Sub-prime defaults may cost GM $1 billion

General Motors Corp. may join the list of victims of the surge in sub-prime mortgage defaults.

GM may take a charge of almost $1 billion to cover bad mortgage loans made by its former home-lending unit, Residential Capital, said Lehman Bros. analyst Brian Johnson.

Residential Capital relies on loans to people with high debt burdens or poor or limited credit records for more than three-quarters, or $57 billion, of its loan portfolio, Johnson wrote in a recent report. Delinquency rates on such sub-prime loans made last year have soared.

GM, struggling to reverse more than $13 billion in losses in the seven quarters through Sept. 30, has delayed filing its fourth-quarter earnings in order to restate results.

The company in November sold a 51% stake in General Motors Acceptance Corp. for $14.4 billion to a group led by Cerberus Capital Management. Residential Capital, or ResCap, is part of GMAC.

The sub-prime market is “a key factor to see what the earnings power of GM’s remaining interest in GMAC is going to be,” Johnson said.

GM may have to spend as much as $950 million to make up the difference between the original value of the finance unit and any losses on sub-prime loans made by ResCap, he said.

A GM spokeswoman declined to comment on Johnson’s estimates. Cerberus spokesman Peter Duda said he couldn’t immediately comment.

Although ResCap is suffering from higher defaults, problem sub-prime loans appear to be much higher at other lenders, according to a report from credit research company CreditSights.

The firm looked at default rates on sub-prime mortgages packaged and used to back bonds sold to investors from 2004 to 2006.

Delinquency rates averaged 4.57% for loans packaged by brokerage Bear Stearns Cos. in that period, CreditSights said.

By contrast, default rates averaged 1.48% for Washington Mutual Inc., 1.42% for Countrywide Financial Corp. and 0.92% for GM’s ResCap, according to the report issued Monday.

Brokerage firms seemed to accept “the more aggressive originators” of sub-prime loans for their bond deals, said David Hendler, an author of the report.

In recent years, yield-hungry investors were eager buyers of bonds backed by sub-prime loans. The mortgage-backed bond business has been a major profit center for Wall Street.

A Bear Stearns spokeswoman did not immediately return a call seeking comment.