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July 7, 2004

Ms. Karen M. Nee
Executive Vice President
GMAC Commercial Holding Corp.
200 Witmer Road
Horsham, PA 19044

Dear Ms. Nee:

This is in response to your letters on behalf of GMAC Commercial Mortgage Bank, Midvale, Utah ("GMAC Bank"), requesting an exemption from section 23A of the Federal Reserve Act and the Board's Regulation W to permit the bank to acquire [amount redacted] in commercial mortgage credits from its affiliate, GMAC Commercial Holding Corp., Horsham, Pennsylvania ("GMAC Commercial Holding").1

You have indicated that GMAC Commercial Holding proposes to reorganize certain of its commercial mortgage lending operations by transferring approximately [amount redacted] in commercial construction credit facilities (the "Construction Credits") to its subsidiary, GMAC Bank. The purchase price for the Construction Credits would be [amount redacted], approximately equal to the funded portion of the credits. GMAC Bank currently is engaged primarily in the business of originating and servicing commercial mortgage loans. After the reorganization, GMAC Bank would originate and fund approximately [amount redacted] percent of GMAC Commercial Holding's commercial construction loan portfolio.

Section 23A and Regulation W limit the amount of "covered transactions" between a bank (including an insured industrial loan company like GMAC Bank) and any single affiliate to 10 percent of the bank's capital stock and surplus and limit the amount of covered transactions between a bank and all its affiliates to 20 percent of the bank's capital stock and surplus. "Covered transactions" include a bank's purchase of assets from an affiliate and a bank's extension of credit to an affiliate. The statute and regulation also require a bank to secure its extensions of credit to, and certain other covered transactions with, affiliates with prescribed amounts of collateral. In addition, section 23A and Regulation W prohibit a bank from purchasing low-quality assets from an affiliate.

GMAC Bank's purchase of the Construction Credits from GMAC Commercial Holding would be an asset purchase subject to the quantitative and qualitative limitations of section 23A and Regulation W. The Regulation W value of this covered transaction would be approximately [amount redacted] -- the purchase price paid by GMAC Bank for the Construction Credits plus the unfunded but committed portion of the credits.2

To facilitate the reorganization, GMAC Bank has requested an exemption from section 23A and Regulation W to permit the bank to acquire the Construction Credits. Section 23A and Regulation W specifically authorize the Board to exempt, in its discretion, transactions or relationships from the requirements of the statute and rule if the Board finds the exemption to be in the public interest and consistent with the purposes of section 23A.3

The Board has in the past approved exemptions under section 23A for one-time asset transfers that are part of a corporate reorganization and that are structured to ensure the quality of the transferred assets.4 As in previous cases reviewed by the Board, the proposed transaction in this case is part of a one-time corporate reorganization. GMAC Commercial Holding is consolidating its construction lending and servicing business into GMAC Bank. GMAC Commercial Holding expects that the reorganization would increase the size and diversity of GMAC Bank's asset base, enhance the efficiency of GMAC Commercial Holding's construction lending programs, and thereby increase the availability of construction loans in the United States.

GMAC Bank has indicated that none of the Construction Credits would be a low-quality asset (as defined in Regulation W). In addition, GMAC Bank has committed that its directors will review and approve the transaction before consummation. Moreover, GMAC Commercial Holding will either (i) make cash contributions to GMAC Bank equal to the book value, plus any write-downs taken by the bank, of any Construction Credit that becomes a low-quality asset (as defined in Regulation W) during the two-year period following the asset purchase, and fund any subsequent draws on any such Construction Credit until the earlier of the maturity of the credit or the time such credit ceases to be a low-quality asset; or (ii) for a two-year period following the asset purchase, repurchase any Construction Credit (including the obligation to fund future draws) that becomes a low-quality asset at a price equal to the greater of (1) the sum of the outstanding principal balance (as of the date of repurchase), accrued and unpaid interest, the amount of any write-downs taken by the bank, and any other expenses incurred by the bank related to the credit or (2) the market value of the credit.

In light of these considerations and the special facts and circumstances of this case, the reorganization transaction appears to be consistent with safe and sound banking practices and on terms that would ensure the quality of the assets transferred. Accordingly, the transaction appears to be consistent with the purposes of section 23A. The Director of the Division of Banking Supervision and Regulation, pursuant to authority delegated by the Board, and with the concurrence of the General Counsel and after consultation with staff of the Federal Deposit Insurance Corporation, hereby grants the requested exemption.

This determination is specifically conditioned on compliance by GMAC Bank and GMAC Commercial Holding with all the commitments and representations they made in connection with the exemption request. These commitments and representations are deemed to be conditions imposed in writing in connection with granting the request and, as such, may be enforced in proceedings under applicable law. This determination is based on the specific facts and circumstances surrounding the proposed transaction, and may be revoked in the event of any material change in those facts and circumstances or any failure by GMAC Bank or GMAC Commercial Holding to observe any of its commitments or representations. Granting this exemption does not represent a determination concerning the permissibility of any other transactions engaged in by GMAC Bank or GMAC Commercial Holding that are subject to section 23A or Regulation W.


(Signed) Robert deV. Frierson

Deputy Secretary of the Board

cc:Federal Reserve Bank of San Francisco
 Federal Deposit Insurance Corporation


1.  12 U.S.C. § 371c; 12 C.F.R. part 223. GMAC Bank is a Utah-chartered industrial loan company ("ILC"). Although ILCs generally are not "banks" for purposes of the Bank Holding Company Act, ILCs generally are subject to sections 23A and 23B of the Federal Reserve Act because of their status as insured depository institutions. See 12 U.S.C. § 1828(j).  Return to text

2.  See 12 C.F.R. 223.22(a). Return to text

3.  12 U.S.C. § 371c(f)(2); 12 C.F.R. 223.43(a). Return to text

4.  See, e.g., Letter dated January 8, 2001, from Robert deV. Frierson, Associate Secretary of the Board, to Bruce Moland (Wells Fargo & Company). Return to text

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