Sub-prime woes hit US lender GMAC

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Finance firm GMAC has had to take out a $21.4bn (£10.1bn) loan as it becomes the latest lender to reveal the impact of the US sub-prime mortgage crisis.

GMAC, which has borrowed the cash from Citigroup, said boosting its financial flexibility was "a prudent measure" in the current market environment.

Hit by higher US interest rates, the sub-prime mortgage sector has seen record loan defaults in the past year.

GMAC is a former unit of General Motors which still retains a 49% stake.

Private equity group Cerberus Capital Management owns the remaining 51%.

GMAC started out offering car loans before expanding into the mortgage industry.

Lack of credit

The one-year, short term loan from Citigroup, America's largest bank, replaces GMAC's existing $10bn funding facility from the bank.

GMAC's struggling home lending unit, Residential Capital, lost $254m in the three months to the end of June.

The crisis in the sub-prime mortgage sector has caused a shortage of global credit as banks are unwilling to lend money until the full impact of the situation is known.

Banks have also been putting aside funds to cover any of their own exposure to the sub-prime downturn.

A key problem is that sub-prime loans are often repacked into wider debt groupings which are then resold.

This means that no-one is yet quite sure of the full impact of the woes.