June 3 (Bloomberg) -- Cerberus Capital Management LP and GMAC LLC will prop up Residential Capital LLC with at least $2.88 billion in funding after previous rescue plans for the mortgage unit failed.

GMAC, the owner of ResCap, and Cerberus, which controls GMAC, stepped in after the home-loan unit fell $2 billion short of meeting its debt obligations this month -- more than triple the gap disclosed last month, according to a regulatory filing today. ResCap's original plan to sell $1.3 billion in assets collapsed, the filing said.

The home lender has struggled to find cash after a slump in the mortgage market drove it to six quarterly losses. ResCap's parents have provided at least three capital infusions to keep the unit afloat, and today's extra funding may still not be enough, the Minneapolis-based mortgage company said.

``They continue to be in a dire situation,'' said Mirko Mikelic, a senior portfolio manager with Fifth Third Asset Management in Grand Rapids, Michigan, adding that bankruptcy for ResCap remains a possibility. ``This probably won't be the last time they have to raise capital in the next year and a half.''

Under the agreement, Cerberus will buy as much as $950 million of performing and non-performing mortgages as well as other assets, ResCap said. The New York-based private-equity firm will also buy $475 million of model-home assets. GMAC agreed to buy ResCap's resort-finance business, putting up $250 million in cash initially.

Credit Facilities

GMAC agreed to increase an existing credit facility with ResCap to $1.2 billion from $750 million and said it will contribute $250 million principal amount of outstanding notes due this month in exchange for ResCap preferred units. GMAC also agreed to provide a new credit facility backed by receivables, $500 million of which are expected to be sold this month, the filing said.

``If liquidity needs are greater, ResCap may be unable to independently satisfy its near-term liquidity requirements,'' the company said in the filing.

GMAC and ResCap are both working with banks to refinance some credit lines and will announce details soon, ResCap said in the filing. The transactions are designed ``to stabilize the liquidity situation at ResCap during a difficult environment,'' said GMAC spokeswoman Gina Proia.

Averting Bankruptcy?

Cerberus controls 51 percent of GMAC and General Motors Corp., the biggest U.S. automaker, owns the rest. GMAC is in talks to provide a $3.5 billion credit line that will help keep the mortgage company out of bankruptcy. GM and Cerberus may guarantee the first $750 million of the borrowings.

Cerberus led a group that paid GM $7.4 billion for its GMAC stake in 2006 as part of what has become a $15 billion bet on selling cars and providing loans to the buyers. The company also bought Chrysler LLC and its financing unit.

The willingness of Cerberus and GMAC to continue to provide funding may indicate the companies will do what it takes to avoid a ResCap failure, said Evan Flaschen, a bankruptcy lawyer with Bracewell & Giuliani LLP in New York.

``The fact that they're still speaking with GMAC and Cerberus makes it less likely that they're heading into bankruptcy, more likely they're going to restructure outside of bankruptcy,'' Flaschen said. ``Cerberus are smart cookies, and they usually weigh the risks well and know what they're doing. If they think that this is a prudent investment, it's hard to second-guess them.''

Bonds Fall

Ratings firms have said GMAC's continued financial support for ResCap may endanger the parent company's financial health. ResCap was the eighth-largest U.S. residential lender in 2007, and like the rest of the mortgage industry, the unit was stung by falling home prices and record foreclosures.

To help push back debt maturities, ResCap began an offer to exchange or buy back $14 billion of bonds. As of May 21, bondholders had tendered $9.5 billion of notes. The deadline for the tender expires at midnight tonight.

ResCap's 6.375 percent notes due in 2010 fell about 2 cents to 52 cents on the dollar at 10:19 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 47 percent, or 4,455 basis points more than similar-maturity Treasuries, Trace data show.

Credit-default swaps tied to ResCap's bonds rose, indicating more concern among investors that the company won't be able to pay its bills. Sellers of the contracts, which pay a buyer face value or the cash equivalent should the company fail to meet its debt obligations, demanded 52 percent upfront and 5 percent a year, according to London-based CMA Datavision. That's up from an initial payment of 50.5 percent and 5 percent a year yesterday.

Today's price is equivalent to $5.2 million upfront and $500,000 a year to protect $10 million of debt from default for five years.

To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net; Linda Shen in New York at Lshen21@bloomberg.net

Last Updated: June 3, 2008 10:48 EDT