May 5 (Bloomberg) -- GMAC LLC, the auto and home lender that received a $6 billion government bailout, reported a first- quarter loss of $675 million on surging loan defaults and the elimination of a one-time gain from extinguishing debt.

The loss widened from $589 million a year earlier, the Detroit-based company said today in a statement. Auto loans more than 30 days past due rose to 3.1 percent in the quarter from 2.4 percent in the same period a year earlier.

“We’re at the highest retail credit loss that the auto industry has seen in recorded time,” Chief Financial Officer Robert Hull said in an interview. “You’re going to see more losses flow through our financials in the next few quarters on the auto side.”

Rising foreclosures and tumbling auto sales left GMAC on the brink of collapse in December. The company’s bonds rallied this year after the government deemed the lender critical to the survival of General Motors Corp. and Chrysler LLC. GMAC said today in a presentation on its Web site that a GM bankruptcy wouldn’t trigger its own filing.

Profit in GMAC’s auto-finance unit fell 13 percent from a year earlier to $225 million as late payments rose. The mortgage division, which includes Residential Capital LLC, lost $125 million. GMAC recorded an additional $825 million deficit from reversing a previous gain and amortizing a bond exchange.

Bonds Gain

GMAC’s 8 percent bonds due in 2031 rose to a 10-month high yesterday, before falling 1.5 cents on the dollar, or 2.3 percent, to 63 cents today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes have surged 52 percent since April 30, when the lender agreed to provide financing for Chrysler customers and dealers after the carmaker filed for bankruptcy protection.

In a press briefing that day, an official from President Barack Obama’s administration said GMAC would receive the “financial support necessary” to expand after assuming Chrysler’s loan originations.

The Chrysler deal “adds additional volume, diversifies the asset base and it makes GMAC more important to the government from a strategic standpoint,” said Kirk Ludtke, an auto analyst at CRT Capital Group Inc. in Stamford, Connecticut. “It’s going to come down to the consumer.”

New vehicle loans plunged 74 percent from a year earlier to $3.4 billion, an increase compared with the fourth quarter’s $2.7 billion, GMAC said.

GM Sales

GMAC’s share of new GM retail sales dropped to 17 percent from 49 percent a year ago. The business has fallen in part because there have been fewer incentive deals, such as zero percent financing, for which GMAC is the exclusive lender. Hull said he expects the company to regain share.

“The more of those rates GM offers, the more penetration we’ll get,” Hull said.

GM must shrink operating costs, debt and liabilities by June 1, a deadline set by Obama. The Detroit-based company said 90 percent of bondholders owning $27 billion must tender their holdings by that date or it will be forced to file.

GMAC is among 19 banks awaiting results of the government’s stress test, designed to determine which firms need additional capital to weather further deterioration in the economy. Results of the test are to be issued May 7, and regulators may compel about 10 banks to raise additional capital, people familiar with the matter said.

Tier 1

GMAC’s Tier 1 capital, a gauge of a bank’s ability to absorb losses, was 10.6 percent, making the company “well- capitalized,” Hull said.

Deposits at GMAC Bank rose 17 percent from the previous period to $22.5 billion, including $11 billion of retail deposits. Mortgage origination climbed 61 percent from the fourth quarter to $13.2 billion, still down from $18.7 billion a year earlier, the company said. Loans no longer accruing interest rose to 21 percent of related receivables from 12 percent a year ago.

As part of GMAC’s agreement to become a bank in order to tap federal bailout funds, majority-owner Cerberus Capital Management LP was forced to relinquish most of its stake. GM, which owned 49 percent of the lender before the bailout, is divesting its control and putting it in a trust. Cerberus, a New York-based buyout firm, was also the owner of Chrysler before the automaker’s bankruptcy last week.

The first-quarter loss is the sixth for GMAC in the last seven periods. The company had reported five straight losses before breaking the string in the fourth quarter on gains from a debt swap.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.

Last Updated: May 5, 2009 16:20 EDT