which replaces FASB Statement No. 141, Business Combinations. SFAS 141(R) establishes principles and requirements for how an acquiring company recognizes and measures the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The adoption of SFAS 141(R) did not have a material impact on our consolidated financial condition or results of operations.

SFAS No. 160 — On January 1, 2009, we adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (SFAS 160), which requires the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position as equity, but separate from the parent’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. The adoption of SFAS 160 did not have a material impact on our consolidated financial condition or results of operations.

SFAS No. 161 — As of January 1, 2009, we adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 requires specific disclosures regarding the location and amounts of derivative instruments in the financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the financial position, financial performance, and cash flows. Because SFAS 161 impacted only the disclosure and not the accounting treatment for derivative instruments and related hedged items, the adoption of SFAS 161 did not have an impact on our consolidated financial condition or results of operations. Refer to Note 12 for disclosures required by SFAS 161.

SFAS No. 165 — As of June 30, 2009, we adopted SFAS No. 165, Subsequent Events (SFAS 165), to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 should be applied to interim or annual financial periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on our consolidated financial condition or results of operations.

FSP FAS No. 140-3 — On January 1, 2009, we adopted FSP FAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (FSP FAS 140-3), which provides a consistent framework for the evaluation of a transfer of a financial asset and subsequent repurchase agreement entered into with the same counterparty. FSP FAS 140-3 provides that transfers of financial assets with subsequent repurchase agreements be viewed as a single transaction. The guidance further provides specific guidelines that, if met, would overcome the linking of the transactions and allow for the transactions to be viewed independently. The adoption of FSP FAS 140-3 did not have a material impact on our consolidated financial condition or results of operations.

FSP FAS No. 141(R)-1 — We retrospectively adopted FSP FAS No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP FAS 141(R)-1) as of January 1, 2009, to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The adoption of FSP FAS 141(R)-1 did not have a material impact on our consolidated financial condition or results of operations.

FSP FAS No. 142-3 — On January 1, 2009, we adopted FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used for purposes of determining the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets (SFAS 142). FSP FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other GAAP. The adoption of FSP FAS 142-3 did not have a material effect on our consolidated financial condition or results of operations.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FSP FAS No. 107-1 and APB No. 28-1 — As of June 30, 2009, we adopted FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1) which amends SFAS 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim periods. Additionally, the guidance amends APB 28, Interim Financial Reporting, to require these disclosures in all interim financial statements. This FSP is effective for periods ending after June 15, 2009. Since the guidance relates only to disclosures, adoption did not have a material effect on our consolidated financial condition or results of operations.

FSP FAS No. 115-2 and FSP FAS No. 124-2 — As of April 1, 2009, we adopted FSP FAS No. 115-2 and FSP FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FSP FAS 124-2), which amends the guidance for determining and recognizing impairment on debt securities. Under the FSP, an other-than-temporary impairment must be recognized if an entity has the intent to sell the debt security or if it is more-likely-than-not that it will be required to sell the debt security before recovery of its amortized cost basis. In addition, the FSP changes the amount of impairment to be recognized in current period earnings when an entity does not have the intent to sell or it is more-likely-than-not that it will be required to sell the debt security. In these cases, only the amount of the impairment associated with credit losses is recognized in earnings with all other fair value components in other comprehensive income. The FSP also requires additional disclosures regarding the calculation of credit losses as well as factors considered in reaching a conclusion that an investment is not other-than-temporarily impaired. The FSP is effective for periods ending after June 15, 2009. The adoption of FSP FAS 115-2 and FSP FAS 124-2 did not have a material impact on our consolidated financial condition or results of operations.

FSP FAS No. 157-4 — As of April 1, 2009, we adopted FSP FAS No. 157-4, Determining Whether a Market is Not Active and a Transaction is Not Distressed (FSP FAS 157-4), which clarifies the guidance for determining fair value under SFAS 157, Fair Value Measurements. This FSP provides application guidance to assist preparers in determining whether an observed transaction has occurred in an inactive market and is also distressed. This FSP is effective for periods ending after June 15, 2009. The impact of adopting FSP FAS 157-4 did not have a material impact on our consolidated financial condition or results of operations.

EITF Issue No. 08-5 — On January 1, 2009, we adopted EITF No. 08-5, Issuer’s Accounting for Liabilities at Fair Value with a Third-Party Credit Enhancement (Issue No. 08-5). Issue No. 08-5 states that the issuer of debt with a third-party credit enhancement that is inseparable from the debt instrument shall not include the effect of the credit enhancement in the fair value measurement of the liability. This Issue is effective on a prospective basis for periods beginning after December 15, 2008. The adoption of Issue No. 08-5 did not have a material impact on our consolidated financial condition or results of operations.

EITF Issue No. 08-6 — On January 1, 2009, we adopted EITF No. 08-6, Equity Method Investment Accounting Considerations (Issue No. 08-6), which addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed, how an equity method investee’s issuance of shares should be accounted for, and how to account for a change in an investment from the equity method to the cost method. The adoption of Issue No. 08-6 did not have a material impact on our consolidated financial condition or results of operations.

Recently Issued Accounting Standards

FSP FAS No. 132(R)-1 — In December 2008, the FASB issued FSP FAS No. 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, to provide guidance on an employer’s disclosure about plan assets of a defined benefit pension or other postretirement plan. This FSP provides disclosure investment policies and strategies, categories of plan assets, fair value measurements, and significant concentrations of risk. This FSP is effective for fiscal years ending after December 15, 2009. In the year of adoption, the provisions of this FSP are not required for earlier periods that are presented for comparative purposes. Since this impacts the disclosure and not the accounting treatment for benefit and other postretirement plans, adoption will not have a material effect on our consolidated financial condition or results of operations.

SFAS No. 166 — In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140 (SFAS 166), to simplify guidance for transfers of financial assets in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. The guidance removes the

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

concept of a qualifying special-purpose entity (QSPE), which will result in securitization and other asset-backed financing vehicles to be evaluated for consolidation under SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). SFAS 166 also expands legal isolation analysis, limits when a portion of a financial asset can be derecognized, and clarifies that an entity must consider all arrangements or agreements made contemporaneously with, or in contemplation of, a transfer when applying the derecognition criteria. SFAS 166 is effective for first annual reporting periods beginning after November 15, 2009, and is to be applied prospectively. The elimination of the QSPE concept will require us to retrospectively assess all current off-balance sheet QSPE structures for consolidation under SFAS 167 and record a cumulative-effect adjustment to retained earnings for any consolidation decisions. Retrospective application of SFAS 166, specifically the QSPE removal, is being assessed as part of SFAS 167, noted below.

SFAS No. 167 — In June 2009, the FASB issued SFAS 167, which addresses the primary beneficiary assessment criteria for determining whether an entity is to consolidate a variable interest entity (VIE). An entity shall consolidate a VIE (and thus be considered the primary beneficiary) if it contains both the following characteristics: the power to direct the activities of the VIE that most significantly affects economic performance and the obligation to absorb losses or right to receive benefits that could potentially be significant to the VIE. SFAS 167 also provides guidance in relation to the elimination of the QSPE concept from SFAS 166. This statement is effective for first annual reporting periods beginning after November 15, 2009. Management is currently assessing the retrospective impact of adoption due to the elimination of the QSPE concept.

SFAS No. 168 — In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and Hierarchy of GAAP; A replacement of SFAS 162 (SFAS 168), which eliminates SFAS 162, The Hierarchy of Generally Accepted Accounting Principles, and allows the FASB’s Accounting Standards Codification to become the single source of authoritative accounting guidance used in the preparation of financial statements in conformity with U.S. GAAP, except for rules and interpretive releases of the SEC under authority of federal securities laws, which are also sources of authoritative GAAP for SEC registrants. The adoption of SFAS 168 will not have a material impact on our consolidated financial condition or results of operations.

2.	Other Income, Net of Losses

Details of other income, net of losses, were as follows:


	Three months ended June 30,						Six months ended June 30,
($ in millions)	2009			2008			2009			2008
Real estate services, net	$	(224	)	$	19		$	(258	)	$	(9	)
Service fees on transactions with GM (a)		—			(17	)		(43	)		(50	)
Full-service leasing fees		85			107			163			205
Late charges and other administrative fees (b)		39			41			84			85
Mortgage processing fees and other mortgage income		9			(258	)		15			(252	)
Other equity method investments		4			(1	)		8			(38	)
Insurance service fees		25			35			49			77
Factoring commissions		8			12			16			24
Specialty lending fees		7			9			14			22
Fair value adjustment on certain derivatives (c)		96			52			(61	)		97
Changes in fair value for SFAS 159 elections, net (d)		(63	)		(74	)		(93	)		(128	)
Other, net		18			124			(2	)		101

Total other income, net of losses	$	4		$	49		$	(108	)	$	134

(a)	Refer to Note 14 for a description of related party transactions.

(b)	Includes nonmortgage securitization fees.

(c)	Refer to Note 12 for a description of derivative instruments and hedging activities.

(d)	Refer to Note 15 for a description of SFAS 159 fair value option elections.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

3.	Other Operating Expenses

Details of other operating expenses were as follows:


	Three months ended June 30,					Six months ended June 30,
($ in millions)	2009			2008		2009			2008
Insurance commissions	$	178		$	234	$	364		$	471
Technology and communications expense		164			159		327			312
Professional services		153			221		259			330
Advertising and marketing		46			56		93			109
Mortgage representation and warranty expense, net		231			80		407			101
Premises and equipment depreciation		29			46		61			94
Rent and storage		30			52		64			103
Full-service leasing vehicle maintenance costs		79			96		152			185
Lease and loan administration		44			34		82			79
Automotive remarketing and repossession		49			84		95			156
Restructuring expenses		4			50		7			84
Operating lease disposal (gain) loss		(116	)		87		(149	)		124
Other		235			349		546			663

Total other operating expenses	$	1,126		$	1,548	$	2,308		$	2,811

4.	Investment Securities

Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, notes, interests in securitization trusts, and other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale and held-to-maturity securities were as follows:


	June 30, 2009									December 31, 2008
	Cost		Gross unrealized					Fair value		Cost		Gross unrealized					Fair value
($ in millions)	Cost		gains		losses			Fair value		Cost		gains		losses			Fair value
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	1,802	$	18	$	(5	)	$	1,815	$	389	$	31	$	—		$	420
States and political subdivisions		701		22		(12	)		711		876		31		(26	)		881
Foreign government		1,531		23		(5	)		1,549		887		25		—			912
Mortgage-backed
Residential		2,516		58		(24	)		2,550		191		6		(2	)		195
Commercial		25		—		(1	)		24		17		—		(2	)		15
Asset-backed		452		1		(3	)		450		664		—		(2	)		662
Corporate debt securities		1,302		39		(54	)		1,287		2,431		24		(165	)		2,290
Other		325		—		—			325		350		4		(1	)		353

Total debt securities (a)		8,654		161		(104	)		8,711		5,805		121		(198	)		5,728
Equity securities		500		72		(77	)		495		525		79		(98	)		506

Total available-for-sale securities	$	9,154	$	233	$	(181	)	$	9,206	$	6,330	$	200	$	(296	)	$	6,234

Held-to-maturity securities
Total held-to-maturity securities	$	3	$	—	$	—		$	3	$	3	$	—	$	—		$	3

(a)	In connection with certain borrowings and letters of credit relating to certain assumed reinsurance contracts, $182 million and $154 million of primarily U.S. Treasury securities were pledged as collateral as of June 30, 2009, and December 31, 2008, respectively.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The fair value for our portfolio of trading securities was as follows:


($ in millions)	June 30, 2009		December 31, 2008
Trading securities
U.S. Treasury	$	—	$	409
Mortgage-backed
Residential		179		553
Commercial		—		7
Asset-backed		604		237
Debt and other		—		1

Total trading securities	$	783	$	1,207

In April 2009, the FASB amended the other-than-temporary impairment model for debt securities through the issuance of FSP FAS 115-2 and FSP FAS 124-2. The impairment model for equity securities was not affected. Under the new guidance, other-than-temporary impairment losses for debt securities must be recognized in earnings if an entity has the intent to sell the security or it is more-likely-than-not-that it will be required to sell the security before recovery of its amortized cost basis. However, even if an entity does not expect to sell a security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in other comprehensive income. The guidance also requires additional disclosures regarding the calculation of credit losses as well as factors considered in reaching a conclusion that an investment is not other-than-temporarily impaired. We adopted the new guidance effective for the period ended June 30, 2009. We did not record a transition adjustment for securities held at June 30, 2009, that were previously considered other-than-temporarily impaired as all previously impaired securities remaining in the portfolio were equity securities.

We employ a systematic methodology that considers available evidence in evaluating potential other-than-temporary impairment of our investments classified as available-for-sale. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and duration of the decline in fair value, the financial health of and business outlook for the issuer, changes to the rating of the security by a rating agency, the performance of the underlying assets for interests in securitized assets, whether we intend to sell the investment, and whether it is more-likely-than-not we will be required to sell the debt security before recovery of its amortized cost basis. We had other-than-temporary impairment write-downs of $1 million and $47 million for the three months and six months ended June 30, 2009, respectively, compared to $18 million and $22 million for the three months and six months ended June 30, 2008, respectively. The $1 million impairment for the three months ended June 30, 2009, related to credit-related losses for corporate debt securities and was accordingly recognized in earnings.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology described above, which has been applied to these securities, we believe that the unrealized losses result from liquidity conditions in the current market environment. As of June 30, 2009, we do not intend to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not more-likely-than-not that we will be required to sell these securities before recovery of their amortized cost basis. As a result, we believe that the securities with an unrealized loss in accumulated other comprehensive income are not considered to be other-than-temporarily impaired as of June 30, 2009.


	June 30, 2009										December 31, 2008
	Less than 12 months					12 months or longer					Less than 12 months					12 months or longer
($ in millions)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	688	$	(5	)	$	2	$	—		$	7	$	—		$	1	$	—
States and political subdivisions		194		(6	)		110		(6	)		251		(18	)		56		(8	)
Foreign government securities		478		(5	)		2		—			36		—			19		—
Mortgage-backed securities		469		(17	)		20		(8	)		19		(2	)		23		(2	)
Asset-backed securities		35		(3	)		2		—			13		(2	)		18		—
Corporate debt securities		173		(34	)		327		(20	)		1,190		(144	)		235		(21	)
Other		128		—			—		—			1		—			4		—

Total temporarily impaired debt securities		2,165		(70	)		463		(34	)		1,517		(166	)		356		(31	)
Equity securities		326		(75	)		11		(2	)		249		(98	)		4		—

Total available-for-sale securities	$	2,491	$	(145	)	$	474	$	(36	)	$	1,766	$	(264	)	$	360	$	(31	)

5.	Finance Receivables and Loans and Loans Held-for-sale

The composition of finance receivables and loans outstanding was as follows:


	June 30, 2009						December 31, 2008
($ in millions)	Domestic		Foreign		Total		Domestic		Foreign		Total
Consumer
Retail automotive	$	14,448	$	19,475	$	33,923	$	16,281	$	21,705	$	37,986
Residential mortgages (a)		20,363		3,697		24,060		21,319		4,658		25,977

Total consumer		34,811		23,172		57,983		37,600		26,363		63,963
Commercial
Automotive
Wholesale		15,010		6,254		21,264		16,035		8,094		24,129
Leasing and lease financing		227		545		772		211		634		845
Term loans to dealers and other		2,452		460		2,912		2,608		531		3,139
Commercial and industrial		5,749		915		6,664		4,884		1,157		6,041
Real estate construction and other		994		232		1,226		1,696		260		1,956

Total commercial		24,432		8,406		32,838		25,434		10,676		36,110

Total finance receivables and loans (b)	$	59,243	$	31,578	$	90,821	$	63,034	$	37,039	$	100,073

(a)	Domestic residential mortgages include $1.6 billion and $1.9 billion at fair value as a result of election made under SFAS 159 as of June 30, 2009, and December 31, 2008, respectively. Refer to Note 15 for additional information.

(b)	Net of unearned income of $3.0 billion and $3.4 billion as of June 30, 2009, and December 31, 2008, respectively.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The composition of loans held-for-sale was as follows:


($ in millions)	June 30, 2009		December 31, 2008
Consumer
Retail automotive	$	4,578	$	3,805
Residential mortgages		6,854		2,629

Total consumer		11,432		6,434
Commercial
Automotive wholesale		—		252
Commercial and industrial (a)		8		1,233

Total commercial		8		1,485

Total loans held-for-sale	$	11,440	$	7,919

(a)

The balance as of December 31, 2008, primarily related to the resort finance business of our Commercial Finance Group, which provides debt capital to resort and timeshare developers. As of March 31, 2009, the resort finance business was reclassified from loans held-for-sale to commercial finance receivables and loans, net of unearned income, on the Condensed Consolidated Balance Sheet because it was unlikely a sale would occur within the foreseeable future.

The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.


	Three months ended June 30,
	2009									2008
($ in millions)	Consumer			Commercial			Total			Consumer			Commercial			Total
Allowance at April 1,	$	2,758		$	887		$	3,645		$	1,760		$	532		$	2,292
Provision for loan losses		776			385			1,161			629			142			771
Charge-offs
Domestic		(835	)		(305	)		(1,140	)		(513	)		(51	)		(564	)
Foreign		(549	)		(9	)		(558	)		(43	)		1			(42	)

Total charge-offs		(1,384	)		(314	)		(1,698	)		(556	)		(50	)		(606	)

Recoveries
Domestic		59			4			63			54			3			57
Foreign		15			—			15			20			2			22

Total recoveries		74			4			78			74			5			79

Net charge-offs		(1,310	)		(310	)		(1,620	)		(482	)		(45	)		(527	)
Other		83			32			115			10			1			11

Allowance at June 30,	$	2,307		$	994		$	3,301		$	1,917		$	630		$	2,547

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


	Six months ended June 30,
	2009									2008
($ in millions)	Consumer			Commercial			Total			Consumer			Commercial			Total
Allowance at January 1,	$	2,536		$	897		$	3,433		$	2,141		$	614		$	2,755
Provision for loan losses		1,432			572			2,004			1,078			166			1,244
Charge-offs
Domestic		(1,240	)		(473	)		(1,713	)		(800	)		(160	)		(960	)
Foreign		(615	)		(18	)		(633	)		(179	)		—			(179	)

Total charge-offs		(1,855	)		(491	)		(2,346	)		(979	)		(160	)		(1,139	)

Recoveries
Domestic		110			7			117			107			4			111
Foreign		29			1			30			35			3			38

Total recoveries		139			8			147			142			7			149

Net charge-offs		(1,716	)		(483	)		(2,199	)		(837	)		(153	)		(990	)
Reduction of allowance due to fair value option election (a)		—			—			—			(489	)		—			(489	)
Other		55			8			63			24			3			27

Allowance at June 30,	$	2,307		$	994		$	3,301		$	1,917		$	630		$	2,547

(a)	Represents the reduction of allowance as a result of fair value option election made under SFAS 159 effective January 1, 2008. Refer to Note 15 for additional information.

As a result of becoming a bank holding company, we changed our charge-off policy during the second quarter of 2009, related to first-lien mortgage loans to comply with the Federal Financial Institutions Examination Council (FFIEC) guidelines. Therefore, first-lien mortgage loans are now written down to estimated collateral value, less costs to sell, once our mortgage loans become 180 days past due. The impact of this change resulted in incremental charge-offs of $318 million. Subsequent charge-offs in future periods are possible should collateral values decline. Prior period charge-offs and unpaid principal balances were not restated. Accordingly, the charge-off policy change was a driver for the significant increase in charge-offs reported during the second quarter of 2009. Further changes to the charge-off policy will be implemented during the second half of 2009 related to our automotive loans to become compliant with the FFIEC guidelines. These changes are not expected to have a material effect on our Condensed Consolidated Financial Statements.

6.	Off-balance Sheet Securitizations

We sell pools of automotive and residential mortgage loans via securitization transactions that qualify for off-balance sheet treatment under GAAP. The purpose of these securitizations is to provide permanent funding and asset and liability management. In executing the securitization transactions, we typically sell the pools to wholly owned special-purpose entities (SPEs), which then sell the loans to a separate, transaction-specific, bankruptcy-remote SPE (a securitization trust) for cash, servicing rights, and in some transactions, retained interests. The securitization trust issues and sells interests to investors that are collateralized by the secured loans and entitle the investors to specified cash flows generated from the securitized loans. The following discussion and related information is only applicable to the transfers of finance receivables and loans that qualify as off-balance sheet requirements of SFAS 140.

Each securitization is governed by various legal documents that limit and specify the activities of the securitization vehicle. The securitization vehicle is generally allowed to acquire the loans being sold to it, to issue interests to investors to fund the acquisition of the loans, and to enter into derivatives or other yield maintenance contracts to hedge or mitigate certain risks related to the asset pool or debt securities. Additionally, the securitization vehicle is required to service the assets it holds and the debt or interest it has issued. A servicer appointed within the underlying legal documents performs these functions. Servicing functions include, but are not limited to, collecting payments from borrowers, performing escrow functions, monitoring delinquencies, liquidating assets, investing funds until distribution, remitting payments to investors, and accounting for and reporting information to investors.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Generally, the assets initially transferred into the securitization vehicle are the sole funding source to the investors and the various other parties that perform services for the transaction, such as the servicer or the trustee. In certain transactions, a liquidity provider or facility may exist to provide temporary liquidity to the structure. The liquidity provider generally is reimbursed prior to other parties in subsequent distribution periods. Bond insurance may also exist to cover certain shortfalls to certain investors. In certain securitizations, the servicer is required to advance scheduled principal and interest payments due on the pool regardless of whether they have been received from the borrowers. The servicer is allowed to reimburse itself for these servicing advances. Lastly, certain securitization transactions may allow for the acquisition of additional loans subsequent to the initial loan. Principal collections on other loans and/or the issuance of new interests, such as variable funding notes, generally fund these loans; we are often contractually required to invest in these new interests. Additionally, we provide certain guarantees as discussed in Note 26 to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K.

As part of our securitizations, we typically retain servicing responsibilities and other retained interests. Accordingly, our servicing responsibilities result in continued involvement in the form of servicing the underlying asset (primary servicing) and/or servicing the bonds resulting from the securitization transactions (master servicing) through servicing platforms. As noted above, certain securitizations require the servicer to advance scheduled principal and interest payments due on the pool regardless of whether they are received from borrowers. Accordingly, we are required to provide these servicing advances when applicable. In certain of our securitizations, we may be required to fund certain investor-triggered put redemptions and are allowed to reimburse ourselves by repurchasing loans at par. Typically, we have concluded that the fee we are paid for servicing retail automotive finance receivables represents adequate compensation, and consequently we do not recognize a servicing asset or liability. We do not recognize a servicing asset or liability for automotive wholesale loans because of their short-term revolving nature. Additionally, we retain the rights to cash flows remaining after the investors in most securitization trusts have received their contractual payments. In certain retail automotive securitization transactions, retail receivables are sold on a servicing retained basis with no servicing compensation, and as such, a servicing liability is established and reported as accrued expenses and other liabilities. As of June 30, 2009, servicing liabilities of less than $1 million were outstanding related to these retail automotive securitization transactions. As of December 31, 2008, servicing liabilities of $1 million were outstanding related to these retail automotive securitization transactions. Refer to Note 1 and Note 22 to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K regarding the valuation of servicing rights.

We maintain cash reserve accounts at predetermined amounts for certain securitization activities in the event that deficiencies occur in cash flows owed to the investors. The amounts available in these cash reserve accounts relate to securitizations of retail finance receivables, wholesale loans, and residential mortgage loans.

The retained interests we may receive represent a continuing economic interest in the securitization. Retained interests include, but are not limited to, senior or subordinate mortgage- or asset-backed securities, interest-only strips, principal-only strips, and residuals. Certain of these retained interests provide credit enhancement to the securitization structure as they may absorb credit losses or other cash shortfalls. Additionally, the securitization documents may require cash flows to be directed away from certain of our retained interests due to specific over-collateralization requirements, which may or may not be performance-driven. The value of any interests that continue to be held take into consideration the features of the securitization transaction and are generally subject to credit, prepayment, and/or interest rate risks on the transferred financial assets. Refer to Note 1 and Note 22 to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K regarding the valuation of retained interests. We are typically not required to continue retaining these interests. In the past, we have sold certain of these retained interests when it best aligns to our economic or strategic plans.

The investors and/or securitization trusts have no recourse to us with the exception of customary market representation and warranty repurchase provisions and, in certain transactions, early payment default provisions. Representation and warranty repurchase provisions generally require us to repurchase loans to the extent it is subsequently determined that the loans were ineligible or were otherwise defective at the time of sale. Due to market conditions, early payment default provisions were included in certain securitization transactions that require us to repurchase loans if the borrower is delinquent in making certain specific payments subsequent to the sale.

We hold certain conditional repurchase options that allow us to repurchase assets from the securitization. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining assets or outstanding

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

debt once the asset pool reaches a predefined level, which represents the point where servicing is burdensome rather than beneficial. Such an option is referred to as a clean-up call. As servicer, we are able to exercise this option at our discretion anytime after the asset pool size falls below the predefined level. The repurchase price for the loans is typically par plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to repurchase the asset if certain events, outside our control, are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives us the option to purchase the loan if it exceeds a certain prespecified delinquency level. We have complete discretion regarding when or if we will exercise these options, but generally we will do so when it is in our best interest.

As required under GAAP, the loans sold into off-balance sheet securitization transactions are removed from our balance sheet. The assets obtained from the securitization are reported as cash, retained interests, or servicing rights. We have elected fair value treatment for our existing mortgage servicing rights portfolio. We classify our retained interest portfolio as trading securities, available-for-sale securities, or other assets. The portfolio is carried at fair value with valuation adjustments reported through earnings or equity. We report the valuation adjustments related to trading securities as other income (loss) on investments, net, in our Condensed Consolidated Statement of Income. The valuation adjustments related to unrealized gains and losses of our available-for-sale securities are reported as a component of accumulated other comprehensive income on our Condensed Consolidated Balance Sheet. We report the realized gains and losses of our available-for-sale securities as other income (loss) on investments, net, in our Condensed Consolidated Statement of Income. The valuation adjustments and any gains and losses recognized by our retained interests classified as other assets are reported as other income, net of losses, in our Condensed Consolidated Statement of Income. Liabilities incurred as part of the transaction, such as representation and warranties provisions or early payment default provisions, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet. Upon the sale of the loans, we recognize a gain or loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction. On the securitization transactions of automotive wholesale loans, we recognized pretax gains of $38 million and $102 million during the three months and six months ended June 30, 2009, respectively, compared to pretax gains of $69 million and $172 million during the three months and six months ended June 30, 2008, respectively. On the securitization transactions of residential mortgage loans, we did not recognized any gains or losses during the three months ended June 30, 2009; however, we did recognize pretax losses of $4 million during the six months ended June 30, 2009. During the three months and six months ended June 30, 2008, we recognized pretax losses of $156 million and $162 million, respectively, on the securitization transactions of residential mortgage loans. There were no securitization transactions of retail automotive finance receivables during 2009 due to market conditions; however, during the three months and six months ended June 30, 2008, we recognized pretax losses of $78 million and $68 million, respectively.

The following summarizes the type and amount of loans held by the securitization trusts in transactions that qualified for off-balance sheet treatment:



($ in billions)	June 30, 2009		December 31, 2008
Retail finance receivables	$	10.3	$	13.3
Automotive wholesale loans		5.1		12.5
Mortgage loans (a)		112.9		126.2

Total off-balance sheet activities	$	128.3	$	152.0

(a)

Excludes $2.4 billion and $1.6 billion of loans held by securitization trusts as of June 30, 2009, and December 31, 2008, respectively, that we have the option to repurchase under EITF Issue No. 02-9, Accounting for Changes that Result in a Transferor Regaining Control of Financial Assets Sold, as they are included in consumer finance receivable and loans and mortgage loans held-for-sale (EITF 02-9).

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following table presents components of securitized financial assets and other assets managed.


	Total finance receivables and loans
($ in millions)	June 30, 2009			December 31, 2008
Retail automotive	$	48,333		$	55,884
Retail mortgage		143,823			154,841

Total consumer		192,156			210,725

Wholesale		24,265			35,205
Other automotive and commercial		11,575			11,981

Total commercial		35,840			47,186

Total managed portfolio (a)		227,996			257,911
Securitized finance receivables and loans		(125,735	)		(149,919	)
Loans held-for-sale (unpaid principal)		(11,440	)		(7,919	)

Total finance receivables and loans	$	90,821		$	100,073

(a)

Managed portfolio represents finance receivables and loans, net of unearned income, and loans held-for-sale on the balance sheet and finance receivables and loans that have been securitized and sold, excluding securitized finance receivables and loans that we continue to service but in which we retain no interest or risk of loss.

7.	Mortgage Servicing Rights

We define our classes of mortgage servicing rights (MSRs) based on both the availability of market inputs and the manner in which we manage the risks of our servicing assets and liabilities.

The following tables summarize activity related to MSRs carried at fair value.


	Three months ended June 30,
($ in millions)	2009			2008
Estimated fair value at April 1,	$	2,587		$	4,278
Additions from purchases of servicing assets		6			—
Additions obtained from sales of financial assets		254			430
Subtractions from sales of servicing assets		(19	)		—
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model		1,035			978
Other changes in fair value		(352	)		(290	)
Other changes that affect the balance		(2	)		21

Estimated fair value at June 30,	$	3,509		$	5,417

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


	Six months ended June 30,
($ in millions)	2009			2008
Estimated fair value at January 1,	$	2,848		$	4,703
Additions from purchases of servicing assets		6			—
Additions obtained from sales of financial assets		373			800
Subtractions from sales of servicing assets		(19	)		(174	)
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model		995			524
Recognized day-one gains on previously purchased MSRs upon adoption of SFAS 157 (a)		—			11
Other changes in fair value		(692	)		(466	)
Other changes that affect the balance		(2	)		19

Estimated fair value at June 30,	$	3,509		$	5,417

(a)	Refer to Note 15 for additional information.

As of June 30, 2009, we pledged MSRs of $2.4 billion as collateral for borrowings compared to $1.8 billion as of December 31, 2008. For a description of MSRs and the related hedging strategy, refer to Notes 9 and 16 to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K.

Changes in fair value, due to changes in valuation inputs or assumptions used in the valuation models, include all changes due to revaluation by a model or by a benchmarking exercise. Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic runoff of the portfolio, foreign currency translation adjustments, and the extinguishment of MSRs related to the exercise of clean-up calls of securitization transactions.

Key assumptions we use in valuing our MSRs are as follows:


	June 30,
	2009	2008
Range of prepayment speeds	0.7–49.0%	0.7–47.6%
Range of discount rates	3.3–130.3%	5.3–31.8%

The primary risk of our servicing rights 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 MSRs. Historically, we have economically hedged the income statement impact of these risks with both derivative and nonderivative 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. The fair value of derivative financial instruments used to mitigate these risks amounted to $443 million and $594 million at June 30, 2009 and 2008, respectively. The change in fair value of the derivative financial instruments amounted to a loss of $902 million and a gain of $167 million for the six months ended June 30, 2009 and 2008, respectively, and is included in servicing asset valuation and hedge activities, net, in the Condensed Consolidated Statement of Income.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The components of servicing fees on MSRs were as follows:


	Three months ended June 30,				Six months ended June 30,
($ in millions)	2009		2008		2009		2008
Contractual servicing fees, net of guarantee fees, and including subservicing	$	282	$	322	$	563	$	652
Late fees		21		32		45		67
Ancillary fees		38		38		74		65

Total	$	341	$	392	$	682	$	784

During the fourth quarter of 2008, GMAC Mortgage, LLC, a subsidiary of ResCap, notified Fannie Mae that it was in breach of one of the servicer rating requirements as set forth in the master agreement and contract between Fannie Mae and GMAC Mortgage, LLC. As a result of this breach, Fannie Mae was entitled to exercise certain rights and remedies as permitted by its contract with GMAC Mortgage, LLC. On June 22, 2009, Fitch Ratings upgraded GMAC Mortgage, LLC’s primary servicer rating bringing GMAC Mortgage, LLC into compliance with the requirements of its master servicing agreements with respect to that rating. During the interim period GMAC Mortgage, LLC operated under a series of temporary waivers granted by Fannie Mae pursuant to which Fannie Mae was allowed to conduct enhanced servicing reviews to ensure GMAC Mortgage, LLC continued to provide satisfactory servicing performance.

If at any month end ResCap’s consolidated tangible net worth, as defined, falls below $1.0 billion, Fannie Mae has the right to pursue certain remedies. These remedies could include, among other things, reducing ResCap’s ability to sell loans to Fannie Mae, reducing ResCap’s capacity to service loans for Fannie Mae, requiring Fannie Mae to transfer servicing of loans ResCap services for them, or requiring the posting of additional collateral. If Fannie Mae determines to exercise their contractual remedies as described above, it would adversely affect ResCap’s profitability and financial condition. Additionally, a consolidated tangible net worth, as defined, below $1.0 billion and/or further deterioration in financial performance could impact ResCap’s servicer rating. Servicer ratings are required to be maintained at certain levels as set forth in the Master Agreement between Fannie Mae and GMAC Mortgage, LLC. If the servicer ratings fall below the minimum level, Fannie Mae would be entitled to exercise certain rights and remedies, including those described above and the right to terminate its mortgage selling and servicing contract with ResCap, as permitted by the contract with GMAC Mortgage, LLC. Any such termination of the mortgage selling and servicing contract could trigger cross default provision in certain facilities.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

8.	Other Assets

Other assets consisted of:


($ in millions)	June 30, 2009			December 31, 2008
Property and equipment at cost	$	1,571		$	1,535
Accumulated depreciation		(1,170	)		(1,104	)

Net property and equipment		401			431
Fair value of derivative contracts in receivable position		3,139			5,014
Restricted cash collections for securitization trusts (a)		2,806			3,143
Cash reserve deposits held-for-securitization trusts (b)		2,358			3,160
Restricted cash and cash equivalents		2,556			2,014
Servicer advances		1,888			2,126
Derivative collateral placed with counterparties		1,031			826
Goodwill		672			1,357
Repossessed and foreclosed assets, net, at lower of cost or fair value		592			916
Debt issuance costs		852			788
Investment in used vehicles held-for-sale, at lower of cost or fair value		548			574
Real estate and other investments (c)		355			642
Accrued interest and rent receivable		453			591
Interests retained in securitization trusts		662			1,001
Intangible assets, net of accumulated amortization		37			60
Other assets		4,582			4,279

Total other assets	$	22,932		$	26,922

(a)	Represents cash collection from customer payments on securitized receivables. These funds are distributed to investors as payments on the related secured debt.

(b)	Represents credit enhancement in the form of cash reserves for various securitization transactions we have executed.

(c)	Includes residential real estate investments of $107 million and $189 million and related accumulated depreciation of $2 million and $2 million at June 30, 2009, and December 31, 2008, respectively.

The changes in the carrying amounts of goodwill for the periods shown were as follows:


($ in millions)	International Automotive Finance operations		Insurance			Total
Goodwill at December 31, 2008	$	490	$	867		$	1,357
Impairment losses (a)		—		(607	)		(607	)
Sale of reporting unit (b)		—		(107	)		(107	)
Foreign currency translation effect		13		16			29

Goodwill at June 30, 2009	$	503	$	169		$	672

(a)

During the three months ended June 30, 2009, our Insurance operations initiated an evaluation of goodwill for potential impairment in accordance with SFAS 142, Goodwill and Other Intangible Assets (SFAS 142), which was in addition to our annual impairment evaluation. This test was initiated in light of a more-than-likely expectation that one of its reporting units or a significant portion of one of its reporting units would be sold. Based upon the preliminary results of the assessment, we concluded that the carrying value of one of its reporting units exceeded its fair value. The fair value was determined using an offer provided by a willing purchaser.

(b)	During the three months ended June 30, 2009, our Insurance operations sold one of its reporting units resulting in a $107 million decrease to goodwill.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Debt


	June 30, 2009						December 31, 2008
($ in millions)	Unsecured		Secured		Total		Unsecured		Secured		Total
Short-term debt
Commercial paper	$	19	$	—	$	19	$	146	$	—	$	146
Demand notes		1,115		—		1,115		1,342		—		1,342
Bank loans and overdrafts		1,723		—		1,723		2,963		—		2,963
Repurchase agreements and other (a)		735		4,597		5,332		657		5,278		5,935

Total short-term debt		3,592		4,597		8,189		5,108		5,278		10,386
Long-term debt
Due within one year		9,235		20,812		30,047		10,279		18,858		29,137
Due after one year (b)		34,933		31,431		66,364		37,101		48,972		86,073

Total long-term debt (c)		44,168		52,243		96,411		47,380		67,830		115,210
Fair value adjustment (d)		575		—		575		725		—		725

Total debt	$	48,335	$	56,840	$	105,175	$	53,213	$	73,108	$	126,321

(a)	Repurchase agreements consist of secured financing arrangements with third parties at our Mortgage operations. Other primarily includes nonbank secured borrowings and notes payable to GM. Refer to Note 14 for additional information.

(b)	Includes $4,500 million as of June 30, 2009, guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program (TLGP).

(c)	Secured long-term debt includes $1,574 million and $1,899 million at fair value as of June 30, 2009, and December 31, 2008, respectively, as a result of election made under SFAS 159. Refer to Note 15 for additional information.

(d)	To adjust designated fixed-rate debt to fair value in accordance with SFAS 133.

The following table presents the scheduled maturity of long-term debt at June 30, 2009, assuming that no early redemptions occur. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.


Year ended December 31, ($ in millions)	Unsecured (a)			Secured (b)		Total
2009	$	4,471		$	9,253	$	13,724
2010		7,470			16,915		24,385
2011		9,980			12,029		22,009
2012		9,560			3,690		13,250
2013		1,890			2,315		4,205
2014 and thereafter		15,678			3,879		19,557
Original issue discount (c)		(4,881	)		—		(4,881	)
Troubled debt restructuring concession (d)		—			521		521

Long-term debt		44,168			48,602		92,770
Collateralized borrowings in securitization trusts (e)		—			3,641		3,641

Total long-term debt	$	44,168		$	52,243	$	96,411

(a)	Scheduled maturities of ResCap unsecured long-term debt are as follows: $171 million in 2009, $1,308 million in 2010, $208 million in 2011, $355 million in 2012, $534 million in 2013, and $219 million in 2014 and thereafter. These maturities exclude ResCap debt held by GMAC.

(b)

Scheduled maturities of ResCap secured long-term debt are as follows: $0 million in 2009, $1,786 million in 2010, $0 million in 2011, $0 million in 2012, $707 million in 2013, and $1,676 million in 2014 and thereafter. These maturities exclude ResCap debt held by GMAC and collateralized borrowings in securitization trusts.

(c)	Scheduled amortization of original issue discount is as follows: $635 million in 2009, $1,243 million in 2010, $1,015 million in 2011, $335 million in 2012, $248 million in 2013, and $1,405 million in 2014 and thereafter.

(d)

In the second quarter of 2008, ResCap executed an exchange offer that resulted in a concession being recognized as an adjustment to the carrying value of certain new secured notes in accordance with SFAS No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. This concession is being amortized over the life of the new notes through a reduction to interest expense using an effective yield methodology. Scheduled amortization of the troubled debt restructuring concession is as follows: $64 million in 2009, $110 million in 2010, $101 million in 2011, $105 million in 2012, $82 million in 2013, and $59 million in 2014 and thereafter.

(e)	Collateralized borrowings in securitization trusts represents mortgage lending related debt that is repaid upon the principal payments of the underlying assets.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following summarizes assets restricted as collateral for the payment of the related debt obligation primarily arising from secured financing arrangements, securitization transactions accounted for as secured borrowings and repurchase agreements:


	June 30, 2009				December 31, 2008
($ in millions)	Assets		Related secured debt (a)		Assets		Related secured debt (a)
Loans held-for-sale	$	453	$	48	$	1,549	$	660
Mortgage assets held-for-investment and lending receivables		7,069		4,518		7,011		5,422
Retail automotive finance receivables		21,871		15,778		30,676		22,091
Wholesale automotive finance receivables		12,623		8,063		20,738		11,857
Investment securities		620		195		646		481
Investment in operating leases, net		18,551		12,610		18,885		16,744
Real estate investments and other assets		6,677		6,279		6,579		6,550
Ally Bank (b)		42,341		9,349		32,852		9,303

Total	$	110,205	$	56,840	$	118,936	$	73,108

(a)	Included as part of secured debt are repurchase agreements of $257 million and $588 million where we have pledged assets as collateral for approximately the same amount of debt at June 30, 2009, and December 31, 2008, respectively.

(b)

Ally Bank has an advance agreement with the Federal Home Loan Bank of Pittsburgh (FHLB) and access to the Federal Reserve Bank Discount Window and Term Auction Facility program. Under the advance agreement, the FHLB has a blanket lien on all Ally Bank assets, which are made up of approximately $15.6 billion and $16.5 billion in mortgage-related finance receivables and loans, $7.0 billion and $6.0 billion in automotive-related finance receivables and loans, $5.1 billion and $0.9 billion in loans held-for-sale, $7.2 billion and $5.5 billion in cash and cash equivalents, and $7.5 billion and $4.0 billion in other assets as of June 30, 2009, and December 31, 2008, respectively. Ally Bank had assets pledged and restricted as collateral totaling $15.6 billion and $21.2 billion as of June 30, 2009, and December 31, 2008, respectively. Availability under these programs is generally only for the operations of Ally Bank and cannot be used to fund the operations or liabilities of GMAC or its subsidiaries.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Liquidity Facilities

Liquidity facilities represent additional funding sources. The financial institutions providing the uncommitted facilities are not legally obligated to advance funds under these facilities. Current capacity under the secured facilities represents funding capacity that is available upon request as excess collateral resides in certain facilities. The potential capacity under the secured facilities can be utilized only upon the pledge of available eligible assets. The amounts in the outstanding columns in the table below are generally included in our Condensed Consolidated Balance Sheets with the exception of approximately $5.1 billion that is mainly composed of funding generated by special-purpose entities known as New Center Asset Trust (NCAT) and Total Asset Collateralized Notes LLC (TACN). The following table summarizes the liquidity facilities that we maintain.


	Total capacity				Current capacity (a)				Potential capacity (b)				Outstanding
($ in billions)	June 30, 2009		Dec 31, 2008		June 30, 2009		Dec 31, 2008		June 30, 2009		Dec 31, 2008		June 30, 2009		Dec 31, 2008
Committed unsecured
Global Automotive Finance operations	$	1.2	$	1.7	$	0.1	$	0.2	$	—	$	—	$	1.1	$	1.5
Committed secured
Global Automotive Finance operations (c)		42.7		56.2		5.0		0.7		7.5		15.6		30.2		39.9
Mortgage operations		2.8		5.4		—		—		0.1		2.3		2.7		3.1
Other		1.3		2.8		—		—		0.4		0.9		0.9		1.9

Total committed facilities		48.0		66.1		5.1		0.9		8.0		18.8		34.9		46.4

Uncommitted unsecured
Global Automotive Finance operations		1.2		2.1		0.1		0.2		—		—		1.1		1.9
Mortgage operations		—		0.1		—		0.1		—		—		—		—
Uncommitted secured
Global Automotive Finance operations		3.3		4.4		1.0		4.1		—		—		2.3		0.3
Mortgage operations		9.3		9.5		1.7		0.2		0.2		—		7.4		9.3

Total uncommitted facilities		13.8		16.1		2.8		4.6		0.2		—		10.8		11.5

Total	$	61.8	$	82.2	$	7.9	$	5.5	$	8.2	$	18.8	$	45.7	$	57.9

Whole-loan forward flow agreements (d)	$	13.1	$	17.8	$	—	$	—	$	13.1	$	17.8	$	—	$	—

Total commitments	$	74.9	$	100.0	$	7.9	$	5.5	$	21.3	$	36.6	$	45.7	$	57.9

(a)	Funding is generally available upon request as excess collateral resides in certain facilities.

(b)	Funding is generally available to the extent incremental collateral is contributed to the facilities.

(c)

Potential capacity at December 31, 2008, included undrawn credit commitments that served as backup liquidity to support our asset-backed commercial paper program (NCAT). There was $9.0 billion of potential capacity that was supporting $8.0 billion of outstanding NCAT commercial paper as of December 31, 2008. The NCAT commercial paper outstanding was not included on our Condensed Consolidated Balance Sheets. Beginning in April 2009, the maturing NCAT commercial paper was not renewed, and therefore, the credit commitments were drawn. The credit commitments subsequently expired in June 2009, but the lenders remain obligated to fund the underlying asset-backed securities beyond the expiration date. This funding totaled $4.7 billion as of June 30, 2009, and is included in the outstanding column in the table above for June 30, 2009. For further discussion of the NCAT facility, refer to Syndicated Facilities under the Secured Funding Facilities section of this Liquidity Management, Funding, and Regulatory Capital MD&A.

(d)	Represents commitments of financial institutions to purchase U.S. automotive retail assets.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

10.

Deposit Liabilities

Deposit liabilities consisted of the following:


($ in millions)	June 30, 2009		December 31, 2008
Domestic deposits
Noninterest bearing deposits	$	2,178	$	1,466
NOW and money market checking accounts		6,553		3,609
Certificates of deposit		15,947		13,704
Dealer wholesale deposits		537		339
Dealer term-loan deposits		6		3

Total domestic deposits		25,221		19,121

Foreign deposits
NOW and money market checking accounts		8		9
Certificates of deposit		867		638
Dealer wholesale deposits		56		39

Total foreign deposits		931		686

Total deposit liabilities	$	26,152	$	19,807

Noninterest bearing deposits primarily represent third-party escrows associated with our Mortgage operations’ loan servicing portfolio. The escrow deposits are not subject to an executed agreement and can be withdrawn without penalty at any time. Certificates of deposit included $9.0 billion and $9.6 billion of brokered certificates of deposit at June 30, 2009, and December 31, 2008, respectively.

As of June 30, 2009, domestic certificates of deposit in denominations of $100 thousand or more totaled $4.1 billion.

11.

Regulatory Capital

As a bank holding company, we and our wholly owned banking subsidiary, Ally Bank, are subject to risk-based capital and leverage guidelines by federal regulators that require that our capital-to-assets ratios meet certain minimum standards. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

The risk-based capital ratio is determined by allocating assets and specified off-balance sheet financial instruments into six weighted categories with higher levels of capital being required for the categories perceived as representing greater risk. Under the guidelines, total capital is divided into two tiers: Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common equity, minority interests, and qualifying preferred stock (including fixed-rate cumulative preferred stock issued and sold to the U.S. Department of Treasury) less goodwill and other adjustments. Tier 2 capital generally consists of preferred stock not qualifying as Tier 1 capital, limited amounts of subordinated debt, the allowance for loan losses, and other adjustments. The amount of Tier 2 capital may not exceed the amount of Tier 1 capital.

Total risk-based capital is the sum of Tier 1 capital and Tier 2 capital. Under the guidelines, banking organizations are required to maintain a minimum Total risk-based capital ratio (total capital to risk-weighted assets) of 8% and a Tier 1 risk-based capital ratio of 4%. A banking institution is considered “well-capitalized” when its Total risk-based capital ratio exceeds 10% and its Tier 1 risk-based capital ratio exceeds 6% unless subject to regulatory directive to maintain higher capital levels.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The federal banking regulators also have established minimum leverage ratio guidelines. The leverage ratio is defined as Tier 1 capital divided by adjusted average total assets (which reflect adjustments for disallowed goodwill and certain intangible assets). The minimum Tier 1 leverage ratio is 3% or 4% depending on factors specified in the regulations.

In conjunction with the conclusion of the Supervising Capital Assessment Program (S-CAP), the banking regulators have developed a new measure of capital called Tier 1 common defined as Tier 1 capital less noncommon elements including qualified perpetual preferred stock, qualifying minority interest in subsidiaries and qualifying trust preferred securities.

On July 21, 2008, GMAC, FIM Holdings, IB Finance Holding Company, LLC, Ally Bank, and the FDIC entered into a Capital and Liquidity Maintenance Agreement (CLMA). The CLMA requires capital at Ally Bank to be maintained at a level such that Ally Bank’s leverage ratio is at least 11% for a three-year period. For this purpose, leverage ratio is determined in accordance with the FDIC’s regulations related to capital maintenance.

Additionally, on May 21, 2009, the FRB granted an expanded exemption from Section 23A of the Federal Reserve Act. The exemption requires GMAC to maintain a Total risk-based capital ratio of 15% and Ally Bank to maintain a Tier 1 leverage ratio of 15%.

The minimum risk-based capital requirements adopted by the federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision. Currently all U.S. banks are subject to the Basel I capital rules. The Basel Committee issued Basel II Capital Rules, and the U.S. regulators have issued companion rules applicable to certain U.S. domiciled institutions. GMAC qualifies as a “mandatory” bank holding company that must comply with the U.S. Basel II rules. We continue to monitor developments with respect to Basel II requirements and are working to ensure successful execution within the required time.

The following table summarizes our capital ratios. GMAC was not required to calculate risk-based capital ratios, a leverage ratio, or a Tier 1 common ratio prior to becoming a bank holding company in December 2008. Therefore, the methodology of calculating these ratios may be refined over time.


	June 30, 2009
($ in millions)	Amount		Ratio	Required minimum		Well-capitalized minimum
Risk-based capital
Tier 1 (to risk-weighted assets)
GMAC Inc.	$	25,014	13.64%	4.00%		6.00%
Ally Bank		5,762	18.67%		(a)	6.00%
Total (to risk-weighted assets)
GMAC Inc.	$	27,660	15.08%	15.00%	(b)	10.00%
Ally Bank		6,152	19.94%		(a)	10.00%
Tier 1 leverage (to adjusted average assets) (c)
GMAC Inc.	$	25,014	14.07%	3.00–4.00%			(d)
Ally Bank		5,762	15.07%		(a)	5.00%
Tier 1 common (to risk-weighted assets)
GMAC Inc.	$	11,227	6.12%	n/a		n/a
Ally Bank		n/a	n/a	n/a		n/a

(a)	Ally Bank, in accordance with the FRB exemption from Section 23A, is required to maintain a Tier 1 leverage ratio of 15%. Ally Bank is also required to maintain well-capitalized levels for Tier 1 risk-based capital and total risk-based ratios pursuant to the CLMA.

(b)	GMAC, in accordance with the FRB exemption from Section 23A, is required to maintain a Total risk-based capital ratio of 15%.

(c)	Federal regulatory reporting guidelines require the calculation of adjusted average assets using a daily average methodology. We currently use a monthly average methodology. We are in the process of modifying information systems to address the daily average requirement.

(d)	There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

At June 30, 2009, GMAC and Ally Bank met all required minimum ratios and were “well-capitalized” under the federal regulatory agencies’ definitions as summarized in the table above.

As required by the Board of Governors of the Federal Reserve System’s S-CAP program, by no later than November 9, 2009, GMAC is required to increase the common shareholder equity component of Tier 1 capital by $11.5 billion. By the same date, GMAC must also increase overall Tier 1 capital by $9.1 billion. Depending on the method of capital augmentation used, the increase in common shareholder equity may accomplish the increase in overall Tier 1 capital. The $3.5 billion investment by the U.S. Treasury is new Tier 1 capital for the company toward this program and reduces the level of new capital required to $5.6 billion. Consistent with the S-CAP program requirements, we submitted a Capital Plan to the Federal Reserve Bank of Chicago in June 2009 with respect to the remaining capital required. While the U.S. Treasury has indicated that it may be willing to provide additional new capital, we continue to evaluate other alternatives to meet our capital requirements.

12.

Derivative Instruments and Hedging Activities

We enter into interest rate and foreign currency swaps, futures, forwards, options, swaptions, and credit default swaps in connection with our market risk management activities. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities, including investment securities, loans held-for-sale, mortgage servicing rights, debt, and deposits. In addition, we use foreign exchange contracts to mitigate foreign currency risk associated with foreign-currency-denominated debt and foreign exchange transactions. Our primary objective for utilizing derivative financial instruments is to manage market risk volatility associated with interest rate and foreign currency risks related to the assets and liabilities of our automotive finance and mortgage operations. One of the key goals of our risk-mitigation strategy is to modify the asset and liability and interest rate mix including the assets and liabilities associated with securitization transactions that may be recorded as off-balance sheet SPEs. In addition, we use derivative financial instruments to mitigate the risk of changes in the fair values of loans held-for-sale and mortgage servicing rights.

Interest Rate Risk

We execute interest rate swaps to modify our exposure to interest rate risk by converting fixed-rate instruments to a variable rate. We also enter into derivative instrument contracts to hedge exposure to variability in cash flows related to variable-rate financial instruments.

We have applied hedge accounting for certain derivative instruments used to hedge fixed-rate and variable-rate debt. We monitor our mix of fixed- and variable-rate debt in relationship to the rate profile of our assets. When it is cost effective to do so, we may enter into interest rate swaps to achieve our desired mix of fixed- and variable-rate debt.

Our fair value hedges consist of hedges of fixed-rate debt obligations including those received through advances from the Federal Home Loan Bank of Pittsburgh (FHLB). Individual swaps are designated as one-for-one hedges of specific fixed-rate debt obligations, except for the advances from the FHLB, which are designated as hedges of a portfolio because the advances are grouped into similar liability pools. As of June 30, 2009, outstanding interest rate swaps designated as fair value accounting hedges held in an asset position had a fair value of $629 million, and those held in a liability position had a fair value of $106 million. The outstanding notional amount as of June 30, 2009, was $25.1 billion.

Interest rate swaps are also used to modify exposure to variability in expected future cash flows attributable to variable-rate debt. Similar to our fair value hedges, the swaps are generally entered into or traded concurrent with the debt issuance. As of June 30, 2009, there were no outstanding cash flow hedging relationships.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

We enter into economic hedges to mitigate exposure for the following categories:

•

Mortgage servicing rights and retained interests — Our mortgage servicing rights and retained interest portfolios are generally subject to loss in value when mortgage rates decline. Declining mortgage rates generally result in an increase in refinancing activity that increases prepayments and results in a decline in the value of mortgage servicing rights and retained interests. To mitigate the impact of this risk, we maintain a portfolio of financial instruments, primarily derivatives that increase in value when interest rates decline. The primary objective is to minimize the overall risk of loss in the value of mortgage servicing rights due to the change in fair value caused by interest rate changes and their interrelated impact to prepayments.

We use a multitude of derivative instruments to manage the interest rate risk related to mortgage servicing rights and retained interests. They include, but are not limited to, interest rate futures contracts, call or put options on U.S. Treasuries, swaptions, MBS futures, U.S. Treasury futures, interest rate swaps, interest rate floors, and interest rate caps. While we do not utilize nonderivative instruments (e.g., U.S. Treasuries) to hedge this portfolio, we have utilized them previously and may utilize them again in the future. We monitor and actively manage our risk on a daily basis, and therefore trading volume can be large.

As of June 30, 2009, outstanding contracts held in an asset position had a fair value of $789 million, and those held in a liability position had a fair value of $287 million. The outstanding notional amount was $145.2 billion as of June 30, 2009.

•

Mortgage loan commitments and mortgage and auto loans held-for-sale — We are exposed to interest rate risk from the time an interest rate lock commitment (IRLC) is made until the time the mortgage loan is sold. Changes in interest rates impact the market price for our loans; as market interest rates decline, the value of existing IRLCs and loans held-for-sale go up and vice versa. Our primary objective in risk management activities related to IRLCs and mortgage and automotive loans held-for-sale is to eliminate or greatly reduce any interest rate risk associated with these items.

The primary derivative instrument we use to accomplish this objective for mortgage loans and IRLCs is forward sales of mortgage-backed securities, primarily Fannie Mae or Freddie Mac to-be-announced securities. These instruments typically are entered into at the time the IRLC is made. The value of the forward sales contracts moves in the opposite direction of the value of our IRLCs and mortgage loans held-for-sale. We also use other derivatives, such as interest rate swaps, options, and futures, to hedge automotive loans held-for-sale and certain portions of the mortgage portfolio. Nonderivative instruments may also be periodically used to economically hedge the mortgage portfolio, such as short positions on U.S. Treasuries. We monitor and actively manage our risk on a daily basis.

We do not apply hedge accounting to our derivative portfolio held to economically hedge the IRLCs and mortgage and automotive loans held-for-sale. As of June 30, 2009, outstanding contracts held in an asset position had a fair value of $145 million, and those held in a liability position had a fair value of $94 million. The outstanding notional amount was $15.4 billion as of June 30, 2009.

•

Off-balance sheet securitization activities — We enter into interest rate swaps to facilitate securitization transactions where the underlying receivables are sold to a nonconsolidated qualifying special-purpose entity (QSPE). As the underlying assets are carried in a nonconsolidated entity, the interest rate swaps do not qualify for hedge accounting treatment. As of June 30, 2009, outstanding contracts held in an asset position had a fair value of $216 million. The outstanding notional amount was $6.5 billion as of June 30, 2009.

•

Debt — As part of our previous on-balance sheet securitizations and/or secured aggregation facilities, certain interest rate swaps or interest rate caps have been included within consolidated variable interest entities; these swaps or caps were generally required to meet certain rating agency requirements or were required by the facility lender/provider. The interest rate swaps and/or caps are generally entered into when the debt is issued; accordingly, current trading activity on this particular derivative portfolio is minimal.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

With the exception of a portion of our fixed-rate debt (which includes advances from the FHLB), we have not applied hedge accounting to our derivative portfolio held to economically hedge our debt portfolio. Typically, the significant terms of the interest rate swaps match the significant terms of the underlying debt resulting in an effective conversion of the rate of the related debt. As of June 30, 2009, outstanding contracts held in an asset position had a fair value of $646 million, and those held in a liability position had a fair value of $910 million. The outstanding notional was $76.8 billion as of June 30, 2009.

•

Callable debt obligations — We enter into cancellable interest rate swaps as economic hedges of certain callable fixed-rate debt in connection with our market risk management policy. If the hedging relationship does not meet a specified effectiveness assessment threshold, it will be treated as an economic hedge. Prior to May 2007, all cancellable swaps hedging callable debt were treated as economic hedges. As of June 30, 2009, outstanding contracts held in an asset position had a fair value of $12 million and an outstanding notional amount of $640 million.

•

Other — We enter into futures, options, swaptions, and credit default swaps to hedge our net fixed versus variable interest rate exposure. As of June 30, 2009, outstanding contracts held in an asset position had a fair value of $3 million, and those held in a liability position had a fair value of $27 million. The outstanding notional amount was $50 million as of June 30, 2009.

Foreign Currency Risk

We enter into derivative financial instrument contracts to hedge exposure to variability in cash flows related to foreign currency financial instruments. Currency swaps and forwards are used to hedge foreign exchange exposure on foreign-currency-denominated debt by converting the funding currency to the same currency of the assets being financed. Similar to our interest rate hedges, the swaps are generally entered into or traded concurrent with the debt issuance with the terms of the swap matching the terms of the underlying debt.

Our non-U.S. subsidiaries maintain both assets and liabilities in local currencies; these local currencies are the subsidiaries’ functional currencies for accounting purposes. Foreign currency exchange rate gains and losses arise when our assets or liabilities or our subsidiaries are denominated in currencies that differ from its functional currency. In addition, our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our other comprehensive income (loss). Foreign currency risk is reviewed as part of our risk-management process. The principal currencies creating foreign exchange risk are the U.K. sterling and the Euro.

In addition, we have a centralized lending program to manage liquidity for all of our subsidiary businesses. Foreign-currency-denominated loan agreements are executed with our foreign subsidiaries in their local currencies. We evaluate our foreign currency exposure resulting from intercompany lending and manage our currency risk exposure by entering into foreign currency derivatives with external counterparties. Our foreign currency derivatives are recorded at fair value with changes recorded as income offsetting the gains and losses on the hedged foreign currency transactions.

Our current strategy is to economically hedge foreign currency risk that is denominated in currencies other than the U.S. dollar (USD). The principal objective of the foreign currency hedges is to mitigate the earnings volatility specifically created by currency exchange rate gains and losses.

With limited exceptions, we have elected not to treat any foreign currency derivatives as hedges for accounting purposes principally because the changes in the fair values of the foreign currency swaps are substantially offset by the foreign currency revaluation gains and losses of the underlying assets and liabilities.

As of June 30, 2009, outstanding foreign currency swaps designated as cash flow accounting hedges held in a liability position had a fair value of $73 million. The outstanding notional amount was $401 million as of June 30, 2009.

As of June 30, 2009, outstanding foreign currency exchange derivatives not designated as hedges for accounting purposes held in an asset position had a fair value of $699 million, and those held in a liability position had a fair value of $474 million. The outstanding notional amount was $19.8 billion as of June 30, 2009.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Credit Risk

Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe us under the contract completely fail to perform under the terms of those contracts, assuming no recoveries of underlying collateral, as measured by the market value of the derivative financial instrument. At June 30, 2009, and December 31, 2008, the market value of derivative financial instruments in an asset or receivable position was $3.1 billion and $5 billion including accrued interest of $413 million and $271 million, respectively. At June 30, 2009, and December 31, 2008, the market value of derivative financial instruments in a liability or payable position was $2.0 billion and $2.6 billion including accrued interest of $87 million and $104 million, respectively.

To further mitigate the risk of counterparty default, we maintain collateral agreements with certain counterparties. The agreements require both parties to maintain collateral in the event the fair values of the derivative financial instruments meet established thresholds. In the event that either party defaults on the obligation, the secured party may seize the collateral. Generally our collateral arrangements are bilateral such that we and the counterparty post collateral for the value of their total obligation to each other. Contractual terms provide for standard and customary exchange of collateral based upon changes in the market value of the outstanding derivatives. The securing party posts additional collateral when their obligation has risen or removes collateral when it has fallen. We also have unilateral collateral agreements whereby we are the only entity required to post collateral. We have placed cash collateral totaling $1.5 billion and $1.6 billion at June 30, 2009, and December 31, 2008, respectively, in accounts maintained by counterparties. We have received cash collateral from counterparties totaling $526 million and $1.5 billion at June 30, 2009, and December 31, 2008, respectively. The collateral placed and received are included on our Condensed Consolidated Balance Sheet in other assets and accrued expenses and other liabilities, respectively. In certain circumstances, we receive or post securities as collateral with counterparties. In accordance with Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, we do not record such collateral received on our statement of financial position unless certain conditions have been met.

Accounting Treatment

In accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, all derivative financial instruments, whether designated for hedging relationships or not, are recorded on the Condensed Consolidated Balance Sheet as assets or liabilities and carried at fair value. Due to the nature of derivative instruments, they may be in a receivable/asset position or a payable/liability position at the end of an accounting period.

At the inception of a derivative contract, we determine whether the instrument will be part of a qualifying hedge accounting relationship. For each of these relationships, we designate the qualifying derivative financial instrument as a hedge of the fair value of a recognized asset or liability (fair value hedge) or a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). We also use derivative financial instruments that do not qualify for hedge accounting under GAAP. Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges, along with the gain or loss on the hedged asset or liability attributable to the hedged risk, are recorded in current period earnings. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative financial instruments is recorded as other comprehensive income, a component of equity, and is recognized in the Condensed Consolidated Statement of Income when the hedged cash flows affect earnings. Changes in the fair value of derivative financial instruments held for risk management purposes that do not meet the criteria to qualify for hedge accounting under GAAP or for which management has not elected hedge accounting treatment are reported in current period earnings. The ineffective portions of fair value and cash flow hedges are immediately recognized in earnings. Ineffectiveness is measured based on the difference in the fair value movement of the swap and the related hedged debt or cash flows. Effectiveness is assessed using historical data. We assess hedge effectiveness by employing a statistical-based approach, which must meet thresholds for R-squared, slope, F-statistic, and T-statistic.

We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the Condensed Consolidated Balance Sheet, to specific firm commitments or the forecasted transactions. Both at the hedge’s inception and on an ongoing basis, we formally assesses

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in fair values or cash flows of hedged items.

The hedge accounting treatment described above is no longer applied if a derivative financial instrument is terminated or the hedge designation is removed. For terminated fair value hedges, any changes to the hedged asset or liability remain as part of the basis of the asset or liability and are recognized into income over the remaining life of the asset or liability. For terminated cash flow hedges, unless it is probable that the forecasted cash flow will not occur within a specified time frame, any changes in fair value of the derivative financial instrument remain in other comprehensive income, a component of equity, and are reclassified into earnings in the period that the hedged cash flows affects earnings.

Balance Sheet Presentation

The following table summarizes the fair value amounts of derivative instruments reported on our Condensed Consolidated Balance Sheet. The fair value amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories.


	Fair value of derivative contracts in
June 30, 2009 ($ in millions)	Receivable position (a)		Liability position (b)
Derivatives designated as hedging instruments
Interest rate risk	$	629	$	106
Foreign exchange risk		—		73

Total derivatives designated as hedging instruments		629		179

Derivatives not designated as hedging instruments
Interest rate risk		1,811		1,318
Foreign exchange risk		699		474

Total derivatives not designated as hedging instruments		2,510		1,792

Total derivatives	$	3,139	$	1,971

(a)	Reported as other assets on the Condensed Consolidated Balance Sheet.

(b)	Reported as accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Statement of Income Presentation and Accumulated Other Comprehensive Income Information

The following tables summarize the location and amounts of gains and losses reported in our Condensed Consolidated Statement of Income on derivative instruments and related hedge items and amounts flowing through accumulated other comprehensive income. Gains and losses are presented separately for (1) derivative instruments and related hedged items designated and qualifying in fair value hedges; (2) the effective portion of gains and losses on derivative instruments designated and qualifying in cash flow hedges that were recognized in other comprehensive income during the period; (3) the effective portion of gains and losses on derivative instruments designated and qualifying as cash flow hedges recorded in accumulated other comprehensive income during the term of the hedging relationship and reclassified into earnings in the current period; (4) the portion of gains and losses on derivative instruments designated and qualifying in cash flow hedges representing the hedges ineffectiveness and the amount, if any, excluded from the hedge effectiveness assessment; and (5) derivative instruments not designated as hedging instruments.


($ in millions)	Three months ended June 30, 2009			Six months ended June 30, 2009
Derivatives in fair value hedging relationships
Loss recognized in earnings on derivatives
Interest rate contracts
Other interest expense	$	(180	)	$	(377	)
Gain recognized in earnings on hedged items
Interest rate contracts
Other interest expense		155			320
Derivatives not designated as hedging relationships
(Loss) gain recognized in earnings on derivatives
Interest rate contracts
Servicing asset valuation and hedge activities, net		(902	)		(882	)
Loss on mortgage and automotive loans, net		(40	)		(269	)
Other loss on investments, net		(7	)		(8	)
Other income, net of losses		48			36
Other operating expenses		(14	)		(16	)

Total interest rate contracts		(915	)		(1,139	)
Foreign exchange contracts (a)
Other interest expense		(8	)		(8	)
Other income, net of losses		10			(211	)

Total foreign exchange contracts		2			(219	)

Loss recognized in earnings on derivatives	$	(938	)	$	(1,415	)

(a)	Amount represents the difference between the changes in the fair values of the currency hedge, net of the revaluation of the related foreign denominated debt or foreign denominated receivable.

13.

Income Taxes

Effective June 30, 2009, GMAC LLC was converted (the Conversion) from a limited liability company (LLC) into a corporation and renamed GMAC Inc. As a result of the Conversion, GMAC Inc. will be subject to corporate U.S. federal, state, and local taxes beginning in the third quarter of 2009. Due to our change in tax status as of June 30, 2009, a net deferred tax liability of $1.2 billion was established through income tax expense.

GMAC LLC, along with certain U.S. subsidiaries, were pass-through entities for U.S. federal income tax purposes prior to the Conversion. Prior to the Conversion, U.S. federal, state, and local income taxes were not provided for these entities as they were not taxable entities with the exception of a few local jurisdictions that tax LLCs or partnerships. LLC members are required to report their share of our taxable income on their respective income tax returns. In addition, GMAC LLC’s banking, insurance, and foreign subsidiaries were generally corporations and subject to, and required to provide for U.S. federal and foreign income taxes. The Conversion did not change the tax status of these subsidiaries. The income tax

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

expense related to these corporations is included in income tax expense in our Condensed Consolidated Statement of Income, along with other miscellaneous state, local, and franchise taxes of GMAC and certain other subsidiaries.

The significant components of income tax expense were as follows:


	Three months ended June 30,						Six months ended June 30,
($ in millions)	2009			2008			2009			2008
Current income tax expense (benefit)
U.S. federal	$	37		$	(347	)	$	48		$	(53	)
Foreign		56			17			77			94
State and local		(14	)		(29	)		(2	)		14

Total current expense (benefit)		79			(359	)		123			55

Deferred income tax (benefit) expense
U.S. federal		(97	)		371			(205	)		130
Foreign		(38	)		150			(77	)		41
State and local		(44	)		11			(64	)		(34	)

Total deferred (benefit) expense		(179	)		532			(346	)		137

Total income tax (benefit) expense before change in tax status		(100	)		173			(223	)		192
Change in tax status		1,213			—			1,213			—

Total income tax expense	$	1,113		$	173		$	990		$	192

A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate is shown in the following table.


	Three months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
Statutory U.S. federal tax rate	35.0	%	35.0	%	35.0	%	35.0	%
Change in tax rate resulting from
Change in tax status	(43.5	)	—		(33.8	)	—
LLC results not subject to federal or state income taxes	(14.6	)	(18.6	)	(15.2	)	(12.9	)
Effect of valuation allowance change	(3.3	)	(19.9	)	(3.2	)	(23.6	)
Foreign income tax rate differential	(5.6	)	(2.9	)	(4.5	)	(5.1	)
Goodwill	(7.6	)	—		(5.9	)	—
State and local income taxes, net of federal income tax benefit	0.6		0.1		0.6		0.1
Tax-exempt income	0.1		0.1		0.1		0.2
Other	(1.0	)	(1.3	)	(0.7	)	(0.4	)

Effective tax rate	(39.9	)%	(7.5	)%	(27.6	)%	(6.7	)%

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Our results segregated by tax status are provided below.


	Three months ended June 30,
	2009 (a)									2008
($ in millions)	Pass- through entities			Taxable entities			Consolidated			Pass- through entities			Taxable entities			Consolidated
Pretax loss	$	(1,156	)	$	(1,634	)	$	(2,790	)	$	(1,226	)	$	(1,083	)	$	(2,309	)
Tax expense (benefit)		1,363			(250	)		1,113			(4	)		177			173

Net loss	$	(2,519	)	$	(1,384	)	$	(3,903	)	$	(1,222	)	$	(1,260	)	$	(2,482	)

Effective tax rate		(117.9	)%		15.3	%		(39.9	)%		0.3	%		(16.3	)%		(7.5	)%

(a)	Includes the impact of the Conversion.


	Six months ended June 30,
	2009 (a)									2008
($ in millions)	Pass- through entities			Taxable entities			Consolidated			Pass- through entities			Taxable entities			Consolidated
Pretax loss	$	(1,554	)	$	(2,034	)	$	(3,588	)	$	(1,103	)	$	(1,776	)	$	(2,879	)
Tax expense (benefit)		1,365			(375	)		990			(7	)		199			192

Net loss	$	(2,919	)	$	(1,659	)	$	(4,578	)	$	(1,096	)	$	(1,975	)	$	(3,071	)

Effective tax rate		(87.8	)%		18.5	%		(27.6	)%		0.6	%		(11.2	)%		(6.7	)%

(a)	Includes the impact of the Conversion.

The effective tax rates of (39.9)% and (27.6)% for the three months and six months ended June 30, 2009, were negatively impacted by our conversion from an LLC to a corporation. Excluding this impact, the effective rates were 3.6% and 6.2% for the three months and six months ended June 30, 2009, reflective of an equal pretax loss split between our pass-through and taxable entities, whereas our taxable entities are subject to income tax rates in U.S. and foreign tax jurisdictions ranging from 25% to 35%. Compared to the same periods in 2008, the effective tax rates (7.5)% and (6.7)% resulted from higher losses within our taxable entities combined with valuation allowances established on deferred tax assets of certain foreign operations, primarily mortgage operations in continental Europe, United Kingdom, Canada, and Australia. These valuation allowances were established because, based on historical losses and expected future taxable income, it was no longer more-likely-than-not that these net deferred tax assets would be realized.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Deferred tax assets and liabilities result from differences between assets and liabilities measured for financial reporting purposes and those measured for income tax purposes. The Conversion resulted in a $1.2 billion increase in income tax expense related to the establishment of deferred tax liabilities and assets of $2.2 billion and $947 million, respectively. The significant components of deferred tax assets and liabilities after consideration of these adjustments are reflected in the following table.


($ in millions)	June 30, 2009			December 31, 2008
Deferred tax liabilities
Lease transactions	$	1,579		$	1,320
Debt issuance costs		732			5
Deferred acquisition costs		460			503
Tax on unremitted earnings		123			53
State and local taxes		127			19
Hedging transactions		103			1
Other		141			8

Gross deferred tax liabilities		3,265			1,909

Deferred tax assets
Tax loss carryforwards		1,041			943
Provision for credit losses		702			382
Sale of finance receivables and loans		324			132
Unearned insurance premiums		233			252
Depreciation		70			58
Investment in ResCap partnership		106			—
Contingency		160			128
Unrealized gains on securities		49			80
Postretirement benefits		5			10
Accumulated translation adjustment		21			42
Tax credit carryforwards		15			60
Manufacturing incentives		4			33
Other		177			155

Gross deferred tax assets		2,907			2,275

Valuation allowance		(1,132	)		(924	)

Net deferred tax assets		1,775			1,351

Net deferred tax liability	$	1,490		$	558

Gross unrecognized tax benefits totaled $166 million and $150 million as of June 30, 2009, and December 31, 2008, respectively.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14.

Related Party Transactions

Balance Sheet

A summary of the balance sheet effect of transactions with GM, FIM Holdings, and affiliated companies follows:


($ in millions)	June 30, 2009		December 31, 2008
Assets
Available-for-sale investment in asset-backed security — GM (a)	$	33	$	35
Secured
Finance receivables and loans, net of unearned income
Wholesale automotive financing — GM (b)		406		595
Term loans to dealers — GM (b)		103		105
Lending receivables — GM		—		26
Lending receivables — affiliates of FIM Holdings		74		91
Investment in operating leases, net — GM (c)		67		291
Notes receivable from GM (d)		1,045		1,464
Other assets
Other — GM		30		32

Total secured		1,725		2,604
Unsecured
Notes receivable from GM (d)		26		191
Other assets
Subvention receivables (rate and residual support) — GM		85		53
Lease pull-ahead receivable — GM		24		28
Other — GM		53		49

Total unsecured		188		321
Liabilities
Unsecured debt
Notes payable to GM	$	649	$	566
Secured debt
Cerberus model home term loan		—		8
Accrued expenses and other liabilities
Wholesale payable — GM		318		319
Deferred revenue — GM (e)		1,253		318
Other payables — GM		156		45

(a)	In November 2006, GMAC retained an investment in a note secured by operating lease assets transferred to GM. As part of the transfer, GMAC provided a note to a trust, a wholly owned subsidiary of GM. The note is classified in investment securities on our Condensed Consolidated Balance Sheet.

(b)	Represents wholesale financing and term loans to certain dealerships wholly owned by GM or in which GM has an interest. The loans are generally secured by the underlying vehicles or assets of the dealerships.

(c)	Includes vehicles, buildings, and other equipment classified as operating lease assets that are leased to GM-affiliated entities. These leases are secured by the underlying assets.

(d)

Represents wholesale financing we provide to GM for vehicles, parts, and accessories in which GM retains title while consigned to us or dealers primarily in the UK, Italy, and Germany. The financing to GM remains outstanding until the title is transferred to the dealers. The amount of financing provided to GM under this arrangement varies based on inventory levels. These loans are secured by the underlying vehicles or other assets.

(e)

Represents prepayments made by GM pursuant to the terms of the Sale Transactions requiring that the aggregate amount of certain unsecured obligations of GM to us not exceed $1.5 billion. Subsequent to December 31, 2008, a new agreement was reached between GMAC and GM with new limitations on unsecured exposure going forward. Generally, unsecured exposure based on what we believe from time to time to be “probable” amounts owed from GM will be limited to $2.1 billion; and unsecured exposures based on “maximum” possible amounts owed will be limited to $4.1 billion. This distinction was established to more easily manage exposures since certain amounts that will be owed to us from GM (e.g., pursuant to risk-sharing and similar arrangements) are based on variables and assumptions that may change over time. During the three months ended June 30, 2009, GM filed for bankruptcy protection, causing us to modify assumptions around the magnitude of various exposures. This resulted in significant exposure reduction prepayments made by GM to us during the three months ended June 30, 2009.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Statement of Income

A summary of the statement of income effect of transactions with GM, FIM Holdings, and affiliated companies follows:


	Three months ended June 30,						Six months ended June 30,
($ in millions)	2009			2008			2009			2008
Net financing revenue
GM and affiliates lease residual value support — North American operations (a)	$	56		$	249		$	140		$	437
GM and affiliates rate support — North American operations		194			245			383			524
Wholesale subvention and service fees from GM		59			82			116			159
Interest earned on wholesale automotive financing		5			6			10			14
Interest earned on term loans to dealers		1			1			1			2
Interest expense on loans with GM		(11	)		(10	)		(21	)		(20	)
Interest income on loans with FIM Holdings affiliates, net		1			5			2			8
Consumer lease payments from GM (b)		21			4			60			24
Other revenue
Insurance premiums earned from GM		43			60			83			110
Interest on notes receivable from GM and affiliates		15			32			39			62
Interest on wholesale settlements (c)		34			25			55			54
Revenues from GM-leased properties, net		3			4			6			8
Derivatives (d)		(2	)		—			(8	)		10
Other		1			2			3			4
Servicing fees
U.S. automotive operating leases (e)		7			30			18			53
Expense
Off-lease vehicle selling expense reimbursement (f)		(7	)		(12	)		(15	)		(20	)
Payments to GM for services, rent, and marketing expenses (g)		33			39			51			84

(a)	Represents total amount of residual support and risk sharing earned under the residual support and risk-sharing programs and earned revenue (previously deferred) related to the settlement of residual support and risk-sharing obligations in 2006 for a portion of the lease portfolio.

(b)

GM sponsors lease pull-ahead programs whereby consumers are encouraged to terminate lease contracts early in conjunction with the acquisition of a new GM vehicle with the customer’s remaining payment obligation waived. For certain programs, GM compensates us for the waived payments adjusted based on remarketing results associated with the underlying vehicle.

(c)	The settlement terms related to the wholesale financing of certain GM products are at shipment date. To the extent that wholesale settlements with GM are made before the expiration of transit, we receive interest from GM.

(d)	Represents income or (expense) related to derivative transactions that we enter into with GM as counterparty.

(e)	Represents servicing income related to automotive leases distributed as a dividend to GM on November 22, 2006.

(f)	An agreement with GM provides for the reimbursement of certain selling expenses incurred by us on off-lease vehicles sold by GM at auction.

(g)	We reimburse GM for certain services provided to us. This amount includes rental payments for our primary executive and administrative offices located in the Renaissance Center in Detroit, Michigan, and exclusivity and royalty fees.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Statement of Changes in Equity

A summary of the changes to the statement of changes in equity related to transactions with GM, FIM Holdings, and affiliated companies follows:


($ in millions)	Six months ended June 30, 2009		Year ended December 31, 2008
Equity
Capital contributions received (a)	$	1,247	$	758
Dividends to members (b)		118		79
Preferred interest dividends — GM		77		—

(a)

On January 16, 2009, we completed a $1.25 billion rights offering pursuant to which we issued additional common membership interests to FIM Holdings and a subsidiary of GM. On December 29, 2008, GM and an affiliate of Cerberus Capital Management contributed to GMAC $750 million subordinated participations in a $3.5 billion senior secured credit facility between GMAC and ResCap in exchange for additional common membership interests in GMAC.

(b)

Pursuant to the operating agreement with our shareholders, our shareholders are permitted distributions to pay the taxes they incur from ownership of their GMAC interests. In March 2009, we executed a transaction that had 2008 tax-reporting implications for our shareholders. In accordance with the operating agreement, the approval of both our Board of Directors and the U.S. Department of Treasury was obtained in advance for the payment of tax distributions to our shareholders. Amounts distributed to GM and FIM Holdings were $48 million and $46 million, respectively, for the six months ended June 30, 2009. Additionally, the 2009 amount includes $24 million of remittances to GM for tax settlements and refunds received related to tax periods prior to the Sale Transactions. The 2008 amounts primarily represent remittances to GM for tax settlements and refunds received related to tax periods prior to the Sale Transactions as required by the terms of the Purchase and Sale Agreement between GM and FIM Holdings.

GM, GM dealers, and GM-related employees compose a significant portion of our customer base, and our Global Automotive Finance operations are highly dependent on GM production and sales volume. As a result, a significant adverse change in GM’s business, including significant adverse changes in GM’s liquidity position and access to the capital markets, the production or sale of GM vehicles, the quality or resale value of GM vehicles, the use of GM marketing incentives, GM’s relationships with its key suppliers, GM’s relationship with the United Auto Workers and other labor unions, and other factors impacting GM or its employees could have a significant adverse effect on our profitability and financial condition.

We provide vehicle financing through purchases of retail automotive and lease contracts with retail customers of primarily GM dealers. We also finance the purchase of new and used vehicles by GM dealers through wholesale financing, extend other financing to GM dealers, provide fleet financing for GM dealers to buy vehicles they rent or lease to others, provide wholesale vehicle inventory insurance to GM dealers, provide automotive extended service contracts through GM dealers, and offer other services to GM dealers. As a result, GM’s level of automobile production and sales directly impacts our financing and leasing volume; the premium revenue for wholesale vehicle inventory insurance; the volume of automotive extended service contracts; and the profitability and financial condition of the GM dealers to whom we provide wholesale financing, term loans, and fleet financing. In addition, the quality of GM vehicles affects our obligations under automotive extended service contracts relating to such vehicles. Further, the resale value of GM vehicles, which may be impacted by various factors relating to GM’s business such as brand image, the number of new GM vehicles produced, the number of used vehicles remarketed, or reduction in core brands, affects the remarketing proceeds we receive upon the sale of repossessed vehicles and off-lease vehicles at lease termination.

Our Global Automotive Finance operations are highly dependent on GM sales volume. In 2008 and 2009, global vehicle sales declined rapidly, and there is no assurance that the global automotive market or GM’s share of that market will not suffer a significant further downturn. Vehicle sales volume could be further adversely impacted by ongoing restructuring that is expected to reduce the number of GM retail channels and core brands or consolidate GM’s dealer network. Furthermore, with GM’s recent emergence from bankruptcy protection, it is difficult to predict with certainty the consequences of the bankruptcy filing and the impact it could have on consumer sentiment and GM’s business. Any negative impact could in turn have a material adverse affect on our business, results of operations, and financial position.

As of June 30, 2009, we had an estimated $1.7 billion in secured credit exposure, which includes primarily wholesale vehicle financing to GM-owned dealerships, notes receivable from GM, and vehicles leased directly to GM. We further had

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

approximately $750 million in unsecured credit exposure, which includes estimates of payments from GM related to residual support and risk-sharing agreements. Under the terms of certain agreements between GMAC and GM, GMAC has the right to offset certain of its exposures to GM against amounts GMAC owes to GM.

As of June 30, 2009, we have not established a loss allowance relative to our credit exposure to GM. We were notified that all material contracts that GM had with GMAC were transferred to the new GM entity including all of GM’s corresponding pre- and post-petition liabilities and payment obligations.

Retail and Lease Programs

GM may elect to sponsor incentive programs (on both retail contracts and operating leases) by supporting financing rates below the standard market rates at which we purchase retail contracts and leases. These marketing incentives are also referred to as rate support or subvention. When GM utilizes these marketing incentives, they pay us the present value of the difference between the customer rate and our standard rate at contract inception, which we defer and recognize as a yield adjustment over the life of the contract.

GM may also sponsor residual support programs as a way to lower customer monthly payments. Under residual support programs, the customer’s contractual residual value is adjusted above our standard residual values. In addition, under risk-sharing programs and eligible contracts, GM shares equally in residual losses at the time of the vehicle’s disposal to the extent that remarketing proceeds are below our standard residual values (limited to a floor).

For North American lease originations and balloon retail contract originations occurring in the United States after April 30, 2006, and in Canada after November 30, 2006, that remained with us after the consummation of the Sale Transactions, GM agreed to begin payment of the present value of the expected residual support owed to us at contract origination as opposed to after contract termination at the time of sale of the related vehicle. The residual support amount GM actually owes us is finalized as the leases actually terminate. Under the terms of the residual support program, in cases where the estimate was incorrect, GM may be obligated to pay us, or we may be obligated to reimburse GM.

Based on the June 30, 2009, outstanding North American operating lease portfolio, the additional maximum amount that could be paid by GM under the residual support programs is approximately $1.2 billion and would be paid only in the unlikely event that the proceeds from the entire portfolio of lease assets were lower than both the contractual residual value and our standard residual rates.

Based on the June 30, 2009, outstanding North American operating lease portfolio, the maximum amount that could be paid under the risk-sharing arrangements is approximately $1.5 billion and would be paid only in the unlikely event that the proceeds from all outstanding lease vehicles were lower than our standard residual rates.

Retail and lease contracts acquired by us that included rate and residual subvention from GM, payable directly or indirectly to GM dealers as a percentage of total new retail and lease contracts acquired, were as follows:


	Six months ended June 30,
	2009	2008
GM and affiliates subvented contracts acquired
North American operations	72%	79%
International operations	60%	41%

Other

We have entered into various services agreements with GM that are designed to document and maintain our current and historical relationship. We are required to pay GM fees in connection with certain of these agreements related to our financing of GM consumers and dealers in certain parts of the world.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

GM also provides payment guarantees on certain commercial assets we have outstanding with certain third-party customers. As of June 30, 2009, and December 31, 2008, commercial obligations guaranteed by GM were $86 million and $88 million, respectively. Additionally, GM is bound by repurchase obligations to repurchase new vehicle inventory under certain circumstances, such as dealer default. We also have a consignment arrangement with GM for commercial inventories in Europe. As of June 30, 2009, and December 31, 2008, wholesale inventories related to this arrangement were $88 million and $141 million, respectively, and are reflected in other assets on our Condensed Consolidated Balance Sheet.

15.

Fair Value

Fair Value Measurements (SFAS 157)

SFAS No. 157, Fair Value Measurements (SFAS 157) provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value; therefore, it does not expand the use of fair value in any new circumstance.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, SFAS 157 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring the fair value of a liability.

SFAS 157 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels:


Level 1		Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date. Additionally, the entity must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.

Level 2		Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full term of the assets or liabilities.

Level 3		Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management’s best assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized.

•

Trading securities — Trading securities are recorded at fair value and may be asset-backed or asset-related asset-backed securities (including senior and subordinated interests), principal-only, or residual interests and may be investment grade, noninvestment grade, or unrated securities. We base our valuation of trading securities on observable market prices when available; however, observable market prices are not available for a significant portion of these assets due to illiquidity in the markets. When observable market prices are not available, valuations are primarily based on internally developed discounted cash flow models that use a market-based discount rate. The valuation considers recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

speeds, delinquency levels, and credit losses). We classified 94% and 60% of the trading securities reported at fair value as Level 3 at June 30, 2009, and December 31, 2008, respectively. Trading securities account for 3% and 5% of all assets reported at fair value at June 30, 2009, and December 31, 2008, respectively.

•

Available-for-sale securities — Available-for-sale securities are carried at fair value primarily based on observable market prices. If observable market prices are not available, our valuations are based on internally developed discounted cash flow models that use a market-based discount rate and consider recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we are required to utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (including prepayment speeds, delinquency levels, and credit losses). We classified 5% and 10% of the available-for-sale securities reported at fair value as Level 3 at June 30, 2009, and December 31, 2008, respectively. Available-for-sale securities account for 39% and 24% of all assets reported at fair value at June 30, 2009, and December 31, 2008, respectively.

•

Loans held-for-sale — The loans held-for-sale portfolio is accounted for at the lower of cost or fair value. The tables associated with nonrecurring fair value measurement include only loans carried at fair value. We classified 65% and 63% of the loans held-for-sale reported at fair value as Level 3 at June 30, 2009, and December 31, 2008, respectively. Loans held-for-sale account for 3% and 9% of all assets reported at fair value at June 30, 2009, and December 31, 2008, respectively.

Approximately 28% and 6% of the total loans held-for-sale carried at fair value are automotive loans at June 30, 2009, and December 31, 2008, respectively. We based our valuation of automotive loans held-for-sale on internally developed discounted cash flow models or terms established under fixed-pricing forward flow agreements and have classified all these loans as Level 3. These valuation models estimate the exit price we expect to receive in the loan’s principal market, which depending upon characteristics of the loans may be the whole-loan market, the securitization market, or committed prices contained in forward sale agreements. Although we utilize and give priority to market observable inputs, such as interest rates and market spreads within these models, we are typically required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates. While numerous controls exist to calibrate, corroborate, and validate these internal inputs, these internal inputs require the use of judgment and can have a significant impact on the determination of the loan’s value. Accordingly, we classified all automotive loans held-for-sale as Level 3.

Approximately 72% and 94% of the total loans held-for-sale carried at fair value are mortgage loans at June 30, 2009, and December 31, 2008, respectively. We originate or purchase mortgage loans in the United States that we intend to sell to Fannie Mae, Freddie Mac, and Ginnie Mae (collectively, the Agencies). Additionally, we originate or purchase mortgage loans both domestically and internationally that we intend to sell into the secondary markets through whole-loan sales or securitizations, although this activity was substantially curtailed beginning in 2008.

Mortgage loans held-for-sale are typically pooled together and sold into certain exit markets depending upon underlying attributes of the loan, such as agency eligibility (domestic only), product type, interest rate, and credit quality. Two valuation methodologies are used to determine the fair value of loans held-for-sale. The methodology used depends on the exit market as described below.

Loans valued using observable market prices for identical or similar assets — This includes all domestic loans that can be sold to the Agencies, which are valued predominantly by published forward agency prices. This will also include all nonagency domestic loans or international loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value) or quoted market prices for similar loans are available. As these valuations are derived from quoted market prices, we classify these valuations as Level 2 in the fair value disclosures. As of June 30, 2009, and December 31, 2008, 41% of the mortgage loans held-for-sale currently being carried at fair value were classified as Level 2. Due to the current illiquidity of the mortgage market, it may be necessary to look for alternate sources of value, including the whole-loan purchase market for similar loans and place more reliance on the valuations using internal models.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Loans valued using internal models — To the extent observable market prices are not available, we will determine the fair value of loans held-for-sale using internally developed valuation models. These valuation models estimate the exit price we expect to receive in the loan’s principal market, which depending upon characteristics of the loan may be the whole-loan or securitization market. Although we utilize and give priority to market observable inputs such as interest rates and market spreads within these models, we are typically required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates. While numerous controls exist to calibrate, corroborate, and validate these internal inputs, the generation of these internal inputs requires the use of judgment and can have a significant impact on the determination of the loan’s fair value. Accordingly, we classify these valuations as Level 3 in the fair value disclosures. As of June 30, 2009, and December 31, 2008, 59% of the mortgage loans held-for-sale currently being carried at fair value are classified as Level 3.

Due to limited sales activity and periodically unobservable prices in certain markets, certain loans held-for-sale may transfer between Level 2 and Level 3 in future periods.

•

Consumer finance receivables and loans, net of unearned income — Under SFAS No. 159, The Fair Value Option of Financial Assets and Financial Liabilities (SFAS 159), we elected the fair value option for certain mortgage loans held-for-investment. The elected loans collateralized on-balance sheet securitization debt in which we estimated credit reserves pertaining to securitized assets that could have, or already had, exceeded our economic exposure. The elected loans represent a portion of the consumer finance receivable and loans on the Condensed Consolidated Balance Sheet. The balance that was not elected under SFAS 159 was reported on the balance sheet at the principal amount outstanding, net of charge-offs, allowance for loan losses, and net deferred loan fees.

The mortgage loans held-for-investment that collateralized securitization debt are legally isolated from us and are beyond the reach of our creditors. The loans are measured at fair value using a portfolio approach or an in-use premise. The objective in fair valuing the loans and related securitization debt is to account properly for our retained economic interest in the securitizations. As a result of reduced liquidity in capital markets, values of both these loans and the securitized bonds are expected to be volatile. Since this approach involves the use of significant unobservable inputs, we classified all the mortgage loans held-for-investment elected under SFAS 159 as Level 3. As of June 30, 2009, and December 31, 2008, we classified all consumer finance receivables and loans reported at fair value as Level 3. Consumer finance receivables and loans accounted for 7% of all assets reported at fair value at June 30, 2009, and December 31, 2008. Refer to the section within this Note titled Fair Value Option of Financial Assets and Financial Liabilities (SFAS 159) for additional information.

•

Commercial finance receivables and loans, net of unearned income — We evaluate our commercial finance receivables and loans, net of unearned income for impairment, in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan. We generally base the evaluation on the fair value of the underlying collateral supporting the loan when expected to be the sole source of repayment. When the carrying value exceeds the fair value of the collateral, an impairment loss is recognized and reflected as a nonrecurring fair value measurement. As of June 30, 2009, 13% and 87% of the impaired commercial finance receivables and loans were classified as Level 2 and Level 3, respectively. As of December 31, 2008, 27% and 73% of the impaired commercial finance receivables and loans were classified as Level 2 and Level 3, respectively. Commercial finance receivables and loans accounted for 13% and 8% of all assets reported at fair value at June 30, 2009, and December 31, 2008, respectively.

•

Mortgage servicing rights — We typically retain MSRs when we sell assets into the secondary market. MSRs do not trade in an active market with observable prices; therefore, we use internally developed discounted cash flow models to estimate the fair value of MSRs. These internal valuation models estimate net cash flows based on internal operating assumptions that we believe would be used by market participants combined with market-based assumptions for loan prepayment rates, interest rates, and discount rates that we believe approximate yields required by investors in this asset. Cash flows primarily include servicing fees, float income, and late fees, in each case less operating costs to service the loans. The estimated cash flows are discounted using an option-adjusted spread-derived discount rate. All MSRs were classified as Level 3 at June 30, 2009, and December 31, 2008. MSRs accounted for 15% and 10% of all assets reported at fair value at June 30, 2009, and December 31, 2008, respectively.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

•

Interests retained in securitization trusts — Interests retained in securitization trusts are carried at fair value. Valuations are based on internally developed discounted cash flow models that use a market-based discount rate. The valuation considers recent market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses). We classified 100% of interests retained in securitization trusts as Level 3 at June 30, 2009, and December 31, 2008. Interests retained in securitization trusts accounted for 3% of all assets reported at fair value at June 30, 2009, and December 31, 2008.

•

Derivative instruments — We manage risk through our balance of loan production and servicing businesses while using portfolios of financial instruments, including derivatives, to manage risk related specifically to the value of loans held-for-sale, loans held-for-investment, MSRs, foreign currency debt; and we enter into interest rate swaps to facilitate transactions where the underlying receivables are sold to a nonconsolidated QSPE. During the three months and six months ended June 30, 2009, we recorded net economic hedge losses of $913 million and $1.4 billion, respectively. During the three months and six months ended June 30, 2008, we recorded net economic hedge losses of $946 million and gains of $315 million, respectively. Refer to Note 12 for additional information regarding changes in the fair value of economic hedges.

We enter into a variety of derivative financial instruments as part of our hedging strategies. Certain of these derivatives are exchange traded, such as Eurodollar futures, or traded within highly active dealer markets, such as agency to-be-announced securities. To determine the fair value of these instruments, we utilize the exchange price or dealer market price for the particular derivative contract; therefore, we classified these contracts as Level 1. We classified 7% of the derivative assets and 9% of the derivative liabilities reported at fair value as Level 1 at June 30, 2009. We classified less than 1% of the derivative assets and 3% of the derivative liabilities reported at fair value as Level 1 at December 31, 2008.

We also execute over-the-counter derivative contracts, such as interest rate swaps, floors, caps, corridors, and swaptions. We utilize third-party-developed valuation models that are widely accepted in the market to value these over-the-counter derivative contracts. The specific terms of the contract and market observable inputs (such as interest rate forward curves and interpolated volatility assumptions) are entered into the model. We classified these over-the-counter derivative contracts as Level 2 at June 30, 2009, because all significant inputs into these markets were market observable. We classified 70% of the derivative assets and 67% of the derivative liabilities reported at fair value as Level 2 at June 30, 2009. We classified 69% of the derivative assets and 44% of the derivative liabilities reported at fair value as Level 2 at December 31, 2008.

We also hold certain derivative contracts that are structured specifically to meet a particular hedging objective. These derivative contracts often are utilized to hedge risks inherent within certain on-balance sheet securitizations. To hedge risks on particular bond classes or securitization collateral, the derivative’s notional amount is often indexed to the hedged item. As a result, we typically are required to use internally developed prepayment assumptions as an input into the model to forecast future notional amounts on these structured derivative contracts. Accordingly, we classified these derivative contracts as Level 3. We classified 23% of the derivative assets and 24% of the derivative liabilities reported at fair value as Level 3 at June 30, 2009. We classified 31% of the derivative assets and 53% of the derivative liabilities reported at fair value as Level 3 at December 31, 2008.

SFAS 157 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring fair value of a liability. We consider our credit risk and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA). The CVA calculation utilizes our credit default swap spreads and the spreads of the counterparty. The CVA calculates the probable or potential future exposure on the derivative under different interest and currency exchange rate environments using a simulation tool. For each simulation, a CVA is calculated using either our credit default spread, or the default spread of the counterparty, and the potential exposure of the simulation.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Derivative assets accounted for 13% and 17% of all assets reported at fair value at June 30, 2009, and December 31, 2008, respectively. Derivative liabilities accounted for 53% and 58% of all liabilities reported at fair value at June 30, 2009, and December 31, 2008, respectively.

•

Securities posted as collateral — Securities posted as collateral are carried at fair value using quoted prices in active markets for similar assets. We classified 100% of securities posted as collateral as Level 1 at June 30, 2009. Securities posted as collateral accounted for 2% of all assets reported at fair value at June 30, 2009.

•

Repossessed and foreclosed assets — Foreclosed upon or repossessed assets resulting from loan defaults are carried at the lower of either cost or fair value less costs to sell and are included in other assets on the Condensed Consolidated Balance Sheet. The fair value disclosures include only assets carried at fair value less costs to sell.

The majority of assets acquired due to default are foreclosed assets. We revalue foreclosed assets on a periodic basis. We classified properties that are valued by independent third-party appraisals less costs to sell as Level 2. When third-party appraisals are not obtained, valuations are typically obtained from third-party broker price opinion; however, depending on the circumstances, the property list price or other sales price information may be used in lieu of a broker price opinion. Based on historical experience, we adjust these values downward to take into account damage and other factors that typically cause the actual liquidation value of foreclosed properties to be less than broker price opinion or other price sources. This valuation adjustment is necessary to ensure the valuation ascribed to these assets considers unique factors and circumstances surrounding the foreclosed asset. As a result of applying internally developed adjustments to the third-party-provided valuation of the foreclosed property, we classified these assets as Level 3 in the fair value disclosures. As of June 30, 2009, we classified 63% and 37% of foreclosed and repossessed properties carried at fair value less costs to sell as Level 2 and Level 3, respectively. As of December 31, 2008, we classified 38% and 62% of foreclosed and repossessed properties carried at fair value less costs to sell as Level 2 and Level 3, respectively. Repossessed and foreclosed assets account for 1% and 2% of all assets reported at fair value at June 30, 2009, and December 31, 2008, respectively.

•

On-balance sheet securitization debt — Under SFAS 159, we elected the fair value option for certain mortgage loans held-for-investment and on-balance sheet securitization debt. In particular, we elected the fair value option on securitization debt issued by domestic on-balance sheet securitization vehicles as of January 1, 2008, in which we estimated credit reserves pertaining to securitized assets could have, or already had, exceeded our economic exposure. The objective in measuring the loans and related securitization debt at fair value was to approximate our retained economic interest and economic exposure to the collateral securing the securitization debt. The remaining on-balance sheet securitization debt that was not elected under SFAS 159 is reported on the balance sheet at cost, net of premiums or discounts and issuance costs.

We value securitization debt that was elected pursuant to the fair value option and any economically retained positions using market observables prices whenever possible. The securitization debt is principally in the form of asset- and mortgage-backed securities collateralized by the underlying mortgage loans held-for-investment. Due to the attributes of the underlying collateral and current market conditions, observable prices for these instruments are typically not available in active markets. In these situations, we consider observed transactions as Level 2 inputs in our discounted cash flow models. Additionally, the discounted cash flow models utilize other market observable inputs, such as interest rates, and internally derived inputs including prepayment speeds, credit losses, and discount rates. Fair value option elected financing securitization debt is classified as Level 3 as a result of the reliance on significant assumptions and estimates for model inputs. On-balance sheet securitization debt accounts for 42% of all liabilities reported at fair value at June 30, 2009, and December 31, 2008. As a result of reduced liquidity in capital markets, values of both the elected loans and the securitized debt are expected to be volatile. Refer to the section within this Note Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159) for a complete description of these securitizations.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Recurring Fair Value

The following tables display the assets and liabilities measured at fair value on a recurring basis, including financial instruments elected for the fair value option under SFAS 159. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items; therefore, they do not directly display the impact of our risk management activities.


	Recurring fair value measurements
June 30, 2009 ($ in millions)	Level 1			Level 2		Level 3			Total
Assets
Investment securities
Trading securities
Mortgage-backed
Residential	$	—		$	49	$	130		$	179
Asset-backed		—			—		604			604

Total trading securities		—			49		734			783
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies		1,773			42		—			1,815
States and political subdivisions		—			710		—			710
Foreign government		1,325			220		—			1,545
Mortgage-backed
Residential		1,058			1,489		4			2,551
Commercial		—			24		—			24
Asset-backed		—			37		413			450
Corporate debt securities		—			1,452		—			1,452
Other		1			163		—			164

Total debt securities		4,157			4,137		417			8,711
Equity securities		412			83		—			495

Total available-for-sale securities		4,569			4,220		417			9,206
Consumer finance receivables and loans, net of unearned income (a)		—			—		1,588			1,588
Mortgage servicing rights		—			—		3,509			3,509
Other assets
Cash reserve deposits held-for-securitization trusts		—			—		33			33
Interests retained in securitization trusts		—			—		662			662
Derivative (liabilities) assets, net (b)		45			898		225			1,168
Securities posted as collateral		454			—		—			454

Total assets	$	5,068		$	5,167	$	7,168		$	17,403

Liabilities
Secured debt
On-balance sheet securitization debt (a)	$	—		$	—	$	(1,574	)	$	(1,574	)
Other liabilities		(195	)		—		—			(195	)

Total liabilities	$	(195	)	$	—	$	(1,574	)	$	(1,769	)

(a)	Carried at fair value due to fair value option election under SFAS 159.

(b)	At June 30, 2009, derivative assets within Level 1, Level 2, and Level 3 were $227 million, $2.2 billion, and $707 million, respectively. Additionally, derivative liabilities within Level 1, Level 2, and Level 3 were $182 million, $1.3 billion, and $482 million, respectively.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


	Recurring fair value measurements
December 31, 2008 ($ in millions)	Level 1			Level 2		Level 3			Total
Assets
Investment securities
Trading securities	$	1		$	486	$	720		$	1,207
Available-for-sale securities		1,736			3,867		631			6,234
Consumer finance receivables and loans, net of unearned income (a)		—			—		1,861			1,861
Mortgage servicing rights		—			—		2,848			2,848
Other assets
Cash reserve deposits held-for-securitization trusts		—			—		41			41
Interests retained in securitization trusts		—			—		1,001			1,001
Derivative (liabilities) assets, net (b)		(51	)		2,263		149			2,361

Total assets	$	1,686		$	6,616	$	7,251		$	15,553

Liabilities
Secured debt
On-balance sheet securitization debt (a)	$	—		$	—	$	(1,899	)	$	(1,899	)

Total liabilities	$	—		$	—	$	(1,899	)	$	(1,899	)

(a)	Carried at fair value due to fair value option election under SFAS 159.

(b)	At December 31, 2008, derivative assets within Level 1, Level 2, and Level 3 were $21 million, $3.4 billion, and $1.5 billion, respectively. Additionally, derivative liabilities within Level 1, Level 2, and Level 3 were $72 million, $1.1 billion, and $1.4 billion, respectively.

GMAC INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our risk management activities.


	Level 3 recurring fair value measurements
	Fair value as of April 1, 2009		Net realized/unrealized gains (losses)								Purchases, issuances, and settlements, net			Net transfers into/ (out of) Level 3			Fair value as of June 30, 2009		Net unrealized gains (losses) included in earnings still held as of June 30, 2009
($ in millions)	Fair value as of April 1, 2009		Included in earnings					Included in other comprehensive income (a)			Purchases, issuances, and settlements, net			Net transfers into/ (out of) Level 3			Fair value as of June 30, 2009
Assets
Investment securities
Trading securities
Mortgage-backed
Residential	$	172	$	(52	)	(b	)	$	—		$	(9	)	$	19		$	130	$	(36	) (b)
Asset-backed		534		75		(b	)		7			(12	)		—			604		(205	) (b)

Total trading securities		706		23					7			(21	)		19			734		(241	)

Available-for-sale securities
Debt securities
Mortgage-backed
Residential		2		—					(5	)		—			7			4		—
Asset-backed		409		2		(b	)		2			—			—			413		(4	) (b)
Equity securities		22		—					1			—			(23	)		—		—

Total available-for-sale securities		433		2					(2	)		—			(16	)		417		(4	)
Consumer finance receivables and loans, net of unearned income (c)		1,663		321		(d	)		—			(396	)		—			1,588		190	(d)
Mortgage servicing rights		2,587		678		(e	)		—			244			—			3,509		683	(e)
Other assets
Cash reserve deposits held-for-securitization trusts		30		2		(f	)		—			1			—			33		(109	) (f)
Interests retained in securitization trusts		822		4		(f	)		4			(168	)		—	<