RESIDENTIAL CAPITAL CORP
None
Our primary executive and administrative offices are located in Minneapolis, Minnesota. The primary executive and administrative offices of GMAC Residential Holding are in Horsham, Pennsylvania, and the primary executive and administrative offices of GMAC-RFC Holding are in Minneapolis, Minnesota. In Horsham, we lease approximately 320,000 square feet of office space under leases that expire between April 2006 and April 2009. In Minneapolis, we lease approximately 460,000 square feet of office space under leases that expire between July 2006 and December 2013.        GMAC Residential Holding leases approximately 67,000 square feet of office space for warehouse lending, direct lending and loan processing in Cherry Hill, New Jersey pursuant to a lease that expires in September 2009; approximately 34,000 square feet of office space for data processing in Dallas, Texas pursuant to a lease that expires in April 2011; and approximately 170,000 square feet of office space used by our ditech.com® operations in Costa Mesa, California pursuant to a lease that expires in April 2008. GMAC Residential Holding also owns a facility in Waterloo, Iowa comprising approximately 155,000 square feet that is used in its servicing business.        GMAC-RFC Holding leases approximately 90,000 square feet of office space for its operations in San Diego, California pursuant to a lease that expires in March 2008; approximately 172,000 square feet of office space for loan servicing in Dallas, Texas pursuant to a lease that expires in March 2015; approximately 54,000 square feet of office space in Bethesda, Maryland pursuant to a lease that expires in April 2008; and approximately 44,000 square feet of office space for master servicing in Burbank, California pursuant to a lease that expires in January 2008. GMAC-RFC Holding owns a data center with approximately 32,000 square feet in Eden Prairie, Minnesota. GMAC-RFC Holding also leases approximately 63,000 square feet of office space in Bracknell, United Kingdom for our U.K. operations pursuant to a lease that expires in June 2008 and additional office space in Bracknell pursuant to a lease that expires in 2014.        In addition to the properties described above, we lease space for our branch offices throughout the United States and for our operations in Canada, Germany, Mexico and The Netherlands. We believe that our facilities are adequate for us to conduct our present business activities.  46    Table of Contents
We are subject to potential liability under various legal actions that are pending or may be asserted against us. In addition to the legal proceedings described below, we are a party to various legal proceedings arising in the ordinary course of our business, some of which purport to be class actions. A final outcome in any of these legal proceedings, if unfavorable, could have a material adverse effect on our business, results of operations or financial condition.        Kessler. This putative class action was consolidated for settlement purposes with five other cases, all alleging that the plaintiffs obtained second-lien mortgage loans from either Community Bank of Northern Virginia or Guaranty National Bank of Tallahassee and that they were charged interest rates and fees violating the Pennsylvania Secondary Mortgage Loan Act. Plaintiffs additionally claim that the banks were not the actual lenders on the loans, but rather that the banks “rented” their banking charters to affiliates for the purpose of facilitating the assessment of “illegal” fees and that the affiliates either split the fees or kicked back the fees in violation of Real Estate Settlement Procedures Act (RESPA). Plaintiffs sought to hold our subsidiary liable primarily on the basis that the subsidiary was an assignee of the mortgage loans. In December 2003, the U.S. District Court for the Western District of Pennsylvania gave its final approval to a proposed $41.1 million settlement for all six cases, inclusive of attorney’s fees. The settlement contemplated payment to approximately 44,000 borrowers nationwide. A group of seven plaintiffs’ class action counsel appealed the settlement in part on the grounds that the underlying litigation did not address possible Truth in Lending Act (TILA) or Home Ownership and Equity Protection Act (HOEPA) claims. On August 11, 2005, the U.S. Court of Appeals for the Third Circuit vacated the district court’s approval of the settlement and remanded the matter to the district court for further proceedings. The parties are in the process of briefing the issue of the “viability” of the TILA and HOEPA claims within this particular litigation. Our subsidiary intends to vigorously defend against these claims.        Golden. This putative class action was filed against our subsidiary in the Superior Court of California in San Diego County, California in December 2004. Plaintiffs allege misleading and wrongful conduct by our subsidiary in connection with its servicing of residential mortgage loans. This complaint reflects numerous similar actions filed against other industry participants. Specifically, plaintiffs allege that our subsidiary imposed unwarranted and improper fees, intentionally or recklessly failed to credit payments in a timely fashion, misapplied payments in order to improperly benefit itself, referred accounts prematurely to collections and foreclosure, wrongfully force placed insurance, and failed to provide borrowers with timely or clear information about the timing and amount of payments owed. Plaintiffs seek to certify a nationwide class consisting of all borrowers serviced by our subsidiary from December 2000 to present, demanding declaratory and injunctive relief and damages. Our subsidiary has filed an answer to the complaint denying the allegations and discovery is proceeding. Our subsidiary intends to vigorously defend against these claims.        Santiago. This putative class action was filed against our subsidiary in June 2002 in the United States District Court for the Eastern District of Pennsylvania. Plaintiffs assert violations of Section 8(b) of RESPA based on the alleged collection of “unearned fees for settlement services” comprised of an $85 tax service fee, a $20 flood certification fee and a $250 funding fee. The nationwide class consists of “all persons who, on or after January 1, 1995 . . . paid fees for tax service, flood certification, and/ or underwriting.” In September 2003, the district court dismissed plaintiffs’ causes of action under RESPA as to all three fees for failure to state a claim. Plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit, which affirmed the dismissal as to an alleged overcharge concerning the funding fee, but reversed the district court’s dismissal as to alleged additional charges associated with the flood certificate and tax service fees. The court of appeals remanded plaintiffs’ remaining claims to the district court to determine whether our subsidiary provided sufficient ancillary services to justify any such additional charges and for further proceedings, including discovery and motions, on both of these RESPA issues and ancillary state law claims. The case is in a preliminary stage, and no class has yet been certified. Our subsidiary has filed an answer to the claims denying the allegations and intends to vigorously defend against these claims.  47    Table of Contents       Murray. This putative statewide class action filed against our subsidiary in the United States District Court for the Northern District of Illinois in March 2005. Plaintiff’s counsel alleges that our subsidiary, in sending a “pre-approved offer” to the plaintiff, accessed the plaintiff’s credit report without authorization from the plaintiff and without a “permissible purpose” under Fair Credit Reporting Act (FCRA) since the material allegedly did not qualify as a “firm offer of credit.” It also alleges that the material failed to make FCRA required notices and disclosures in a “clear and conspicuous” manner. Plaintiff seeks statutory penalties for an allegedly willful violation of the statute. Class certification was denied by the district court, but that decision was reversed on appeal and the matter remanded to the district court for further proceedings. Our subsidiary intends to vigorously defend against these claims.        Parthiban. This putative class action was filed against our subsidiary in the United States District Court for the Central District of California in August 2005. This litigation is a “copycat” of the Murray case and seeks to recover for essentially the same alleged conduct during roughly the same class period. One significant difference from Murray is that Parthiban was filed on behalf of a putative nationwide class. The district court granted our subsidiary’s motion to dismiss in part, striking four counts seeking declaratory and injunctive relief, and has permitted the case to go forward on the same “firm offer of credit” and “clear and conspicuous” disclosure claims present in Murray. The case is in a preliminary stage. No class has yet been certified and no discovery has been conducted. Our subsidiary intends to vigorously defend against these claims.             Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.         Omitted.       PART II             Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED     STOCKHOLDER MATTERS.         We are a wholly-owned subsidiary of GMAC Mortgage Group, which is a wholly-owned subsidiary of GMAC. GMAC is a wholly-owned subsidiary of GM. As a result, there is no market for our common stock.  48    Table of Contents            Item 6.  SELECTED FINANCIAL DATA.         The selected historical financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the corresponding notes. The historical financial information presented may not be indicative of our future performance.                                                       For the Years Ended December 31,               2005   2004   2003   2002   2001                               (In millions)     Statement of Income Data:                                                  Interest income    $ 5,797.1     $ 4,990.9     $ 3,482.7     $ 1,814.0     $ 1,210.9           Interest expense      3,872.1       2,405.0       1,402.7       800.9       797.4                                               Net interest income      1,925.0       2,585.9       2,080.0       1,013.1       413.5           Provision for loan losses      651.8       842.9       453.5       231.7       124.5                                               Net interest income after provision for loan losses      1,273.2       1,743.0       1,626.5       781.4       289.0           Gain on sale of mortgage loans, net      1,036.7       696.9       1,746.3       1,543.0       1,491.8           Servicing fees      1,416.3       1,294.3       1,185.7       1,175.5       1,029.2           Amortization and impairment of servicing rights      (762.0 )     (1,003.3 )     (2,014.9 )     (2,217.6 )     (868.3 )         Servicing asset valuation and hedge gain (loss), net      17.2       214.9       507.2       685.0       (374.9 )                                             Net servicing fees (loss)      671.5       505.9       (322.0 )     (357.1 )     (214.0 )         Gain (loss) on investment securities, net      236.4       63.7       (222.8 )     (371.5 )     (309.0 )         Real estate related revenues      712.2       649.2       500.4       459.2       387.4           Other income      305.3       308.0       398.1       447.7       434.7                                               Total net revenue      4,235.3       3,966.7       3,726.5       2,502.7       2,079.9           Compensation and benefits      1,406.9       1,216.5       1,188.8       962.5       865.2           Professional fees      212.4       224.7       169.4       115.2       126.0           Data processing and telecommunications      199.9       191.1       189.3       199.8       197.7           Advertising      158.7       151.4       127.7       123.6       119.3           Occupancy      121.3       107.6       99.6       97.3       93.0           Other      509.2       465.1       585.8       496.3       330.2                                               Total expenses      2,608.4       2,356.4       2,360.6       1,994.7       1,731.4                                             Income before income tax expense      1,626.9       1,610.3       1,365.9       508.0       348.5           Income tax expense      606.3       642.1       509.1       199.4       188.9                                             Net income    $ 1,020.6     $ 968.2     $ 856.8     $ 308.6     $ 159.6                                                                                           As of December 31,               2005   2004   2003   2002   2001                               (In millions)     Balance Sheet Data:                                                  Total assets    $ 118,885.1     $ 94,349.5     $ 78,559.6     $ 45,549.1     $ 27,119.2           Affiliate borrowings      5,177.5       10,006.2       10,683.9       11,852.6       13,025.0           Collateralized borrowings in securitization trusts      56,097.8       50,708.5       39,415.6       12,422.8       1,196.8           Other borrowings      42,300.5       23,703.7       20,647.6       15,038.3       7,277.8           Total borrowings      103,575.8       84,418.4       70,747.1       39,313.7       21,499.6           Stockholder’s equity      7,464.0       4,365.7       3,186.0       2,374.3       1,818.1      49   Table of Contents            Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL     CONDITION AND RESULTS OF OPERATIONS.         You should read the following discussion together with the financial statements and the corresponding notes. The discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements, see the discussion under the headings “Risk Factors” and “Forward-Looking Statements.”   General        We did not conduct any operations prior to the transfer of our wholly-owned subsidiaries GMAC Residential Holding and GMAC-RFC Holding to us in March 2005. References to our historical assets, liabilities, products, businesses or activities are generally intended to refer to the historical assets, liabilities, products, businesses or activities of GMAC Residential Holding and GMAC-RFC Holding and their respective subsidiaries as conducted prior to their transfer to us.        We conduct our operations and manage and report our financial information primarily through four operating business segments:            •   GMAC Residential. Our GMAC Residential segment primarily     originates, purchases, sells, securitizes and services     residential mortgage loans. This segment originates residential     mortgage loans through a retail branch network, direct lending     centers and mortgage brokers, and also purchases residential     mortgage loans from correspondent lenders. Most of the loans     originated or purchased by this segment are prime credit quality     loans that meet the underwriting standards of Fannie Mae or     Freddie Mac. This segment also provides collateralized lines of     credit to other originators of residential mortgage loans, which     we refer to as warehouse lending. Our limited banking activities     through GMAC Bank are included in this segment. This segment     generated approximately 35% of our revenues and 30% of our net     income in 2005.         •   Residential Capital Group. Our Residential Capital Group     originates, purchases, sells, securitizes and services     residential mortgage loans. This segment originates residential     mortgage loans primarily through mortgage brokers, purchases     loans from correspondent lenders and other third parties and     provides warehouse lending. The residential mortgage loans     produced by this segment cover a broad credit spectrum and     generally do not conform to the underwriting requirements of     Fannie Mae or Freddie Mac. These loans are primarily securitized     through the issuance of non-agency mortgage-backed and mortgage     related asset-backed securities. This segment generated     approximately 34% of our revenues and 39% of our net income in     2005.         •   Business Capital Group. Our Business Capital Group     provides financing and equity capital to residential land     developers and homebuilders and financing to resort developers     and healthcare-related enterprises. This segment generated     approximately 10% of our revenues and 20% of our net income in     2005.         •   International Business Group. Our International Business     Group includes substantially all of our operations in the United     Kingdom, The Netherlands, Germany, Canada and Mexico. This     segment generated approximately 9% of our revenues and 9% of our     net income in 2005.         Our other business operations include our real estate brokerage and relocation business and our Mexican distressed asset business (which we sold in the first quarter of 2005), none of which is significant to our results of operations. These businesses are included with certain holding company activities and other adjustments to conform the reportable segment information to our results of operations.   Overview        Our ability to generate income and cash flow is highly dependent on the volume of our loan production and our ability to sell or otherwise finance our loans. Our business is also dependent on the acquisition and valuation of our other financial assets, including our mortgage loans held for investment  50    Table of Contents  from our on-balance sheet securitizations, retained interests from our off-balance sheet securitizations, mortgage servicing rights, other mortgage loans held for investment and lending receivables.        Our level of mortgage loan production, and the acquisition and valuation of our other financial assets, is subject to various factors and our assessment of them. These factors include the interest rate environment, housing prices and the condition of local and national economies in which we conduct business. These factors affect our estimates of prepayments, credit losses and other items affecting expected cash flows from our assets and our related valuation of these assets as well as our ability to originate or acquire mortgage loans. As a consequence of these factors, particularly interest rates, the business of acquiring and selling mortgage loans is cyclical.        Beginning in 2001, we initiated a strategy to address the cyclical nature inherent in the mortgage markets and generate a longer-term source of revenue. We have pursued this strategy by structuring more of our securitizations as on-balance sheet financings rather than off-balance sheet transactions, thereby growing the portfolio of mortgage loans held for investment on our balance sheet and that we pledge to securitization trusts as collateral in these financing transactions. The debt securities issued in connection with these secured financings are characterized on our balance sheet as collateralized borrowings in securitization trusts. We continue to evaluate this strategy and the amount of retained interests that we hold from our off-balance sheet securitizations in light of market conditions. As an example, as we monitor how the secondary market reacts to changing conditions, we may structure our loan sales and securitizations such that we retain no residual interests in the loans we sell if we believe the market pricing is attractive or it would assist us with our retained risk profile. We intend to grow our portfolio of mortgage loans held for investment from these on-balance sheet financings as long as market conditions are favorable to do so. We also intend to increase the portfolio of mortgage loans held for investment and related funding through our subsidiary GMAC Bank.        We seek to mitigate interest rate risk, in part, by monitoring and seeking to maintain an appropriate balance between our mortgage loan production volume and the size of our mortgage servicing portfolio. Interest rate movements will generally have an opposite effect on loan production volume and the valuation of the mortgage servicing rights. As interest rates rise, loan production generally declines as consumers are less likely to refinance mortgage loans. Conversely, rising rates generally increase the value of mortgage servicing rights as the cash flow stream associated with the servicing will lengthen as consumers are less likely to refinance. We also use various derivative and other financial instruments to mitigate our interest rate risk.        We are subject to varying degrees of credit risk in connection with our residual interests from off-balance sheet securitizations, our portfolio of mortgage loans held for investment (primarily held in connection with on-balance sheet securitizations) and our lending receivables. We monitor our credit risk closely as it impacts the value of these assets and we seek to mitigate this risk through our risk-based pricing, appropriate underwriting policies and loss mitigation strategies. We use detailed credit loss estimation methodologies for determining the allowance for loan losses and for input into cash flow estimates for valuing residual interests from off-balance sheet securitizations. We update our credit loss assumptions regularly to reflect our actual experience as well as current economic conditions.        Our business is also dependent on our sources of liquidity and funding. We sell almost all of our prime conforming residential mortgage loans to Fannie Mae or Freddie Mac in the form of agency-sponsored mortgage-backed securitizations. For other loan types, we primarily use aggregation facilities and our own securitizations as funding sources.   Understanding our Financial Results        Our financial results are significantly impacted by the structure of our securitizations as either on- or off-balance sheet and the related valuation of the assets recorded in connection with securitizations, including mortgage servicing rights. The following descriptions should assist you in understanding our financial results as they relate to these items. A complete explanation of our accounting policies and  51    Table of Contents  estimates can be found under the heading “— Critical Accounting Estimates” and in the notes to the financial statements.           On- and Off-Balance Sheet Securitizations         Securitizations that are structured as sales provide a onetime contribution to our income — or a gain on sale — when the mortgage loans and related securities are sold into the securitization trust. We refer to these transactions as “off-balance sheet” securitizations. We determine the gain on sale by allocating the carrying value of the underlying mortgage loans between loans sold and the interests retained, based on relative fair values. The gain recognized is the difference between the cash proceeds of the securitization and the allocated carrying value of the loans sold. Our estimate of the fair value of our retained interests in these off-balance sheet securitizations requires us to exercise significant judgment as to the timing and amount of future cash flows from the retained interests. We are exposed to credit risk from the underlying mortgage loans in off-balance sheet securitizations to the extent we retain subordinated interests. Changes in expected cash flows from an off-balance sheet securitization resulting from changes in expected net credit losses will impact the value of our subordinated retained interests and those changes are recorded as a component of investment gain or loss.        In contrast, for securitizations that are structured as financings, we recognize interest income over the life of the mortgage loans held for investment and interest expense incurred for the borrowings. We refer to these transactions as on-balance sheet securitizations. The mortgage loans collateralizing the debt securities for these financings are included in mortgage loans held for investment and the debt securities payable to investors in these securitizations are included in collateralized borrowings in securitization trusts on our balance sheet. Our recorded liability to repay these borrowings will be reduced to the extent cash flows received from the securitized and pledged assets are less than the recorded liabilities due. We provide for credit losses for the mortgage loans held for investment as they are incurred by establishing or increasing an allowance for loan loss.        Whether a securitization is on- or off-balance sheet, investors in the securities issued by the securitization trust have no recourse to our assets or to us and have no ability to require us to repurchase their securities, but rather have recourse only to the assets transferred to the trust. Whereas the accounting differences are significant, the underlying economic impact to us, over time, will be the same whether the securitization is structured on- or off-balance sheet.           Net Interest Income         Net interest income is the difference between the interest and fees we earn on various financial assets including mortgage loans held for investment, mortgage loans held for sale, lending receivables, and trading and available for sale securities and the interest we pay on the related liabilities, including collateralized borrowings in securitization trusts, affiliate borrowings, other borrowings and deposit liabilities.           Net Servicing Fees         We recognize net revenue related to mortgage servicing rights in the following income statement line items:            •   Servicing fees — the income earned for     servicing a loan. This includes the contractual servicing fee as     well as ancillary servicing items such as late fees. Servicing     fees are generally calculated as a percentage of the loan     balance.         •   Amortization and impairment of servicing     rights — an expense item that amortizes the     capitalized mortgage servicing right over the estimated life of     the servicing cash flows expected to be received from servicing     the mortgage loan. Impairment relates to charges taken for     temporary impairment of the mortgage servicing rights.         •   Servicing asset valuation and hedge gain — the     income statement effect of financial instruments hedging the     mortgage servicing rights for both economic and accounting     hedges as well as any   52    Table of Contents                related fair value adjustment of the mortgage servicing rights     resulting from the application of hedge accounting.         While we separately disclose each of the above line items on the statement of income, we also provide a net servicing fee subtotal reflecting the combination of the above items. We believe this provides a more meaningful measure when comparing changes between years.   Critical Accounting Estimates        The preparation of financial statements in accordance with GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in the preparation of the statements. Our significant accounting policies are described in Note 2 to the audited consolidated financial statements.        Accounting estimates are considered critical if the estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and if different estimates reasonably could have been used in the reporting period or changes in the accounting estimate are reasonably likely to occur from period to period that would have a material impact on our financial condition, results of operations or cash flows.           Determination of the Allowance for Loan Losses         The allowance for loan losses is our estimate of incurred losses in our portfolio of mortgage loans held for investment and lending receivables. Lending receivables are all loans other than residential mortgage loans. We periodically perform detailed reviews of our portfolio of mortgage loans held for investment and our lending receivables portfolio to determine if impairment has occurred and to assess the adequacy of the allowance for loan losses based on historical and current trends and other factors affecting credit losses. We charge additions to the allowance for loan losses to current period earnings through the provision for loan losses. Amounts determined to be uncollectible are charged directly against (and decrease) the allowance for loan losses, while amounts recovered on previously charged-off accounts increase the allowance. We exercise significant judgment in estimating the timing, frequency and severity of losses, which could materially affect the provision for loan losses and, therefore, net income. The methodology for determining the amount of the allowance differs for our portfolio of mortgage loans held for investment and our lending receivables portfolio.        Our portfolio of mortgage loans held for investment consists of smaller-balance, homogeneous residential mortgage loans. We divide this portfolio into several pools (based on, among other things, mortgage product type, underlying collateral and geographic location), which we evaluate for impairment. We establish the allowance for loan losses through a process that begins with estimates of incurred losses in each pool based upon various statistical analyses, including migration analysis, in which historical loss experience that we believe to be indicative of the current environment is applied to the portfolio to estimate incurred losses. In addition, we consider the overall portfolio size and other portfolio indicators such as delinquencies and credit quality, as well as general economic and business trends that we believe are relevant to estimating incurred losses.        Our lending receivables portfolio is comprised of larger-balance, non-homogeneous loans. We evaluate these loans individually and risk-grade them based on borrower, collateral and industry-specific information that we believe is relevant to determine the likelihood of the occurrence of a loss event and to measure impairment. We establish specific allowances for lending receivables that we determine to be individually impaired. We estimate the allowance for loan losses based on the borrower’s overall financial condition, financial resources, payment history and, when appropriate, the estimated realizable value of any collateral. In addition to the specific allowances for impaired loans, we maintain allowances that are based on a collective evaluation for impairment of certain lending receivable portfolios. These allowances are based on historical loss experience, concentrations, current economic conditions and performance trends within specific geographic and portfolio segments.  53    Table of Contents          Valuation of Mortgage Servicing Rights         Mortgage servicing rights represent the capitalized value of the right to receive future cash flows from the servicing of mortgage loans. Mortgage servicing rights are a significant source of value derived from originating or acquiring mortgage loans. Because residential mortgage loans typically contain a prepayment option, borrowers often elect to prepay their mortgage loans by refinancing at lower rates during declining interest rate environments. When this occurs, the stream of cash flows generated from servicing the original mortgage loan is terminated. As such, the market value of mortgage servicing rights is very sensitive to changes in interest rates, and tends to decline as market interest rates decline and increase as interest rates rise.        We capitalize mortgage servicing rights on loans that we have originated based upon the fair market value of the servicing rights associated with the underlying mortgage loans at the time the loans are sold or securitized. We capitalize purchased mortgage servicing rights at cost (which approximates the estimated fair market value of such assets). The carrying value of mortgage servicing rights is dependent upon whether the rights are hedged. We carry mortgage servicing rights that receive hedge accounting treatment at fair value. Changes in fair value are recognized in current period earnings, which are generally offset by changes in the fair value of the underlying derivative if the changes in the value of the asset and derivative are highly correlated. Mortgage servicing rights that do not receive hedge accounting treatment are carried at the lower of cost or fair value.        GAAP requires that the value of mortgage servicing rights be determined based on market transactions for comparable servicing assets or, in the absence of representative market trade information, based on other available market evidence and modeled market expectations of the present value of future estimated net cash flows that market participants would expect to be derived from servicing. When benchmark market transaction data is not available, we rely on estimates of the timing and magnitude of cash inflows and outflows to derive an expected net cash flow stream, and then discount this stream using an appropriate market discount rate. Servicing cash flows primarily include servicing fees; interest income, or the “float,” earned on collections that are deposited in various custodial accounts between their receipt and our distribution of the funds to investors; and late fees, in each case less operating costs to service the loans. Cash flows are derived based on internal operating assumptions that we believe would be used by market participants, combined with market-based assumptions for loan prepayment rates, interest rates and discount rates that management believes approximate yields required by investors in this asset. We consider available information and exercise significant judgment in estimating and assuming values for key variables in the modeling and discounting process.        We use the following key assumptions in our valuation approach:            •   Prepayments — The most significant driver of     mortgage servicing rights value is actual and anticipated     portfolio prepayment behavior. Prepayment speeds represent the     rate at which borrowers repay their mortgage loans prior to     scheduled maturity. As interest rates rise, prepayment speeds     generally slow, and as interest rates decline, prepayment speeds     generally accelerate. When mortgage loans are paid or expected     to be paid earlier than originally estimated, the expected     future cash flows associated with servicing such loans are     reduced. We primarily use third-party models to project     residential mortgage loan payoffs. We measure model performance     by comparing prepayment predictions against actual results at     both the portfolio and product level.         •   Discount rate — The mortgage servicing rights     cash flows are discounted at prevailing market rates which     include an appropriate risk-adjusted spread.         •   Base mortgage rate — The base mortgage rate     represents the current market interest rate for newly originated     mortgage loans. This rate is a key component in estimating     prepayment speeds of our portfolio because the difference     between the current base mortgage rate and the interest rates on     existing loans in our portfolio is an indication of the     borrower’s likelihood to refinance.         •   Cost to Service — In general, servicing cost     assumptions are based on actual expenses directly related to     servicing. These servicing cost assumptions are compared to     market servicing costs when   54    Table of Contents                market information is available. Our servicing cost assumptions     include expenses associated with our activities related to loans     in default.         •   Volatility — Volatility represents the expected     rate of change of interest rates. The volatility assumption used     in our valuation methodology is intended to place a band around     the potential interest rate movements from one period to the     next. We use implied volatility assumptions in connection with     the valuation of our mortgage servicing rights. Implied     volatility is defined as the expected rate of change in interest     rates derived from the prices at which options on interest rate     swaps, or swaptions, are trading. We update our volatility     assumptions for the change in implied swaption volatility during     the period, adjusted by the ratio of historical mortgage to     swaption volatility.         We also periodically perform a series of reasonableness tests as we deem appropriate, including the following:            •   Review and compare recent bulk mortgage servicing right     acquisition activity. We evaluate market trades for     reliability and relevancy and then consider, as appropriate, our     estimate of fair value of each significant deal to the traded     price. Currently, there is a lack of comparable transactions     between willing buyers and sellers in the bulk acquisition     market, which are the best indicators of fair value. However, we     continue to monitor and track market activity on an ongoing     basis.         •   Review and compare recent flow servicing trades. We     evaluate market trades of flow transactions to compare prices on     our mortgage servicing rights. Fair values of flow market     transactions may differ from our fair value estimate for several     reasons, including age/credit seasoning of product, perceived     profit margin/discount assumed by aggregators, economy of scale     benefits and cross-sell benefits.         •   Review and compare fair value price/multiples. We     evaluate and compare our fair value price/multiples to market     fair value price/multiples quoted in external surveys produced     by third parties.         •   Reconcile actual monthly cash flows to projections. We     reconcile actual monthly cash flows to those projected in the     mortgage servicing rights valuation. Based upon the results of     this reconciliation, we assess the need to modify the individual     assumptions used in the valuation. This process ensures the     model is calibrated to actual servicing cash flow results.         We generally expect our valuation to be within a reasonable range of that implied by each test. If we determine our valuation has exceeded the reasonable range, we may adjust it accordingly.        We evaluate mortgage servicing rights for impairment by stratifying our portfolio on the basis of the predominant risk characteristics (mortgage product type and interest rate). To the extent that the carrying value of an individual tranche exceeds its estimated fair value, the mortgage servicing rights asset is considered to be impaired. We recognize impairment that is considered to be temporary through the establishment of (or an increase in) a valuation allowance, with a corresponding unfavorable effect on earnings. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, we reduce the valuation allowance, with a favorable effect on earnings. If the impairment is determined to be other than temporary, the valuation allowance is reduced along with the carrying value of the mortgage servicing right.        The assumptions used in modeling expected future cash flows of mortgage servicing rights have a significant impact on the fair value of mortgage servicing rights and potentially a corresponding impact to earnings. For example, a 10% increase in the prepayment assumptions would have negatively impacted the fair value of our mortgage servicing rights asset by $183 million, or approximately 5%, as of December 31, 2005. The calculation assumes that a change in the prepayment assumption would not impact other modeling assumptions. In reality, changes in one factor may result in changes in another, which might magnify or mitigate the sensitivities. In addition, the factors that may cause a change in the prepayment assumption may also positively or negatively impact other areas of our operations (for example, declining  55    Table of Contents  interest rates, while increasing prepayments, would likely have a positive impact on mortgage loan production volume and gains recognized on the sale of mortgage loans).           Valuation of Interests in Securitized Assets         When we securitize mortgage loans in off-balance sheet transactions, we may retain an interest in the sold assets. These retained interests may take the form of mortgage-backed or mortgage-related asset-backed securities (including senior and subordinated interests), interest-only, principal-only, investment grade, non-investment grade or unrated securities. The subordinated interests we retain provide a form of credit enhancement for the more highly-rated securities. In addition to the interests we retain from our securitization activities, we purchase mortgage-backed securities, interest-only strips and other interests in securitized mortgage assets. As a result of these purchases, we may hold for investment (primarily with the intent to sell or securitize) mortgage-backed securities similar to those we retain in connection with our securitization activities. Interests in securitized assets, whether retained or purchased, are accounted for as investments in debt securities. Our estimate of the fair value of these interests requires us to exercise significant judgment about the timing and amount of future cash flows from these interests.        We value interests in securitized assets on the basis of external dealer quotes, where available. External quotes are not available for a significant portion of these assets because of the relative illiquidity of such assets in the market. In these circumstances, we base valuations on internally-developed models that consider recent market transactions, experience with similar securities, current business conditions and analysis of the underlying collateral, as available.        Estimating the fair value of these securities requires us to make certain assumptions based on current market information. The following describes the significant assumptions that could impact future cash flows, and therefore the valuation of these assets.            •   Prepayments — Similar to mortgage servicing     rights, estimated prepayment speeds significantly impact the     valuation of our retained interests in securitized assets     because changes in actual and expected prepayment speed may     significantly change the expected cash flows from these     securities. For certain securities, we are able to obtain market     information from third parties to estimate prepayment speeds. In     other cases, we estimate prepayment speeds based upon historical     and expected future prepayment rates.         •   Credit Losses — Expected credit losses on loans     underlying mortgage-backed and mortgage-related asset-backed     securities also significantly impact the estimated fair value of     the related subordinate interests we retain. Credit losses can     be impacted by many economic variables including unemployment,     housing prices and other regional factors. The types of loan     product and the interest rate environment are also key variables     impacting our credit loss assumptions. For certain securities,     market information for similar investments is available to     estimate credit losses and collateral defaults (for example,     dealer-quoted credit spreads). For other securities, we estimate     future credit losses using internally-developed credit loss     models, which generate indicative credit losses on the basis of     our historical credit loss frequency and severity.         •   Discount Rate — Discount rate assumptions are     affected primarily by changes in the assessed risk on the sold     assets or similar assets and market interest rate movements. We     determine discount rate assumptions using data obtained from     market participants, where available, or based on current     relevant treasury rates, plus an appropriate risk-adjusted     spread, based on analysis of historical spreads on similar types     of securities.         •   Interest Rates — Estimates of interest rates on     variable- and adjustable-rate loans are based on spreads over an     appropriate benchmark interest rate, usually LIBOR, using     market-based yield curves. The movement in interest rates can     also have a significant impact on the valuation of our retained     interests.         We include changes in the fair value of mortgage-backed and mortgage-related asset-backed securities held for trading as a component of investment gain or loss in our income statement. We include changes  56    Table of Contents  in the estimated fair value of mortgage-backed and mortgage-related asset-backed securities available for sale as a component of equity (other comprehensive income) in our balance sheet. If we determine that other than temporary impairment should be recognized related to mortgage-backed and mortgage-related asset-backed securities available for sale, we recognize such amounts in our income statement in the line item entitled gain on investment securities, net.        Similar to mortgage servicing rights, changes in model assumptions can have a significant impact on the carrying value of interests in securitized assets. Note 18 to the audited consolidated financial statements summarizes the impact on the fair value due to a change in key assumptions for the significant categories of interests in securitized assets as of December 31, 2005 and 2004.   Results of Operations           Consolidated Results            Year Ended December 31, 2005 Compared to Year Ended     December 31, 2004         Our net income increased $52.4 million or 5.4% to $1.0 billion in 2005, compared to $968.2 million in 2004. The increase in net income was primarily the result of higher gains on sales of mortgage loans, lower provision for loan losses and increased net servicing fees, gain on investment securities and real estate related revenues. These favorable impacts to net income were partially offset by a decline in net interest income and an increase in operating expenses.        Our mortgage loan production in 2005 was $175.6 billion, an increase of 19% from $147.0 billion in 2004. Our domestic mortgage loan production increased 20% and international mortgage loan production increased 18% in 2005 compared to the prior year. Our domestic loan production increased at a greater rate than the overall domestic mortgage origination market reflecting our increased market share. The domestic mortgage origination market was estimated to be approximately $2.8 trillion in 2005 compared to $2.7 trillion in 2004.        Gain on sale of mortgage loans, net was $1.0 billion in 2005, compared to $696.9 million in 2004. This 49% increase was primarily due to the increase in mortgage loan production and the increase in the percentage of our volume sold rather than financed during 2005. The sale of our Mexican distressed loan business in the first quarter of 2005, which generated a pretax gain of $63.0 million, also positively impacted the gain on sale in 2005.        Net interest income was $1.9 billion in 2005 compared to $2.6 billion in 2004, a decrease of $660.9 million or 26%. Our interest income increased $806.2 million in 2005 compared to the prior year, primarily as a result of an increase in our interest earning assets including mortgage loans held for sale, mortgage loans held for investment, lending receivables and other interest-earning assets. Our interest expense increased $1.5 billion in 2005 compared to the prior year due to both an increase in the volume of interest-bearing liabilities and an increase in the cost of those funds. We experienced an increase in our funding costs in 2005 primarily due to the increase in short-term market interest rates. The flattening of the yield curve during 2005 had a overall negative impact on our net interest income as our yields on our earning assets were generally consistent with the prior year but our funding costs increased with the rise in short term rates, after the impact of our hedging programs. Additionally, our cost of funds has increased as we replaced lower cost affiliate borrowings with our own unsecured debt. We expect continued pressure on net interest income given the current interest rate environment.        The provision for loan losses was $651.8 million in 2005 compared to $842.9 million in 2004, representing a decrease of $191.1 million. The mortgage loan held for investment allowance for loan losses was 1.55% of total mortgage loans held for investment as of December 31, 2005, compared to 1.51% of total mortgage loans held for investment loans as of December 31, 2004. The increase in the allowance as a percentage of total mortgage loans held for investment is due to the increase in delinquent loans, including nonaccrual loans, as of December 31, 2005, compared to the prior year. This negative impact was partially offset by favorable severity assumptions in 2005 when compared to 2004 due to home price appreciation. The provision for loan loss is lower for 2005 compared to the prior year primarily due to  57    Table of Contents  favorable severity assumptions resulting from home price appreciation along with a slower rate of increase in delinquencies, including nonaccrual loans, during 2005 compared to 2004 as the rate of seasoning of the portfolio slowed. These positive effects were partially offset by provisions for Hurricane Katrina. See “— Asset Quality.”        Net servicing fees were $671.5 million in 2005, compared with $505.9 million in the prior year, an increase of $165.6 million. This increase in net servicing fees is comprised of the positive impact of an increase in our servicing fees and a decrease in our amortization and impairment of servicing rights partially offset by lower servicing asset valuation and hedge gain.        The increase in servicing fees was primarily driven by increases in the size of our servicing portfolio. Our mortgage loan servicing portfolio grew from $323.8 billion as of December 31, 2004 to $378.6 billion as of December 31, 2005. The decline in amortization and impairment of servicing rights of $241.3 million was primarily due to the impact of changes in the discount rate assumption on 30-year prime conforming mortgage loans used to value mortgage servicing rights. The discount rate was lowered in the third quarter in response to various price points observed in the market place. This change in estimate resulted in approximately $150.0 million of additional mortgage servicing right value through a reversal of the related allowance. A further reduction in impairment expense was due to the change in the overall market interest rate environment as interest rates were generally higher in 2005 compared to 2004, resulting in a decrease in average loan prepayments. The decline in the servicing asset valuation and hedge gain was primarily due to the flattening of the yield curve.        Gain on investment securities, net increased by $172.7 million in 2005 compared to 2004. The increase in the gain on investment securities is primarily due to unrealized gains in 2005 due to an increase in the valuation of subordinated interests resulting from lower credit severity assumptions due to home price appreciation. In addition, we realized gains during 2005 from the sale of U.S. Treasury securities, stripped mortgage-backed securities and other residuals while no such gains were recorded in 2004.        Real estate related revenues were $712.2 million in 2005, an increase of $62.9 million from the prior year. The increase was a result of the growth of our investments in real estate and related equity investments and the continued profitable performance of these investments compared to 2004 driving higher model home finance revenue and higher equity investment income.        Total operating expenses of $2.6 billion in 2005 increased $251.9 million from 2004 primarily due to a $190.4 million increase in compensation and benefits driven by an increase in headcount and incentive compensation. Total headcount averaged 13,607 associates in 2005, compared to 12,696 in 2004. The remaining increase was due to increases in occupancy, technology and other expenses.           Year Ended December 31, 2004 Compared to Year Ended     December 31, 2003         Our net income increased $111.4 million, or 13.0%, to $968.2 million in 2004 compared to $856.8 million in 2003. This increase was primarily caused by increases in net interest income, net servicing fees, gain on investment securities and real estate related revenues. These favorable impacts to net income were partially offset by an increase in the provision for loan losses and a reduction in the gain on sales of loans.        In 2004, our loan production declined to $147.0 billion from the record level of $179.2 billion in 2003. Our pricing margins also declined in 2004 as market participants reduced their pricing to address lower production volumes. Our decline in production reflects the overall reduction in mortgage loan originations in the United States in 2004 primarily due to increases in interest rates. In 2004, approximately $2.7 trillion in residential mortgage loans were funded in the United States, compared to $3.8 trillion in 2003.        Net interest income increased by $506.0 million, or 24.3%, to $2.6 billion in 2004, compared to $2.1 billion in 2003 as a result of our continued use of on-balance sheet securitizations and the corresponding overall growth in our portfolio of mortgage loans held for investment (which increased to $56.8 billion in 2004 from $45.8 billion in 2003). In 2004, we issued $28.8 billion of on-balance sheet  58    Table of Contents  securitizations, compared to $33.8 billion of such transactions in 2003. The decline was due to the decline in mortgage loan production but also reflected a reduction in the percentage of our securitizations structured on-balance sheet (49% in 2004 from 53% in 2003). This reduction is the result of our continuous assessment of market pricing and our retained risk profile. As of December 31, 2004, there were $50.7 billion of collateralized borrowings in securitization trusts compared to $39.4 billion as of December 31, 2003.        The $389.4 million increase in the provision for loan losses was driven by higher estimates of incurred loan losses in our portfolio of mortgage loans held for investment. The higher estimates of incurred losses reflects both the increase in the size of this portfolio from 2003 as well as the effect of the credit seasoning of loans that were originated in prior years. See “ — Asset Quality — Allowance for Loan Losses” for a discussion of credit seasoning.        Gain from the sales of loans declined $1.0 billion, or 60.1%, through a combination of lower margins and decreased production volumes from the record levels experienced in 2003.        Net servicing fees increased to $505.9 million in 2004 from a net servicing fee loss of $322.0 million in 2003. Net servicing fees benefited from the increase in overall market interest rates (and the resulting decline in actual and expected prepayment activity) as our residential mortgage operations experienced higher servicing fee income and lower amortization and impairment of mortgage servicing rights. The carrying value of our mortgage servicing rights increased to $3.4 billion as of December 31, 2004 compared to $3.2 billion as of December 31, 2003. The related amortization and impairment of the mortgage servicing rights were $1.0 billion in 2004 compared to $2.0 billion in 2003. Servicing asset valuation and hedge gain declined by $292.3 million, or 57.6%, primarily due to the flattening of the interest rate yield curve in 2004.        Gains on investment securities were $63.7 million in 2004 as compared to a loss of $222.8 million in 2003. This improvement of $286.5 million was primarily due to prior year valuation adjustments taken on nonprime subordinate interests related to our off-balance sheet securitizations to reflect decreased projected cash flows from our original estimates in 2003.        Real estate related revenues increased $148.8 million, or 29.7%, due to increased investment income associated with various real estate and construction investments and increases in real estate service fees as a result of continued growth.        Total operating expenses were $2.4 billion in 2004, unchanged from 2003 despite a reduction in loan production volume. Compensation and benefits expense was $1.2 billion in 2004 and 2003. Reductions in other expenses, primarily due to a decrease in mortgage loan processing expense of $97.8 million reflecting lower mortgage loan production, were offset by an increase in professional fees of $55.3 million due to the use of consultants to assist with information technology development and a $23.6 million increase in advertising.  59    Table of Contents  Segment Results           GMAC Residential         The following table presents results of operations for GMAC Residential:                                     Year Ended December 31,               2005   2004   2003                       (In millions)         Net interest income    $ 289.8     $ 327.6     $ 385.7           Provision for loan losses      (3.0 )     2.8       (8.0 )         Gain on sales of mortgage loans, net      447.8       497.7       1,237.7           Servicing fees      966.8       867.3       835.8           Amortization and impairment of servicing rights      (539.4 )     (775.6 )     (1,555.3 )         Servicing asset valuation and hedge gain (loss), net      93.6       211.2       405.8                                 Net servicing fees (loss)      521.0       302.9       (313.7 )         Other income      230.7       142.1       155.3           Operating expenses      (954.3 )     (767.5 )     (891.6 )         Income tax expense      (224.6 )     (225.0 )     (204.9 )                               Net income    $ 307.4     $ 280.6     $ 360.5                                     Year Ended December 31, 2005 Compared to Year Ended     December 31, 2004         GMAC Residential’s net income was $307.4 million in 2005, compared to $280.6 million in 2004. The increase in net income was primarily due to increases in net servicing fees and other income. These items were partially offset by declines in net interest income, gain on sales of mortgage loans and an increase in operating expenses.        Mortgage loan production totaled $91.6 billion in 2005 compared to $87.5 billion in 2004. Production volume was positively impacted by the growth in this segment’s market share, which averaged 3.31% in 2005 compared to 3.26% in 2004. A portion of the growth in mortgage loan production volume resulted from the acquisition of certain mortgage banking operations in September 2004. This acquisition contributed $4.9 billion in mortgage loan production volume in 2005 as compared to $1.1 billion in 2004.        Gain on sales of mortgage loans decreased by $49.9 million, or 10%, in 2005 compared to 2004. Though gain on sale volume was higher in 2005 than in 2004, the lower level of capitalization rates for originated mortgage servicing rights caused a decrease in gains recognized during 2005. Originated mortgage servicing right capitalization rates averaged 42 basis points in 2005, compared to 60 basis points in 2004.        Net interest income declined by $37.8 million, or 12%, in 2005 compared to 2004. This decline was primarily the result of an increase in our cost of funds driven by higher short-term market interest rates, partially offset by an increase in interest earned on mortgage loans held for investment. The balance of mortgage loans held for investment increased to $6.4 billion as of December 31, 2005, compared to $1.3 billion as of December 31, 2004, as more mortgage loans were retained in GMAC Bank.        Net servicing fees increased by $218.1 million in 2005, compared to 2004. This increase was the result of an increase in servicing fees and a decline in amortization and impairment of servicing rights, offset by a decrease in servicing asset valuation and hedge gains. The increase in servicing fees reflected the growth in this segment’s servicing portfolio. The total mortgage loan servicing portfolio grew from $231.8 billion as of December 31, 2004 to $288.8 billion as of December 31, 2005.        The decline in amortization and impairment of servicing rights was primarily due to the impact of changes in the discount rate assumption used to value mortgage servicing rights relating to 30-year prime conforming mortgage loans. During the third quarter of 2005, the discount rate was lowered on 30-year prime conforming mortgage loans in response to various price points observed in the market place. This  60    Table of Contents  change in estimate resulted in approximately $150.0 million of additional mortgage servicing right value through a reversal of the related valuation allowance. A further reduction in impairment expense was due to the change in the overall market interest rate environment as interest rates were generally higher in 2005 compared to 2004. As a result, borrowers’ refinance incentive decreased in 2005 as evidenced by the decrease in average loan prepayments.        The decline in servicing asset valuation and hedge gains in 2005 was primarily due to the flattening of the yield curve and a change in the hedging instrument composition. The use of option based derivatives to hedge mortgage servicing rights was gradually increased during 2005 due to the decline in the general level of market interest rate volatility, resulting in a decrease in the use of swap based derivatives and, in effect, a reduction in the related interest income recorded for hedging instruments.        Other income increased by $88.6 million, or 62.4%, primarily due to a combination of realized and unrealized gains from U.S. Treasury securities and other non-recurring gains. The segment recorded realized and unrealized gains of $26 million on U.S. Treasury securities during 2005 as compared to unrealized losses of $0.1 million in 2004. In addition, the segment recorded $31 million in gains during the third quarter of 2005 on the sale of stripped mortgage backed securities associated with the sale of certain excess servicing fees. There were no such sales in 2004.        Operating expenses increased by $186.8 million, or 24.3%, in 2005 compared to the prior year. These increases were primarily due to an increase in compensation expense as both headcount and incentive compensation expense increased compared to 2004. Total headcount averaged approximately 8,900 during 2005 compared to 8,000 in 2004, and the increase in incentive compensation reflected the increase of both loan production volume and overall profitability during 2005. Loan processing expenses also increased in 2005 as a result of increased loan production.           Year Ended December 31, 2004 Compared to Year Ended     December 31, 2003         Net income in 2004 was $280.6 million, compared to $360.5 million in 2003. Loan production volume in 2004 declined 24% to $87.5 billion, compared to $114.5 billion in 2003. Loan production volume in 2004 was negatively impacted by a decline in mortgage refinance transactions as mortgage interest rates began to increase from the levels observed in 2003. The decline in loan production volume drove a reduction in the gain on sales of loans, which was partially offset by an increase in net servicing fees and other income.        Net interest income declined $58.1 million, or 15.1%, in 2004 primarily due to the decrease in origination activity, which resulted in a decrease in our portfolio of mortgage loans held for sale. During 2004 and 2003, the net interest income for this segment was primarily earned from mortgage loans held for sale as substantially all of the loan production volume was sold and not retained on the balance sheet. This was partially offset by an increase in our mortgage loans held for investment and lending receivables portfolio for this segment of $798.2 million from 2003 to 2004.        The $740.0 million, or 59.8%, decline in gain on sales of loans in 2004 was primarily due to decreased production of mortgage loans combined with lower margins achieved on their sale. Mortgage loan production volume was $87.5 billion in 2004, compared to $114.5 billion in 2003.        Net servicing fees increased to $302.9 million in 2004 from a loss of $313.7 million in 2003. Net servicing fees increased primarily due to a 50.1% decline in amortization and impairment of servicing rights resulting from lower prepayment speeds due to increases in market interest rates. This favorable impact was partially offset by a decline in servicing asset valuation and hedge gain of $194.6 million, or 48.0%, in 2004. In both 2004 and 2003, a large portion of our hedge position was comprised of interest rate swaps in which we received fixed rates and paid floating rates. In 2003, we recognized additional benefits from these positions as short term interest rates did not increase as fast as expected by the market. In 2004, these positions were less beneficial due to the yield curve flattening more in line with market expectations. Additionally, other derivative gains increased $72 million. Other derivative gains or losses are attributable to derivatives that are no longer designated as hedges.  61    Table of Contents       Operating expenses declined by $124.1 million, or 13.9%, in 2004, primarily due to a reduction in mortgage loan processing expenses of $93.3 million. This decline in mortgage loan processing expenses was attributable to the decline in loan production volume, which was partially offset by a $22.6 million increase in advertising.        Income tax expense increased by $20.1 million in 2004. This increase occurred despite a $59.8 million decline in income before income tax expense as compared to 2003 and resulted in an effective tax rate of 44.5% in 2004, compared to 36.2% in 2003. The increase was primarily the result of a $25.0 million increase in state income taxes net of federal tax benefit due to limitations on the deductibility of certain losses and a $13.5 million benefit in 2003 due to a settlement with a local taxing authority.           Residential Capital Group         The following table presents the results of operations for Residential Capital Group:                                     Year Ended December 31,               2005   2004   2003                       (In millions)         Net interest income    $ 1,336.2     $ 2,050.2     $ 1,581.6           Provision for loan losses      (621.3 )     (820.0 )     (380.3 )         Gain on sales of mortgage loans, net      312.6       6.7       358.9           Servicing fees      444.9       412.5       352.5           Amortization and impairment of servicing rights      (221.3 )     (233.5 )     (455.5 )         Servicing asset valuation and hedge gain (loss), net      (76.4 )     3.7       101.5                                 Net servicing fees (loss)      147.2       182.7       (1.5 )         Other income      281.6       216.7       (27.9 )         Operating expenses      (822.6 )     (844.6 )     (787.0 )         Income tax expense      (238.1 )     (302.8 )     (284.5 )                               Net income    $ 395.6     $ 488.9     $ 459.3                                     Year Ended December 31, 2005 Compared to Year Ended     December 31, 2004         Net income in 2005 was $395.6 million, compared to $488.9 million for the prior year. This decrease of $93.3 million was primarily caused by decreases in net interest income and net servicing fees. These negative impacts were partially offset by increases in gain on sale of loans and other income and decreases in provision for loan losses and operating expenses.        Mortgage loan production totaled $73.3 billion in 2005, compared to $50.2 billion in 2004. Production volume in 2005 was positively impacted by the growth in this segment’s market share, which was 2.5% in 2005 compared to 1.8% in 2004. This segment capitalized on the market demand for purchasing higher margin products in 2005, increasing gain on sale volume by $18.7 billion compared to 2004, while on-balance sheet securitization activity volume decreased by $0.6 billion compared to 2004.        Net interest income decreased $714.0 million, or 34.8%, in 2005 primarily due to the increase in our cost of funds as short-term market interest rates rose during 2005 while competitive pressures limited our ability to increase the yield on our mortgage loans. The effect of the flattening of the yield curve had an overall negative impact on our net interest income. In addition, the principal paydown of the existing higher margin portfolio further compressed our net interest income.        The provision for loan losses decreased $198.7 million for the year ended December 31, 2005, or 24.2%, compared to the prior year. The decrease in the provision for loan losses was primarily driven by favorable severity assumptions for 2005 compared to 2004 resulting from home price appreciation, a slower rate of increase in delinquencies, including nonaccrual loans, as the rate of seasoning of the portfolio slowed and lower volume of loans repurchased out of our off-balance sheet securitizations. These positive  62    Table of Contents  effects were partially offset by a $45.1 million increase in provision during the year for estimated losses related to Hurricane Katrina.        The $305.9 million increase in gain on sales of loans in 2005 was primarily due to increased gain on sale volume driven by market conditions that made it more economical to securitize and sell all the credit risk on certain nonprime and home equity products rather than to retain them on our balance sheet along with our success in growing market share.        Net servicing fees decreased $35.5 million or 19.4%, in 2005 despite a $18.9 billion, or 21.8%, increase in this segment’s owned servicing portfolio. The decrease in net servicing fees resulted from an $80.1 million reduction in servicing asset valuation and hedge gain, partially offset by $32.4 million increase in servicing fees and a $12.2 million decrease in amortization and impairment of servicing rights. Servicing fees increased due to the growth of our servicing portfolio. The reduction in amortization and impairment of servicing rights was primarily due to slower prepayment speeds resulting from higher market interest rates during 2005 compared to the prior year. The decline in the servicing asset valuation and hedge gain was primarily due to the impact of the flattening of the yield curve on our hedge positions.        Other income increased $64.9 million in 2005 compared to the prior year due to a $69.1 million increase in the net gain on investment securities. The increase was primarily due to the increase in the valuation of retained subordinated interests resulting from the update of assumptions of future losses resulting from lower severity experience due to home price appreciation.        Operating expenses decreased by $22.0 million, or 2.6%, in 2005 primarily due to lower mortgage insurance expense offset by an increase in compensation expense from an increase in personnel.           Year Ended December 31, 2004 Compared to Year Ended     December 31, 2003         Net income in 2004 was $488.9 million, compared to $459.3 million in 2003. The increase was primarily caused by increases in net interest income, other income and net servicing fees. These increases were largely offset by an increase in the provision for loan losses, a decline in the gain on sale of loans and an increase in operating expenses.        Net interest income increased $468.6 million, or 29.6%, in 2004 primarily due to the growth in our portfolio of mortgage loans held for investment related to securitizations structured as on-balance sheet financings. As of December 31, 2004, we had $50.7 billion of collateralized borrowings in securitization trusts, compared to $39.4 billion as of December 31, 2003.        The provision for loan losses increased $439.7 million, or 115.6%, in 2004. The increase in the provision for loan losses was driven by higher estimates of incurred loan losses in our portfolio of mortgage loans held for investment. The higher estimate of incurred losses reflected both the overall growth of this portfolio as well as the effect of the credit seasoning of loans that were originated in prior years.        The $352.2 million, or 98.1%, decline in gain on sales of loans in 2004 was primarily due to the continued strategy to execute a significant portion of securitizations as on-balance sheet financings. Additionally, decreased loan production volume contributed to the decline.        Net servicing fees increased to $182.7 million in 2004 from a net servicing fee loss of $1.5 million in 2003. The increase in net servicing fees resulted from a $60.0 million increase in servicing fees and a $222.0 million decrease in amortization and impairment of servicing rights, partially offset by a $97.8 million reduction in servicing asset valuation and hedge gain. Servicing fees increased due to the growth of our servicing portfolio. As of December 31, 2004, the primary servicing portfolio increased $8.1 billion, or 10.4% to $86.5 billion, compared to $78.4 billion as of December 31, 2003. The reduction in amortization and impairment of servicing rights was primarily due to slower prepayment speeds resulting from higher interest rates in 2004. The decline in the hedge gain was primarily due to increases in interest rates in 2004 compared to 2003 and the resulting impact of those increases on our hedge position.        Other income increased by $244.6 million in 2004 primarily due to a $314.9 million reduction in the net loss on investment securities. This reduction was primarily due to valuation adjustments taken on  63    Table of Contents  certain of our nonprime subordinate interests in 2003 due to decreased projected cash flows from our original estimates as of December 31, 2002.        Operating expenses increased by $57.6 million, or 7.3%, in 2004 primarily due to higher compensation expense from an increase in personnel and increased professional fees. The increase in professional fees was primarily due to the use of consultants for information technology development projects.           Business Capital Group         The following table presents the results of operations for the Business Capital Group:                                     Year Ended December 31,               2005   2004   2003                       (In millions)         Net interest income    $ 147.9     $ 124.2     $ 81.2           Provision for loan losses      (25.9 )     (21.0 )     (62.6 )         Other income      280.6       208.8       136.0           Operating expenses      (81.2 )     (71.8 )     (54.7 )         Income tax expense      (120.8 )     (91.9 )     (38.2 )                               Net income    $ 200.6     $ 148.3     $ 61.7                                     Year Ended December 31, 2005 Compared to Year Ended     December 31, 2004         Business Capital Group’s net income in 2005 was $200.6 million, compared to $148.3 million in 2004. The increase was primarily caused by higher net interest income and real estate related revenues, partially offset by an increase in the provision for loan losses and operating expenses.        Net interest income increased by $23.7 million, or 19.1%, in 2005 compared to 2004. This increase was due to the growth of residential construction, resort finance lending and healthcare lending receivables. As of December 31, 2005, lending receivables for this segment were $3.9 billion, an increase of $680 million, or 21.4%, compared to December 31, 2004. This positive impact on net interest income was partially offset by growth in borrowings related to increases in investments in real estate, the income from which is included in other income and not in net interest income.        The provision for loan losses increased by $4.9 million in 2005 compared to 2004. This variance was primarily due to the growth in the portfolio and the assessment of incurred loss estimates inherent in the portfolio.        Real estate related revenue, which is included in other income, increased by $67.7 million, or 36.5%, in 2005 compared to 2004. This increase was due to the growth of investments in real estate. As of December 31, 2005, real estate investments increased by $446 million, or 33.9%, compared to December 31, 2004, which drove higher model home finance revenue and higher equity investment income.        Operating expenses increased by $9.4 million, or 13.1%, in 2005. This increase was primarily due to an increase in payroll-related expenses, including incentive compensation, as well as additional other operating expenses.           Year Ended December 31, 2004 Compared to Year Ended     December 31, 2003         Net income in 2004 was $148.3 million, compared to $61.7 million in 2003. The increase was primarily caused by increases in net interest income and other income and a reduction in the provision for loan losses. These items were partially offset by an increase in operating expenses.        Net interest income increased by $43.0 million, or 53.0%, in 2004. This increase was primarily due to the growth of lending receivables. Lending receivables increased by $1.1 billion in 2004, or 55.2%, from 2003. This growth came from the consolidation of a previously non-consolidated entity that is used as an  64    Table of Contents  aggregation facility for certain of our lending receivables. We are now required to consolidate this entity under Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities due to a restructuring in the second quarter of 2004 of this facility. The facility was restructured to allow loans with letters of credit to be drawn upon at the discretion of the facility. The growth also reflects increases in our construction and resort lending portfolios. The favorable impact to net interest income was partially offset by increases in our cost of borrowings.        The provision for loan losses declined by $41.6 million, or 66.5%, in 2004. This decline was primarily due to the stabilization of credit risk on certain loans in the portfolio.        Other income increased by $72.8 million, or 53.5%, in 2004. This increase was primarily due to an increase in income from an equity investment in a homebuilder.        Operating expenses increased by $17.1 million, or 31.3%, in 2004. This increase was primarily due to increased compensation expense, including incentive compensation, due to the increased size and profitability of the business.           International Business Group         The following table presents the results of operations for International Business Group:                                     Year Ended December 31,               2005   2004   2003                       (In millions)         Net interest income    $ 152.2     $ 105.5     $ 52.3           Provision for loan losses      (1.7 )     (4.5 )     (2.2 )         Gain on sales of mortgage loans, net      210.8       196.8       118.2           Servicing fees      (3.5 )     8.6       (4.0 )         Amortization and impairment of servicing rights      (0.3 )     0.5       0.1           Servicing asset valuation and hedge gain, net      —       —       —                                 Net servicing fees (loss)      (3.8 )     9.1       (3.9 )         Other income      25.1       (29.0 )     11.9           Operating expenses      (253.3 )     (200.5 )     (138.6 )         Income tax expense      (39.2 )     (26.1 )     (13.7 )                               Net income    $ 90.1     $ 51.3     $ 24.0                                     Year Ended December 31, 2005 Compared to Year Ended     December 31, 2004         Net income in 2005 was $90.1 million, compared to $51.3 million in 2004, reflecting an increase of $38.8 million. Loan production totaled $16.5 billion in 2005 compared to $14.0 billion in 2004. The increase in net income was primarily the result of increased net interest income and other income partially offset by an increase in operating expenses.        Net interest income increased $46.7 million in 2005, compared to 2004. This increase was driven by our increase in average interest-earning assets (primarily mortgage loans held for investment and mortgage loans held for sale). The average yield on these assets declined to 6.9% in 2005, compared to 7.1% in 2004. Our interest expense in 2005 was higher primarily due to the increase in our average borrowing levels to support the increase in our earning asset levels. The average cost of funds declined to 5.5% in 2005 compared to 5.9% in 2004.        Gain on sale of mortgage loans increased $14.0 million, or 7.1%, in 2005 compared 2004. In 2005, we sold $12.7 billion of loans, compared to $12.6 billion in 2004. The increase in the gain on sale was primarily driven by the impact of hedges.  65    Table of Contents       Other income was $25.1 million in 2005, an increase of $54.1 million from 2004. Prior year results included a $43.1 million decline in the fair value of residual interests in the United Kingdom. This compares to a $4.7 million positive fair value adjustment in 2005 for the United Kingdom and Continental Europe residual interests. This included a $17.9 million favorable adjustment in the United Kingdom due to favorable credit experience, which was partially offset by a $13.2 million unfavorable adjustment in Continental Europe due to unfavorable prepayment experience. Additionally, two subordinated residual sales occurred during 2005, which resulted in realized gains of $10.8 million.        Operating expenses increased $52.8 million, or 26.3%, in 2005 compared to 2004. This increase was primarily due to higher compensation expenses due to increases in headcount and increases in incentive compensation due to improved operating results, as well as increased occupancy charges. Additionally, during 2005 software costs totaling $11.9 million were written off due to our assessment that these costs would no longer benefit future periods.           Year Ended December 31, 2004 Compared to Year Ended     December 31, 2003         Net income in 2004 was $51.3 million, compared to $24.0 million in 2003. The increase was primarily due to increases in net interest income and gain on sales of loans. These items were partially offset by an increase in operating expenses and a decline in other income.        Net interest income increased by $53.2 million, or 101.7%, in 2004. This increase was primarily due to the growth of our portfolio of mortgage loans held for investment in the United Kingdom. We structured one $900.5 million securitization in September 2004 as an on-balance sheet financing. In September and December 2003, we structured two of our securitizations in the United Kingdom as on-balance sheet financings totaling $1.7 billion. Prior to September 2003, all securitizations in this segment had been structured as off-balance sheet transactions.        Gain on sales of loans increased by $78.6 million, or 66.5%, in 2004. The majority of this increase occurred in the United Kingdom and was primarily due to increased loan production volume in 2004. In the United Kingdom, total loans sold increased by $4.8 billion, or 83%, to $10.6 billion in 2004, compared to $5.8 billion in 2003. The increase in loan production was primarily the result of favorable interest rates and housing price appreciation.        Other income declined by $40.9 million in 2004. This decline was primarily due to a decline in the fair value of residual interests from our off-balance sheet securitizations due to increased prepayment speeds.        Operating expenses increased by $61.9 million, or 44.7%, in 2004. This increase was primarily due to increased compensation expense including incentive compensation, due to the increased size and profitability of the business.  66    Table of Contents          Corporate and Other         The following table presents the results of operations for Corporate and Other:                                     Year Ended December 31,               2005   2004   2003                       (In millions)         Net interest expense    $ (1.1 )   $ (21.6 )   $ (20.8 )         Provision for loan losses      —       (0.2 )     (0.4 )         Gain (loss) on sales of loans      65.5       (5.9 )     30.3           Servicing fees      8.1       7.6       2.7           Mortgage servicing rights amortization and impairment      (0.9 )     5.3       (4.2 )                               Net servicing fees (loss)      7.2       12.9       (1.5 )         Other income      435.8       482.3       400.2           Operating expenses      (496.9 )     (472.0 )     (488.7 )         Income tax expense      16.4       3.6       32.2                                 Net income (loss)    $ 26.9     $ (0.9 )   $ (48.7 )                                Corporate and Other represents our business operations outside of our four reportable operating segments and includes our real estate brokerage and relocation business and our Mexican distressed asset business, none of which is significant to our consolidated results of operations. Corporate and Other also includes certain holding company activities and other adjustments to conform the reportable segment information to our consolidated results.        Other income and operating expenses include the revenues and expenses of our real estate brokerage and relocation business. A significant portion of other income is comprised of the gross commissions we earn on our real estate brokerage business and a significant portion of other expenses is comprised of the commissions due to the individual real estate brokers involved in the transactions. Our net income from these activities is not significant.        Certain borrowings are not allocated to the business segments for management reporting purposes. The net interest expense results from these amounts being retained in Corporate and Other. The net servicing fees relate to insignificant differences between management reporting at the segment level and our consolidated results. Other income includes miscellaneous investments held at the holding company level. Income tax expenses are generally allocated to the individual reportable operating segments. The amount of income tax expense in Corporate and Other results from an allocation to the income and expense items reported in Corporate and Other.        Gain (loss) on sale of loans primarily relates to our Mexican distressed mortgage loan business, which was sold in 2005 and generated a pretax gain of $63.0 million.   Asset Quality           Allowance for Loan Losses         Our loss estimation models for mortgage loans held for investment use historical information to estimate the amount of loss inherent in loans that are delinquent, as well as an estimate of loss for borrowers who may be contractually current but for which an incurred loss is probable. We determine these estimates by product type, credit score and delinquency stratum (current, 30, 60, 90, 120 and over 180 days past due, bankruptcy and foreclosure in process). Our loss estimates are based on expected roll rate and severity assumptions applied at a loan level to each delinquency stratum on a monthly basis. We refer to “roll rate” as the percentage of the portfolio within a particular stratum for which we estimate a loss event has occurred and will ultimately result in a loss after all loss mitigation efforts have been completed. We also estimate the “severity” of the loss as the percentage of the unpaid principal balance of the loan that we anticipate will not be collected.  67    Table of Contents       Our roll rate and severity estimates are based on the historical loss experience for our various product types. We update our estimates on a regular basis to reflect our recent experience and the macroeconomic environment. In making severity assumptions, we consider our loss mitigation strategies including when to foreclose on a property and the expected proceeds from the sale of the property. Nonaccrual loans are included in this analysis as they are generally loans contractually past due for 60 days or more. Our assumptions included in determining the allowance for loan losses involve a high degree of judgment and, accordingly, the actual level of loan losses may vary depending on actual experience in relation to these assumptions.        Our historical performance provides us with information to assist us in understanding our estimated timing of losses over the life of static origination pools for each of our various product types. We refer to “credit seasoning” as the loss pattern that occurs within a pool of mortgage loans tracked by month of origination (static origination pool) as they age. Historic data on these pools indicate that loss events generally increase during the first two-to-three years after origination, and thereafter stabilize at a more consistent level. Credit seasoning between pools will differ depending on a variety of factors, especially the type of mortgage product included in the pool.        Our lending receivables portfolio is comprised of individually larger, non-homogenous loans and, accordingly, our allowance for loan loss estimation process for these lending receivables is based upon a process that includes a specific allowance allocation for individual impairment and a general allowance allocation for loans not included in the specific allowance allocation. For loans for which it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, impairment is measured and recognized through a provision for loan loss based upon the present value of the expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent or foreclosure is probable. The general allowance allocation is an estimate of the inherent losses in the lending receivables portfolio excluding loans for which a specific reserve has been established. Our general allowance allocations are based upon the risk rating or assessment of the borrower, the available collateral and the structure of the financing. The expected loss percentages assigned are based upon our historical experience and our estimates include an assessment of current conditions that may not be reflected in the model estimates.        The following table summarizes the activity related to the allowance for loan losses:                                     Mortgage Loans               Held for   Lending           Investment   Receivables   Total                       (In millions)         Balance at January 1, 2003    $ 256.1     $ 79.7     $ 335.8           Provision for loan losses      411.9       41.6       453.5           Charge-offs      (179.1 )     (12.1 )     (191.2 )         Recoveries      2.1       17.8       19.9                                 Balance at December 31, 2003      491.0       127.0       618.0           Provision for loan losses      811.7       31.2       842.9           Charge-offs      (440.4 )     (20.2 )     (460.6 )         Recoveries      10.6       3.8       14.4                                 Balance at December 31, 2004      872.9       141.8       1,014.7           Provision for loan losses      599.8       52.0       651.8           Charge-offs      (443.8 )     (6.8 )     (450.6 )         Recoveries      37.0       0.4       37.4                                 Balance at December 31, 2005    $ 1,065.9     $ 187.4     $ 1,253.3                                 Allowance as a percentage of total:                                  December 31, 2003      1.06 %     1.52 %     1.13 %         December 31, 2004      1.51 %     1.49 %     1.51 %         December 31, 2005      1.55 %     1.38 %     1.52 %    68    Table of Contents       The following table summarizes the net charge-off information:                                       Year Ended December 31,               2005   2004   2003                       (In millions)         Mortgage loans:                                    Prime conforming    $ (0.1 )   $ —     $ —             Prime non-conforming      (29.5 )     (44.7 )     (13.6 )           Prime second-lien      (7.2 )     (8.5 )     (6.7 )           Government      —       (0.2 )     —             Nonprime      (370.0 )     (376.4 )     (156.7 )         Lending receivables:                                    Warehouse      (0.5 )     3.0       16.4             Construction      (1.9 )     (18.9 )     (3.2 )           Healthcare      —       —       (3.8 )           Other      (4.0 )     (0.5 )     (3.7 )                               Total Net Charge-Offs    $ (413.2 )   $ (446.2 )   $ (171.3 )                                   Nonperforming Assets         Nonperforming assets include nonaccrual loans, foreclosed assets and restructured loans. Mortgage loans and lending receivables are generally placed on nonaccrual status when they are 60 and 90 days, respectively, past due or when the timely collection of the principal of the loan, in whole or in part, is doubtful.        Nonperforming assets consisted of the following:                                 As of December 31,               2005   2004                   (In millions)         Nonaccrual loans:                            Mortgage loans:                              Prime conforming    $ 9.8     $ 16.9               Prime non-conforming      361.7       197.8               Government      0.1       26.3               Prime second-lien      84.8       46.1               Nonprime*      5,730.7       4,327.1             Lending receivables:                              Warehouse      41.8       4.6               Construction**      8.6       —               Healthcare      17.0       1.9                           Total nonaccrual loans      6,254.5       4,620.7           Restructured loans      22.8       —           Foreclosed assets      506.5       455.8                           Total nonperforming assets    $ 6,783.8     $ 5,076.5                           Total nonperforming assets as a percentage of total assets      5.7 %     5.4 %                               *        Includes $374.1 million (as of December 31, 2005) and     $908.7 million (as of December 31, 2004) of loans that     were purchased distressed and already in nonaccrual status.       **       The $8.6 million loan on nonaccrual status as of     December 31, 2005 was also a restructured loan.   69    Table of Contents       Our classification of a loan as nonperforming does not necessarily indicate that the principal amount of the loan is ultimately uncollectible in whole or in part. In certain cases, borrowers make payments to bring their loans contractually current and, in all cases, our mortgage loans are collateralized by residential real estate. As a result, our experience has been that any amount of ultimate loss is substantially less than the unpaid principal balance of a nonperforming loan. See the discussion under the heading “— Allowance for Loan Losses” for more information regarding estimating incurred losses on loans, including nonaccrual loans.        The following table summarizes the delinquency information for our mortgage loans held for investment portfolio:                                               As of December 31,               2005   2004                       Percent of       Percent of       Amount   Total   Amount   Total                           (Dollars in millions)         Current    $ 56,576       83.3%     $ 48,815       86.3%           Past due:                                            30 to 59 days      4,773       7.0%       3,348       5.9%             60 to 89 days      1,528       2.2%       1,133       2.0%             90 days or more      2,258       3.3%       1,043       1.8%           Foreclosures pending      1,356       2.0%       1,280       2.3%           Bankruptcies      1,520       2.2%       984       1.7%                                       Total unpaid principal balance      68,011       100.0%       56,603       100.0%                                       Net premiums      948               1,105                                               Total    $ 68,959             $ 57,708                                                The allowance for loan losses as a percentage of mortgage loans held for investment and lending receivables was 1.52% as of December 31, 2005, comparable to the 1.51% as of December 31, 2004. The allowance for loan losses related to mortgages held for investment as a percentage of those loans was 1.55% as of December 31, 2005, a four basis point increase compared to 1.51% as of December 31, 2004. The increase in the allowance as a percentage of mortgage loans held for investment is due to the increase in delinquent loans, including nonaccrual loans, as of December 31, 2005 when compared to the prior year. Mortgage loans held for investment which are thirty days or more delinquent, including nonaccrual loans, as of December 31, 2005 was $11.4 billion, or 16.8% of the related unpaid principal balance, compared to $7.8 billion, or 13.8% of the related unpaid principal balance as of the end of 2004. This increase in the delinquent and nonaccrual mortgage loans held for investment will drive higher estimates of incurred losses from our loss estimation models and results from the continued seasoning of our portfolio. This negative impact was partially offset in 2005 by favorable severity assumptions in our loss estimation models when compared to 2004, resulting from home price appreciation exceeding our previous estimates in certain markets. We do not expect home price appreciation to continue at the recent levels we have experienced in these markets and include in our loss estimation assumptions the slowing of home price appreciation to more normalized levels.        The allowance for loan loss related to total lending receivables as a percentage of lending receivables was 1.38% as of December 31, 2005, compared to 1.49% as of December 31, 2004. This decline was primarily due to a change in the mix of lending receivables.        The provision for loan losses was $651.8 million for 2005, compared to $842.9 million for 2004, a decrease of $191.1 million. The provision for loan losses is lower for 2005 compared to the prior year due to the lower severity assumptions in 2005 resulting from home price appreciation. This positive impact was partially offset by a provision for loan loss recorded in 2005 relating to Hurricane Katrina of $46.6 million. As of December 31, 2005, the unpaid principal balance of loans held for investment impacted by Hurricane Katrina over 90 days past due was $234.8 million. Whereas the increase in delinquencies,  70    Table of Contents  including nonaccrual loans, has a negative impact on the provision for loan losses, the rate of increase in the delinquent portfolio, including nonaccrual loans, was slower in 2005 than in 2004 and will have favorable impact on the provision for loan losses when comparing to the previous year. Total nonaccrual loans were $6.3 billion, $4.6 billion and $2.1 billion as of December 31, 2005, 2004 and 2003, respectively, or a rate of increase of approximately 37% from 2004 to 2005, compared to 119% from 2003 to 2004. This slower growth in delinquent mortgage loans, including nonaccrual loans, reflects the slower rate of seasoning of the portfolio and contributes to the lower provision for loan losses recorded in 2005. We did originate and retain a significant number of mortgage loans held for investment in the fourth quarter of 2005. Our mortgage loan held for investment portfolio was $67.9 billion as of December 31, 2005 compared to $58.3 billion and $56.8 billion as of September 30, 2005 and December 31, 2004, respectively. To the extent we continue to originate significant levels of nonprime mortgage loans held for investment related to on-balance sheet securitizations, the current trends in asset quality measures may continue.        Net charge-offs declined $33.0 million to $413.2 million in 2005, compared to $446.2 million in 2004. Despite the increase in nonaccrual loans, net charge-offs declined primarily due to the impact of residential home price appreciation.        We originate and purchase mortgage loans that have contractual features that may increase our exposure to credit risk and thereby result in a concentration of credit risk. These loan products include interest-only mortgage loans, option adjustable rate mortgage loans, high loan-to-value mortgage loans and teaser rate mortgage loans. For a description of these particular loan products, see Note 7 to the audited consolidated financial statements. Our exposure related to these products recorded in mortgage loans held for sale and mortgage loans held for investment (unpaid principal balance) was as follows:                               Unpaid Principal       as of December 31,               2005   2004                   (In millions)     Mortgage Loans Held for Sale — Domestic                            Interest-only mortgage loans    $ 3,316.3     $ 2,330.0             Option adjustable rate mortgage loans      1,097.6       11.7             High loan-to-value (100% or more) mortgage loans      391.7       452.4             Below market initial rate (“teaser”) mortgage loans      16.6       5.4           Mortgage Loans Held for Investment — Domestic                            Interest-only mortgage loans      11,118.9       2,442.5             Option adjustable rate mortgage loans      16.3       —             High loan-to-value (100% or more) mortgage loans      12,904.7       14,595.4             Below market initial rate (“teaser”) mortgage loans      394.8       698.6           Mortgage Loans — Held for Sale and Investment —     International                            Interest-only mortgage loans      4,925.9       3,602.8             Option adjustable rate mortgage loans      —       —             High loan-to-value (100% or more) mortgage loans      67.9       28.1             Below market initial rate (“teaser”) mortgage loans      —       —      71   Table of Contents       Our total production related to these products was as follows:                             Loan Production       for the Year       Ended December 31,               2005   2004                   (In millions)         Interest-only mortgage loans    $ 43,298.1     $ 15,781.6           Option adjustable rate mortgage loans      5,076.7       5.9           High loan-to-value (100% or more) mortgage loans      6,610.1       9,472.6           Below market initial rate (“teaser”) mortgage loans      536.6       638.1            Our underwriting guidelines for these products take into consideration the borrower’s capacity to repay the loan and credit history. We believe our underwriting procedures adequately consider the unique risks which may come from these products. We conduct a variety of quality control procedures and periodic audits to ensure compliance with our underwriting standards.   Liquidity and Capital Resources           Liquidity and Capital Management         We have significant financing needs related to the operation of our business. We manage our liquidity and funding operations in an effort to ensure that we have access to diverse funding sources that meet our short-and long-term financing needs in a variety of market conditions and balance sheet levels. Our liquidity and capital management practices involve actively monitoring the risk associated with our funding needs and capital structure. We regularly assess the term structure of our assets and liabilities, our interest rate risk and the reliability and concentrations of our funding sources. In order to enhance our financial flexibility, we maintain a mix of secured and unsecured debt and actively manage the maturity of our funding. Most of our assets are pledged as collateral to secure certain debt obligations.        The funding sources we use are primarily determined by the type and volume of the assets that we are seeking to finance. We generally require short-term funding to finance mortgage loans pending permanent sale or securitization and to finance our lending receivables. We require longer-term funding to finance mortgage loans held for investment and other assets related to our securitization activities. We have developed significant sources of funding, including asset securitization programs, asset-backed financing vehicles, whole loan and securities repurchase agreements and other secured lending facilities, issuances of publicly-traded senior unsecured notes, unsecured lines of credit and borrowings and bank deposits. We generally obtain liquidity and long-term funding for our mortgage loans in the secondary market, where we are an active participant in selling whole loans and securitizing loans. We sell most of our prime conforming mortgage loans to Fannie Mae and Freddie Mac, including pursuant to Fannie Mae’s “as soon as pooled,” or ASAP, program. The ASAP and other similar programs of the government-sponsored enterprises provide us with a significant source of additional liquidity. We primarily sell the remainder of our mortgage loans through whole-loan sales or our own securitizations.        ResCap was formed to obtain more cost effective additional liquidity to fund the growth of our businesses, provide independent access to unsecured debt markets, further diversify our sources of liquidity and ultimately replace all borrowings from affiliates. Our future funding and liquidity strategy includes continuing to issue additional unsecured long-term debt as our needs dictate and market conditions allow. We may use the proceeds of additional debt to repay GMAC to the extent permitted under our operating agreement and consistent with our long-term funding strategy. We plan to further diversify our funding sources by, among other things, further expanding our use of GMAC Bank, depending on our liquidity profile and market conditions. We may also securitize types of assets that we have not historically securitized.  72    Table of Contents       Prior to the second quarter of 2005, we funded our operations primarily through sales and securitizations of mortgage loans and borrowings under secured and unsecured lines of credit. The lender under a majority of the unsecured lines of credit was GMAC under a $20 billion domestic revolving credit facility shared with other GMAC subsidiaries. Since April 1, 2005:            •       We restructured our domestic credit facility with GMAC. GMAC     contributed $2.0 billion of equity to ResCap by forgiving a     portion of the existing borrowings. The remaining domestic     intercompany borrowings were converted from a single revolving     facility to a $5.0 billion     10-year subordinated     note, a $1.5 billion     1-year term loan and a     $2.5 billion     2-year revolving line     of credit. In the second quarter of 2005, the subordinated note     and the term loan were funded.         •       We issued $4.0 billion of unsecured debt in June 2005. The     proceeds from the notes were used to repay a portion of our     domestic GMAC credit facility as well as for general corporate     purposes.         •       We obtained $3.5 billion in syndicated bank credit     facilities. These credit facilities are comprised of a     $1.75 billion term loan due in 2008, an $875 million     revolving credit facility due in 2006 and an $875 million     revolving credit facility due in 2008. At the closing of the     credit facilities in July 2005, we borrowed the entire     $1.75 billion under the term loan and repaid all amounts     then outstanding under the $1.5 billion term loan from GMAC     referred to above in the first bullet point plus accrued     interest.         •       We filed a $12.0 billion shelf registration statement so     that we may offer from time to time senior and/or subordinated     debt securities. We issued $1.25 billion of unsecured debt     from this shelf registration statement in November 2005, and     used the proceeds to repay $620 million under the     subordinated note held by GMAC and the remainder for general     corporate purposes. We issued $1.75 billion of unsecured     debt from this shelf registration in February 2006, and intend     to use the proceeds for general corporate purposes, which may     include the repayment of a portion of the subordinated debt.         •       We terminated our $2.5 billion 2-year revolving line of     credit with GMAC in December 2005.         •       We made a $250 million payment on the subordinated note     held by GMAC in December 2005. The balance of this note was     $4.1 billion as of December 31, 2005. In February     2006, we made a $500 million payment on the subordinated note to     reduce the balance to $3.6 billion.         We also entered into an operating agreement with GMAC as part of the recapitalization. The operating agreement contains restrictions on, among other things, ResCap’s ability to pay dividends or make other distributions to GMAC. These restrictions include a requirement that ResCap’s stockholder’s equity be at least $6.5 billion for dividends to be paid. If ResCap is permitted to pay dividends pursuant to the previous sentence, the cumulative amount of such dividends may not exceed 50% of ResCap’s cumulative net income, measured from July 1, 2005, at the time such dividend is paid. These restrictions will cease to be effective if ResCap’s stockholder’s equity has been at least $12 billion as of the end of each of two consecutive fiscal quarters or if GMAC ceases to be the majority stockholder of ResCap. Our businesses have not paid cash dividends to our parent since at least 1997, other than a $25 million dividend from GMAC-RFC Holding in 1999, which our parent contributed to GMAC Residential Holding. Future payment of dividends will be at the discretion of our board of directors, and will depend upon our results of operations, financial condition and financial covenants in various agreements (including those discussed above) and other factors deemed relevant by our board of directors.        As described in Notes 3 and 30 (unaudited) to the consolidated financial statements, we have restated our consolidated statements of cash flows for the specified periods, which resulted in certain reclassifications between operating and investing cash flows. These restatements have no effect on our financial condition or results of operations and we believe that the restatements will not adversely affect our outstanding indebtedness or our ability to access our liquidity facilities in any material respects. While it is possible that a lender could attempt to impose additional conditions or challenge our access to certain of our liquidity facilities citing these cash flow restatements, we believe any such challenge would be unsuccessful.  73   Table of Contents          Funding Sources         The following table sets forth our sources of funding as of December 31, 2005 and December 31, 2004:                               Outstanding as of       December 31,               2005   2004                   (In millions)         Collateralized borrowings in securitization trusts    $ 56,097.8     $ 50,708.5           Short-term secured borrowings      24,675.0       17,718.0           Short-term unsecured non-affiliate borrowings      1,277.1       4,292.5           Long-term secured borrowings      4,738.6       —           Long-term unsecured non-affiliate borrowings      7,181.8       186.1           FHLB advances — short term      1,506.0       853.0           FHLB advances — long term      2,922.0       654.0           Affiliate borrowings — short term      1,047.5       10,006.2           Affiliate subordinated borrowings — long term      4,130.0       —                             Total borrowings      103,575.8       84,418.3           Bank deposits      4,123.3       1,665.0                             Total borrowings and deposits      107,699.1       86,083.3           Off-balance sheet financings      78,290.7       61,091.4                             Total    $ 185,989.8     $ 147,174.7                               Collateralized Borrowings in Securitization Trusts         As part of our ongoing funding and risk management practices, we have established secondary market trading and securitization arrangements that provide long-term financing primarily for our mortgage loans. We have had consistent and reliable access to these markets through our securitization activities in the past and expect to continue to access the securitization markets.        Beginning in 2001, we initiated a strategy to address the cyclical nature inherent in the mortgage markets by structuring more of our securitizations as on-balance sheet financings, thereby growing the portfolio of loans we hold on our balance sheet and increasing the related collateralized borrowings in securitization trusts. The primary difference between on- and off-balance sheet securitizations is the accounting treatment applied to the transactions. See the discussion under the heading “— Understanding our Financial Statements — On- and Off-Balance Sheet Securitizations” for more information regarding the accounting treatment of on- and off-balance sheet securitizations. See the discussion under the heading “— Off-Balance Sheet Financings” for a description of our off-balance sheet securitizations.           Short-Term Secured Borrowings         In the United States and in the other countries in which we operate, we use both committed and uncommitted secured facilities to fund inventories of mortgage loans held for investment, mortgage loans held for sale, lending receivables, mortgage servicing cash flows and securities. We use these facilities to provide funding for residential mortgage loans prior to their subsequent sale or securitization. We refer to the time period between the acquisition or origination of loans and their subsequent sale or securitization as the aggregation period. These aggregation facilities are primarily funded through the issuance of asset-backed commercial paper or similar short-term securities, issued by vehicles administered by third parties. Other short-term secured borrowings include transactions under repurchase agreements or similar arrangements or secured bank loans. The cost of funding related to these vehicles is priced off a short-term benchmark, such as highly-rated commercial paper, one month LIBOR or a similar index, plus a stated percentage over such cost and/or other costs of issuance. Committed liquidity sources are generally  74    Table of Contents  renewed annually and at our discretion and the discretion of the third-party. Our short-term secured borrowings, including our aggregation facilities, are repaid as the underlying assets are sold, securitized or mature. The following table shows the amount of borrowings outstanding as of December 31, 2005 and December 31, 2004 under our short-term secured borrowing arrangements:                               Outstanding as of       December 31,               2005   2004                   (In millions)         Mortgage Interest Networking Trust    $ 6,741.3     $ 5,811.1           Mortgage Asset Lending Agreement      1,873.6       1,940.0           Other secured aggregation facilities      4,532.5       2,116.8           Repurchase agreements      9,896.7       6,598.5           Other      1,630.9       1,251.6                             Total excluding FHLB advances      24,675.0       17,718.0           FHLB advances      1,506.0       853.0                             Total short-term secured borrowings    $ 26,181.0     $ 18,571.0                                •       Mortgage Interest Networking Trust, or MINT, is a secured     aggregation vehicle administered by GMAC Mortgage Group, Inc.     that provides us with financing for mortgage loans during the     aggregation period and for warehouse lending receivables. MINT     obtains financing through the issuance of asset-backed     commercial paper and similar discounted notes (MITTENs), both of     which are secured by the mortgage loans and warehouse lending     receivables. As of December 31, 2005, MINT had     364-day bank liquidity     commitments of $3.0 billion backing the commercial paper     issued.         •       The Mortgage Asset Lending Agreement, or MALA, is a secured     aggregation facility that funds residential mortgage loans,     during the aggregation period. The facility receives funding     from a syndicate of asset-backed commercial paper vehicles. MALA     shares a funding commitment with Receivables Lending Agreement,     or RLA, an asset-backed commercial paper facility that funds our     warehouse lending receivables. In November 2005, the existing     RLA facility was terminated and a new facility under the same     name created. The previous facility was accounted for as an     off-balance sheet facility. The MALA and RLA facilities have     both short-term and     long-term commitments.     The two facilities had aggregate liquidity commitments of     $9.8 billion as of December 31, 2005, which were     divided into a one-year commitment of $3.7 billion and a     three-year commitment of $6.1 billion.         •       Other secured aggregation facilities include certain facilities     to fund mortgage loans prior to their sale or securitization. As     of December 31, 2005, in addition to MINT, MALA and RLA, we     had $2.0 billion of liquidity commitments to fund     second-lien mortgage loans, £3.0 billion of liquidity     commitments to fund loans in the United Kingdom and     €     1.2 billion of liquidity commitments to fund loans     originated in The Netherlands and Germany.         •       We have developed numerous relationships with banks and     securities firms to provide funding for mortgage loans and other     securities through repurchase agreements and other similar     arrangements on a domestic and international basis. Borrowings     under these agreements are provided on either a committed or an     uncommitted basis.         •       Other short-term secured borrowings include facilities that fund     construction lending receivables, for which we had aggregate     liquidity commitments of $1.3 billion as of     December 31, 2005. In addition, we have arranged facilities     to fund mortgage servicing rights and mortgage servicing     advances either on a committed or uncommitted basis. These     facilities provided aggregate liquidity commitments of     $1.8 billion as of December 31, 2005.   75    Table of Contents       The following table shows the amount of secured committed and unused liquidity facilities as of December 31, 2005 and December 31, 2004:                                                   Unused Secured       Secured Committed   Committed Liquidity       Liquidity Facilities as of   Facilities as of       December 31,   December 31,                   2005   2004   2005   2004                           (In millions)         Mortgage loans and warehouse lending(a)    $ 23,739.8     $ 19,772.1     $ 9,456.0     $ 12,392.1           Construction lending receivables      1,275.0       800.0       220.0       100.0           Other(b)      2,625.0       1,725.0       246.9       688.1                                         Total    $ 27,639.8     $ 22,297.1     $ 9,922.9     $ 13,180.2                                                   (a)       Facilities to fund mortgage loan and warehouse lending     receivables.            (b)       Facilities to fund servicing advances, servicing rights and     residual interests.            Short-Term Unsecured Borrowings         The following table shows the amounts outstanding as of December 31, 2005 and December 31, 2004 under our short-term unsecured borrowing arrangements:                               Outstanding as of       December 31,               2005   2004                   (In millions)         Affiliate borrowings    $ 1,047.5     $ 10,006.2           Lines of credit      447.4       1,131.4           Investor custodial funds      121.0       1,915.1           International borrowings      601.6       334.2           Other      107.1       911.8                             Total short-term unsecured borrowings    $ 2,324.6     $ 14,298.7                            As of December 31, 2005, we had access to approximately $0.5 billion of unsecured lines of credit from financial institutions. These lines are available on an uncommitted basis and borrowings under these lines mature in 30 to 90 days. We used borrowings under these lines for general working capital purposes. The outstanding balances under these lines included $125.8 million as of December 31, 2004, which we borrowed on behalf of an affiliate. In March 2005, all amounts borrowed on behalf of the affiliate were repaid and ongoing utilization of these lines by the affiliate was terminated.        We have an $875.0 million committed revolving credit facility available to us that expires in 2006. As of December 31, 2005, there were no amounts outstanding from this facility.        Investors in the securitizations, as part of certain servicing arrangements in place at GMAC Residential, where we act as servicer, historically permitted us to use custodial funds for use in our daily operations. These funds are remitted from borrowers as payments of principal and interest on their mortgage loans prior to the subsequent distribution of these funds to the investors. These funds are remitted to the investors on a fixed date each month in the normal course of servicing. As of May 18, 2005, one of these investors, a government-sponsored enterprise, no longer permits this use, although we are permitted to earn interest on the amounts in the custodial accounts.        In December 2005, our Canadian operations established a syndicated bank revolving line of credit with a capacity of C$410 million and had approximately C$400 million outstanding as of December 31, 2005. In Mexico, we completed a commercial paper and medium-term note facility in 2005. As of December 31, 2005, there were 919 million pesos of medium-term notes outstanding. There was not any commercial paper outstanding.  76    Table of Contents       Our Mexican operations have also issued commercial paper and medium-term notes in Mexico under programs established by GMAC. Our obligations under these programs are guaranteed by GMAC. In addition, our operations in Mexico participate in bank loan facilities with GMAC that are guaranteed by GMAC. These unsecured facilities are offered on an uncommitted basis and had a total capacity of 2.2 billion pesos as of December 31, 2005.           Long-Term Unsecured Borrowings         Our long-term unsecured financings are generated to fund long-term assets (primarily mortgage servicing rights and other retained interests), over collateralization required to support our conduits, the liquidity portfolio and the continued growth of our mortgage loan investment portfolio. We meet these financing needs from a variety of sources, including public corporate debt and bank credit facilities.        The public corporate debt markets are a key source of financing for us. We access these markets by issuing senior unsecured notes, but are pursuing other structures that will provide efficient sources of term liquidity.        The following table shows the amount of borrowings outstanding as of December 31, 2005 and December 31, 2004 under our long-term unsecured borrowings arrangements:                               Outstanding as of       December 31,               2005   2004                   (In millions)         Senior unsecured notes    $ 5,150.5     $ —           Term loan      1,750.0       —           International medium-term notes      281.3       —                             Total    $ 7,181.8     $ —                            In the fourth quarter of 2005, we filed a $12 billion shelf registration. As of December 31, 2005, there was $10.8 billion available under the shelf. In February 2006, we issued an additional $1.8 billion of senior unsecured notes under the shelf.        We have an $875.0 million committed revolving credit facility available to us that expires in 2008. As of December 31, 2005, there were no amounts outstanding from this facility.           Bank Deposits and FHLB Advances         GMAC Bank provides us another source of liquidity through its ability to accept deposits. As of December 31, 2005, GMAC Bank had approximately $4.1 billion of deposits, $1.4 billion of which were escrows related to our servicing of mortgage loans. In addition, GMAC Bank has entered into an advances agreement with the Federal Home Loan Bank of Pittsburgh, or FHLB. As of December 31, 2005, we had total borrowing capacity of $7.1 billion under this agreement. Under the arrangement with the FHLB, we are able to fund mortgage loans, investments securities and certain lending receivables.           Affiliate Borrowings         Affiliates have provided funding to ResCap through domestic and international intercompany credit lines. We had access to a $20 billion domestic line provided by GMAC to us and certain other GMAC subsidiaries prior to June 24, 2005. Our borrowings under this line averaged approximately $10.3 billion from January 1, 2003 until June 24, 2005. On May 4, 2005, GMAC contributed $2 billion to our capital by forgiving $2 billion of these borrowings. We also had access to international lines of credit from various affiliates of approximately $2.6 billion in the aggregate as of December 31, 2005. In connection with our offering of notes on June 24, 2005, GMAC restructured the domestic facility as described under the heading “— Liquidity and Capital Management.” The balance of the subordinate domestic note with GMAC was $4.1 billion as of December 31, 2005. The international lines of credit remained in place after June 24, 2005 and were $1.0 billion as of December 31, 2005.  77    Table of Contents          Off-Balance Sheet Financings         Our total off-balance sheet financings were $78.3 billion as of December 31, 2005 and $61.1 billion as of December 31, 2004. A significant portion of our off-balance sheet financing relates to securitizations issued in off-balance sheet trusts. The off-balance sheet securitization trusts had aggregate outstanding balances of $77.6 billion as of December 31, 2005 and $57.4 billion as of December 31, 2004.        We also have off-balance sheet structured facilities that fund mortgage loans during the aggregation period as well as warehouse lending receivables. These facilities provide funding for these assets through the issuance of commercial paper from multi- and single-seller asset-backed commercial paper conduits. Our most significant sources of short-term off-balance sheet borrowings are as follows:            •       Walnut Grove Funding is a secured aggregation facility that     funds home equity loans, home equity lines of credit, high     loan-to-value mortgage     loans and certain non-conforming fixed rate mortgage loans     through the issuance of asset-backed commercial paper. Walnut     Grove Funding provided $582.6 million of funding as of     December 31, 2005 and $235.6 million as of     December 31, 2004, and was permitted to finance a maximum     of $600 million as of December 31, 2005 and     December 31, 2004.         •       Horsham Funding is a facility that funds defaulted government     insured or guaranteed residential mortgage loans repurchased     through the issuance of asset-backed commercial paper. Horsham     Funding provided $134.6 million of funding as of     December 31, 2005 and $184.5 million as of     December 31, 2004, and was permitted to finance a maximum     amount of $250 million as of December 31, 2005 and     $500 million as of December 31, 2004.            Credit Ratings         The following table summarizes ResCap’s current credit ratings from the major credit rating agencies:                                     Commercial   Senior       Rating Agency   Paper   Debt   Outlook                         Fitch      F3       BBB-       Evolving           Moody’s      P3       Baa3       Possible Downgrade           S&P      A-3       BBB-       Developing           DBRS      R- 2(middle )     BBB       Developing            The credit ratings of GM and GMAC have been adversely affected in recent years because of concerns as to the financial outlook of GM, including its overall market position in the automotive industry and its burdensome health care obligations, and each of Fitch, Moody’s and S&P currently rate GM’s and GMAC’s unsecured debt as non-investment grade. Any action with respect to the credit ratings of GM or GMAC could impact our ratings because of our position as a wholly owned subsidiary of GMAC. On March 16, 2006, Moody’s placed our senior unsecured ratings under review for a possible downgrade following GM’s announcement that it will delay filing its annual report on Form 10-K with the SEC.        Ratings reflect the rating agencies’ opinions of our financial strength, operating performance, strategic position and ability to meet our obligations. Agency ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization. Each agency’s rating should be evaluated independently of any other agency’s rating.           Purchase Obligations and Options         In connection with our asset sales, securitizations and other asset funding facilities, we typically deliver standard representations and warranties to the purchaser or facility. These representations and warranties are primarily factual statements about the characteristics of the underlying transferred assets and are customary in securitizations and other transfers of assets. These provisions are intended to ensure that underlying assets conform in all material respect to the expectations of the parties to the transaction.  78    Table of Contents  Prior to any sale or securitization transaction, we perform due diligence with respect to the assets to be included in the sale to ensure that they conform to the representations and warranties.        Our representations and warranties in off-balance sheet arrangements primarily relate to the required characteristics of the mortgage loans as of the initial sale date. Typical representations and warranties include that the loans contain customary and enforceable provisions, are secured by enforceable liens and have original terms not less than or greater than a stated number of months. Representations and warranties are also given with respect to the documentation that will be included in the loan file for each transferred asset. For example, a representation and warranty may be given that the loan file will contain the mortgage note, the mortgage, and all relevant assignments. It is common industry practice to provide representations and warranties with regard to asset documentation even though the seller might not have physically received all of the original loan documentation from a closing agent, recording office or third-party register. In such cases, we include a representation that documents will be delivered within a specified number of days after the initial sale of the loans.        Upon discovery of a breach of a representation, we either correct the loans in a manner conforming to the provisions of the sale agreement, replace the loans with similar loans that conform to the provisions, or purchase the loans at a price determined by the related transaction documents, consistent with industry practice.        We purchased $29 million in mortgage loans under these provisions in 2005 and $66 million of mortgage loans in 2004. The majority of purchases due to breaches of representations and warranties occurring in 2005 and 2004 resulted from the inability to deliver underlying mortgage documents within a specified number of days after the initial sale date. In most cases, we ultimately received the trailing mortgage documents and subsequently sold or securitized the assets. The remaining purchases occurred due to a variety of non-conformities (typically related to clerical errors discovered after sale in the post-closing review). Our reserves for losses in connection with these activities are recorded in other liabilities.        In addition to our representations and warranties, we have the option to purchase certain assets in our off-balance sheet facilities, including:            •   Asset Performance Conditional Calls — In     certain of our securitizations, we retain the option (but not an     obligation) to purchase specific mortgage loans that become     delinquent beyond a specified period of time, as set forth in     the transaction legal documents (typically 90 days).     Mortgage loans are purchased after the option becomes     exercisable when it is in our economic interest to do so. We     purchased an aggregate of $99 million of mortgage loans in     2005 and $137 million in 2004 under these provisions.         •   Cleanup Calls — In each of our securitizations,     we retain a cleanup call option that allows the servicer to     purchase the remaining transferred assets once such assets reach     a minimal level and the cost of servicing those assets becomes     burdensome in relation to the benefits of servicing (defined as     a specified percentage of the original principal balance). We     choose to exercise cleanup calls when it is in our economic     interest to do so. We purchased $2.2 billion of assets     under these cleanup call provisions in 2005 and     $3.8 billion of such assets in 2004.         When we purchase mortgage loans, either as a result of an obligation to do so or upon the exercise of our options, we execute the purchase in accordance with the legal terms in the facility or specific transaction documents. In most cases, the provisions for the purchase of the asset require the purchase price to be equal to the unpaid principal balance of the asset, plus any accrued interest thereon. Once the conditions are satisfied for an obligatory or optional purchase (or in the case of cleanup calls, when notice of intent to exercise is provided), we report the asset on our balance sheet as held for sale or held for investment, with a corresponding liability, until the loan is paid in full, charged-off or sold in a later transaction.        Upon the obligatory or optional purchase of an asset from an off-balance sheet facility, we generally do not recognize any net gain or loss since the mortgage loan is purchased at the unpaid principal balance, plus any accrued interest thereon, as required by the transaction documents. To the extent that the fair  79    Table of Contents  value differs from the unpaid principal balance, any resulting gain or loss would be substantially offset by a gain or loss recognized through the revaluation of any retained interest that we hold related to the purchased asset. As a result, the purchase of the asset does not by itself result in any material net gain or loss.           Guarantees         Guarantees are defined as contracts or indemnification agreements that contingently require us to make payments to third parties based on changes in an underlying agreement that is related to a guaranteed party. Our guarantees include standby letters of credit and certain contract provisions regarding securitizations and sales. See Note 23 to the audited consolidated financial statements for more information regarding our outstanding guarantees to third parties.   Aggregate Contractual Obligations                                                       Payments Due by Period                   Less than       More than   As of December 31, 2005   Total   1 Year   1-3 Years   3-5 Years   5 Years                               (In millions)         Description of obligation:                                                  Debt                                                    Unsecured    $ 11,309.1     $ 56.4     $ 4,223.0     $ 2,422.9     $ 4,606.8             Secured      63,788.4       352.7       5,406.6       1,145.0       56,884.1           Lease commitments      312.1       86.1       126.9       49.7       49.4           Mortgage purchase and sale commitments      21,004.3       20,934.3       —       —       70.0           Lending commitments      15,503.5       8,975.4       1,398.5       638.1       4,491.5           Commitment to remit cash flows on certain loan portfolios      4,304.8       —       —       —       4,304.8           Commitments to provide capital to equity method investees      213.2       4.0       —       106.9       102.3           Purchase obligations*      372.8       135.9       209.5       19.6       7.8           Commitments to fund development of lots and/or model homes      308.8       50.2       234.4       24.2       —           Bank certificates of deposit      1,603.6       1,328.2       270.6       2.8       2.0                                             Total    $ 118,720.6     $ 31,923.2     $ 11,869.5     $ 4,409.2     $ 70,518.7                                                   *       Includes purchase obligations covered by non-cancellable     contracts and contracts containing cancellation fees.    Recently Issued Accounting Standards        Statement of Position 03-3 — In December 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3), that addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 does not apply to loans originated by us. SOP 03-3 limits the accretable yield to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows (expected at acquisition to be collected) over the investor’s initial investment in the loan and it prohibits “carrying over” or creating a valuation allowance for the excess of contractual cash flows over cash flows expected to be collected in the initial accounting of a loan acquired in a transfer. SOP 03-3 and the required disclosures were effective for  80    Table of Contents  loans acquired in fiscal years beginning after December 15, 2004. Adoption of SOP 03-3 did not have a material impact on our financial condition or results of operations.        Statement of Financial Accounting Standards No. 154 — In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 154, Accounting Changes and Error Corrections (SFAS 154), that addresses accounting for changes in accounting principle, changes in accounting estimates, changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions and error correction. SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle and error correction unless impracticable to do so. SFAS 154 states an exception to retrospective application when a change in accounting principle, or the method of applying it, may be inseparable from the effect of a change in accounting estimate. When a change in principle is inseparable from a change in estimate, such as depreciation, amortization or depletion, the change to the financial statements is to be presented in a prospective manner. SFAS 154 and the required disclosures are effective for accounting changes and error corrections in fiscal years beginning after December 15, 2005.        Financial Accounting Standards Board Staff Position Nos. 115-1 and 124-1 — In November, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Nos. 115-1 and 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which nullified certain requirements of The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-1). FSP Nos. 115-1 and 124-1 address the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. The FSP also requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. Adoption of FSP Nos. 115-1 and 124-1 did not have a material impact on our financial condition or results of operations.        Statement of Financial Accounting Standards No. 155 — In February 2006, the FASB issued Statement of Financial Accounting Standards 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155), which provides the following: (1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, (3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (4) clarifies the concentrations of credit in the form of subordination are not embedded derivatives, and (5) amends Statement 140 to eliminate the prohibition of a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006 with early adoption permitted. Adoption of SFAS 155 is not expected to have a material impact on our financial position or results of operations.        Statement of Financial Accounting Standards No. 156 — In March 2006, the FASB issued Statement of Financial Accounting Standards 156, Accounting for Servicing of Financial Assets (SFAS 156), which provides the following: (1) revised guidance on when a servicing asset and servicing liability should be recognized, (2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, (3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur, (4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value, and (5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. SFAS 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings. However, SFAS 156 permits early adoption. We plan to early adopt SFAS 156 as of  81    Table of Contents  January 1, 2006 and are currently in the process of quantifying the financial impact. We expect that the impact to retained earnings as a result of the initial adoption will be immaterial.             Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET     RISK.         Our activities give rise to market risk, representing the potential loss in the fair value of assets or liabilities caused by movements in market variables, such as interest and foreign exchange rates. We are primarily exposed to interest rate risk arising from changes in interest rates related to our financing, investing and cash management activities. More specifically, we have entered into contracts to provide financing, to retain mortgage servicing rights and to retain various assets related to securitization activities, all of which are exposed, in varying degrees, to changes in value due to movements in interest rates. Interest rate risk arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including derivatives, to maintain the desired level of exposure to the risk of interest rate fluctuations. See “Risk Factors — Risks Related to our Business — Our earnings may decrease because of increases or decreases in interest rates” and “Risk Factors — Risks Related to our Business — Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates” for more information regarding the risks related to changes in interest rates and our hedging strategies.        We actively manage market risk. We maintain risk management control systems to monitor interest rate risks and related hedge positions. We monitor positions using a variety of analytical techniques including market value, sensitivity analysis and value at risk models. While each operating segment is responsible for risk management, we supplement this decentralized model with a centralized risk committee, headed by our chief financial officer. This risk management function is responsible for ensuring that each operating segment has proper policies and procedures for managing risk and for identifying, measuring and monitoring risk across the enterprise.        The primary market risk we face is interest rate risk. Interest rate risk is the risk that the value of our assets and liabilities will change due to changes in interest rates. Interest rate risk also includes the risk that the net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. We manage interest rate risk through the natural counterbalance of our loan production and servicing asset. We also use various financial instruments, including derivatives, to manage the interest rate risk related specifically to the values of our interest rate lock commitments, mortgage loans held for sale and mortgage servicing rights. The overall objective of our interest rate risk management is to reduce the interest rate risk associated with these instruments.           Interest Rate Lock Commitments and Mortgage Loans Held for     Sale         We are exposed to interest rate risk from the time an interest rate lock commitment is made until the time the mortgage loan is sold. The primary objective of our hedging program related to interest rate lock commitments and mortgage loans held for sale is to eliminate or greatly reduce any interest rate risk associated with these items. The primary financial instrument that we use to accomplish this objective is the forward sales of mortgage-backed securities at the time the interest rate lock commitment is made. The value of the forward sales contracts moves in the opposite direction of the value of our interest rate lock commitments and mortgage loans held for sale. We actively manage the interest rate risk related to our interest rate lock commitments and mortgage loans held for sale on a daily basis.           Mortgage Servicing Rights and Other Retained     Interests         Our mortgage servicing rights and other retained interests are generally subject to loss in value when mortgage rates decline. Declining mortgage rates generally result in an increase in refinancing activity, which increases prepayments and results in a decline in the value of our mortgage servicing rights. To mitigate the impact of this risk, we maintain a portfolio of financial instruments, including derivatives, which increase in value when interest rates decline. Our primary objective is to minimize the overall risk of impairment loss in the value of mortgage servicing rights due to the change in fair value caused by  82    Table of Contents  prepayments and changes in rates. We have determined that economical strategies exist for hedging this risk. Our secondary objectives include minimizing the income statement effect of hedge ineffectiveness, management of hedge instrument selection to minimize hedge costs and protection of the overall economic value of the asset portfolio.        We actively manage the risk we are exposed to on a daily basis. The following are financial instruments that we use to hedge our interest rate risk related to mortgage servicing rights and other retained interests:                     U.S. Treasury Securities: notes and bonds with maturities     ranging from 10 to 30 years. As interest rates decline, the     value of these securities increase.                   Principal-Only Securities: the right to receive     principal-only cash flows from a mortgage-backed security.     Principal-only securities are sold at a deep discount from face     value. As interest rates decline, prepayments increase the value     of the principal-only securities. This increase in value results     in an offset to the decline in value of the mortgage servicing     rights. As interest rates rise, prepayments decline and the     value of the principal-only securities decline as well. The     decrease in value of the principal-only securities results in an     offset to the increase in value of the mortgage servicing rights.                   Long Interest Rate Futures Contracts: a futures contract     is a guarantee of a transaction at a date in the future for an     underlying Treasury debt security or Eurodollar contract. As     interest rates decline, the futures contract’s value     increases and when rates rise, the contract’s value     declines. The increase or decrease in value of futures contracts     result in an offset to the increase or decrease in the value of     the mortgage servicing rights.                   Long Call Options on U.S. Treasuries or Interest Rate     Swaps: the right to buy the underlying assets by a certain     date for a certain price. These instruments are purchased either     via an exchange or over the counter and have maturities of less     than one year. The option value increases as the underlying     benchmark Treasury’s or swap’s interest rate declines.                   Long Put Options on U.S. Treasuries or Interest Rate     Swaps: the right to sell the underlying assets by a certain     date for a certain price. These instruments are purchased either     via an exchange or over the counter and have maturities of less     than one year. The option value increases as the underlying     Treasury’s or swap’s interest rate rises.                   Long Mortgage-Backed Securities, U.S. Treasury and LIBOR     Futures: an exchange traded derivative financial instrument     to purchase a financial instrument at a certain future date for     a specified price. Margins on futures are settled daily.     Generally, the futures are rolled into subsequent issues (i.e.,     we do not take delivery of the underlying instrument). As     interest rates decline, the value of the futures contract and     the underlying instrument increase in value. This increase in     value offsets the declines in value of the mortgage servicing     rights.                   Interest Rate Floors: the right to receive cash if     interest rates decline beyond a specified rate. As rates     decline, the value of the floor increases. If rates decline     below the floor rate, the seller of the floor pays us the     difference between the market interest rate and the floor rate     multiplied by the notional amount of the floor contract.                   Interest Rate Caps: the right to receive cash if interest     rates rise above a specified rate. The caps are purchased to     adjust the profile of the overall hedge position and to limit     devaluation of the hedge portfolio as interest rates increase.     We use caps when pricing considerations indicate that these     instruments present a more economically viable alternative to     selling an interest rate floor or similar contract.                   Receiver Swaptions: options on interest rate swaps to     exchange variable cash flows for fixed. The fixed payments     increase in value as interest rates decline. This increases the     value of the swaption resulting in an offset to the decline in     value of the mortgage servicing rights.   83    Table of Contents                    Interest Rate Swaps: a mutual agreement to swap interest     rate payments with another party. The swaps provide gains when     interest rates decline and losses when interest rates increase.            Debt Securities         We determine the mix of fixed-rate and variable-rate debt as part of our overall interest rate risk management activities. We use interest rate swaps to achieve our desired mix of fixed- and floating-rate debt. Typically, terms of the interest rate swaps match the terms of the underlying debt, resulting in an effective conversion of the rate of the related debt.           Value at Risk         One of the measures we use to manage market risk is value at risk, or VaR, which gauges the dollar amount of potential loss in fair value from adverse interest rate and currency movements in an ordinary market. The VaR model uses a distribution of historical changes in market prices to assess the potential for future losses. In addition, VaR takes into account correlations between risks and the potential for movements in one portfolio to offset movements in another.        We measure VaR using a 95% confidence interval and an assumed one month holding period, meaning that we would expect to incur changes in fair value greater than those predicted by VaR in only one out of every 20 months. Currently, our VaR measurements do not include all of our market risk sensitive positions. The VaR estimates encompass the majority (approximately 95%) of our market risk sensitive positions that we believe are representative of all positions. The following table represents the maximum, average and minimum potential VaR losses measured for the years indicated.                               Year Ended       December 31,               2005   2004                   (In millions)         Value at Risk                            Maximum    $ 120.4     $ 215.1             Average      76.7       133.7             Minimum      44.4       58.5            While no single risk statistic can reflect all aspects of market risk, the VaR measurements provide an overview of our exposure to changes in market influences. Less than 5% of our assets are accounted for as held for trading (i.e., those in which changes in fair value directly affect earnings). As such, our VaR measurements are not indicative of the impact to current period earnings caused by potential market movements. The actual earnings impact would differ as the accounting for our financial instruments is a combination of historical cost, lower of cost or market and fair value (as further described in the accounting policies in Note 2 to the audited consolidated financial statements).           Sensitivity Analysis         While VaR reflects the risk of loss due to unlikely events in a normal market, sensitivity analysis captures our exposure to isolated hypothetical movements in specific market rates. The following analyses are based on sensitivity analysis performed assuming instantaneous, parallel shifts in interest rates. The net fair value of financial instruments includes both asset and liability financial instruments.                                             As of December 31,               2005   2004                   Non-Trading   Trading   Non-Trading   Trading                           (In millions)         Estimated net fair value of financial instruments exposed to     changes in interest rates    $ (2,961 )   $ 3,896     $ (1,627 )   $ 2,715           Impact of a 10% adverse change in rates      (546 )     (95 )     (714 )     (14 )    84    Table of Contents       There are certain shortcomings inherent to the sensitivity analysis data presented. The models assume that interest rate changes are instantaneous, parallel shifts. In reality, changes are rarely instantaneous or parallel and therefore the sensitivities disclosed above may be overstated.        The primary market risk we face is interest rate risk. Interest rate risk is the risk that the value of our assets and liabilities will change due to changes in interest rates. Interest rate risk also includes the risk that the net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. We manage interest rate risk through the natural counterbalance of our loan production and servicing asset. We also use various financial instruments, including derivatives, to manage the interest rate risk related specifically to the values of our interest rate lock commitments, mortgage loans held for sale and mortgage servicing rights. The overall objective of our interest rate risk management is to reduce the interest rate risk associated with these instruments.           Impact of Changes in Interest Rates on the Net Value of     the Company’s Interest Rate-Sensitive Financial     Instruments         We perform various sensitivity analyses that quantify the net financial impact of changes in interest rates on our interest rate-sensitive assets, liabilities and commitments. These analyses incorporate assumed changes in the interest rate environment, including selected hypothetical, instantaneous parallel shifts in the yield curve.        We employ various commonly used modeling techniques to value our financial instruments in connection with these sensitivity analyses. We use option-adjusted spread models to value mortgage loans, mortgage-backed securities, mortgage-backed securities forward contracts, collateralized mortgage obligations and mortgage servicing rights. The primary assumptions used in these models for purpose of these sensitivity analyses are the implied market volatility of interest rates and prepayment speeds. We use an option-pricing model to value options and interest rate floors. The primary assumption used in this model is implied market volatility of interest rates. We use zero volatility discounted cash-flow models to value other retained interests. The primary assumptions used in these models are prepayment rates, discount rates and credit losses. All relevant cash flows associated with the financial instruments are incorporated in the various models.  85   Table of Contents       Based upon this modeling, the following table summarizes the estimated change in fair value of our interest rate-sensitive assets, liabilities and commitments as of December 31, 2005, given several hypothetical, instantaneous, parallel-shifts in the yield curve:                                                   Change in Fair Value           Change in Interest Rate (basis points)   -100   -50   +50   +100                           (In millions)         Mortgage servicing rights and other financial instruments:                                            Mortgage servicing rights and other retained interests    $ (919 )   $ (381 )   $ 268     $ 451             Impact of servicing hedge:                                              Swap — based      568       253       (191 )     (328 )             Treasury-based      177       86       (82 )     (159 )             Others      438       223       (226 )     (459 )                                           Mortgage servicing rights and other retained interests, net      264       181       (231 )     (495 )                                       Committed pipeline      33       22       (43 )     (113 )           Mortgage loan inventory      340       201       (199 )     (441 )           Impact of associated derivative instruments:                                              Mortgage-based      (92 )     (57 )     93       227               Eurodollar-based      (35 )     (17 )     17       35               Others      (205 )     (108 )     117       240                                             Committed pipeline and mortgage loan inventory, net      41       41       (15 )     (52 )                                     Net change in fair value related to other businesses      4       2       (3 )     (7 )                                     GMAC Bank:                                            Securities portfolio      2       1       (1 )     (1 )           Mortgage loans      107       61       (72 )     (150 )           Deposit liabilities      (5 )     (3 )     3       5             Federal Home Loan Bank advances      (87 )     (44 )     45       91             Other liabilities      (24 )     (12 )     12       25                                           GMAC Bank, net      (7 )     3       (13 )     (30 )                                       Notes payable and capital securities      (159 )     (78 )     76       150             Impact of associated derivative instruments:                                              Swap-based      163       81       (79 )     (155 )             Notes payable and capital securities, net      4       3       (3 )     (5 )           Insurance company investment portfolios      3       1       (1 )     (3 )                                     Net change in fair value related to mortgage servicing rights     and other financial instruments    $ 309     $ 231     $ (266 )   $ (592 )                                     Net change in fair value related to broker-dealer     trading securities    $ 1     $ 1     $ —     $ (1 )                                86    Table of Contents       These sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate certain movements in interest rates; do not incorporate changes in interest rate volatility or changes in the relationship of one interest rate index to another; are subject to the accuracy of various assumptions used, including prepayment forecasts and discount rates; and do not incorporate other factors that would impact our overall financial performance in such scenarios, most significantly the impact of changes in loan production earnings that result from changes in interest rates. In addition, not all of the changes in fair value would impact current-period earnings. For example, mortgage servicing rights are carried by impairment stratum at the lower of amortized cost or market value. Consequently, absent hedge accounting, any increase in the value of a particular mortgage servicing rights stratum above its amortized cost basis would not be reflected in current-period earnings. In addition, our debt is carried at its unpaid principal balance net of issuance discount or premium; therefore, absent hedge accounting, changes in the market value of our debt are not recorded in current-period earnings. For these reasons, the preceding estimates should not be viewed as an earnings forecast.  87    Table of Contents
STATEMENT OF RESPONSIBILITY FOR PREPARATION   OF FINANCIAL STATEMENTS        The Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements of Residential Capital Corporation were prepared by management, who is responsible for their integrity and objectivity. This financial information has been prepared in conformity with the Securities Exchange Act of 1934, as amended, and accounting principles generally accepted in the United States of America. The preparation of this financial information requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. The critical accounting estimates that may involve a higher degree of judgment, and complexity are included in management’s discussion and analysis.        PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial statements of the Company; and their report is included herein. The audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).        The Board of Directors, through its Audit Committee (composed primarily of independent directors), is responsible for overseeing management’s fulfillment of its responsibilities in the preparation of the consolidated financial statements. The Audit Committee annually recommends to the Board of Directors the selection of independent auditors. In addition, the Audit Committee reviews the scope of the audits and the accounting principles being applied in financial reporting. The independent auditors, representatives of management, and the internal auditors meet regularly (separately and jointly) with the Audit Committee to review the activities of each, and to ensure that each is properly discharging its responsibilities. To reinforce complete independence, PricewaterhouseCoopers LLP has full and free access to meet with the Audit Committee without management representatives present, to discuss the results of the audit, the adequacy of internal control, and the quality of financial reporting.                   /s/ Bruce J. Paradis         /s/ Davee L. Olson                 Bruce J. Paradis         Davee L. Olson         Chief Executive Officer         Chief Financial Officer         March 27, 2006         March 27, 2006    88   Table of Contents      MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING        Residential Capital Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.        The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.        Management conducted, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria.        A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. Management identified the following material weakness in its assessment as of December 31, 2005.        The Company did not design and maintain effective controls over the preparation, review, classification and presentation of cash flows relating to certain mortgage loans in the Consolidated Statement of Cash Flows. Specifically, cash outflows related to certain mortgage loan originations and purchases were not appropriately classified as either operating cash flows or investing cash flows consistent with our original designation as loans held for sale or loans held for investment. In addition, proceeds from sales and repayments related to certain mortgage loans, which initially were classified as mortgage loans held for investment and subsequently transferred to mortgage loans held for sale, were reported as operating cash flows instead of investing cash flows in our Consolidated Statement of Cash Flows, as required by Statement of Financial Accounting Standards No. 102, Statement of Cash Flows — Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale. Finally, certain non-cash proceeds and transfers were not appropriately presented in the Consolidated Statement of Cash Flows or the supplemental disclosures to the Consolidated Statement of Cash Flows. Our controls over the preparation, review, presentation and disclosure of our Consolidated Statement of Cash Flows did not prevent or detect a material misstatement in the Consolidated Statement of Cash Flows, and resulted in the restatement of the Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003. It also resulted in misstatements that require us to restate (i) the nine month periods included in our previously filed quarterly report on Form 10-Q for the quarterly periods ended September 30, 2005 and 2004, and (ii) the three- and six-month periods included in our previously filed Form 10 for the periods ended March 31 and June 30, 2005 and 2004, respectively. We have included disclosure about these interim period restatements in Note 30 (unaudited) to the consolidated financial statements. Until remediated, this control deficiency could result in a misstatement to the Statement of Cash Flows that would be material and would not be prevented or detected.  89   Table of Contents  Based on the evaluation performed, management concluded that as of December 31, 2005, Residential Capital Corporation’s internal control over financial reporting was not effective based upon the COSO criteria, solely as a result of the material weakness described above.   Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on the following page, which expresses an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005.                   /s/ Bruce J. Paradis         /s/ Davee L. Olson                 Bruce J. Paradis         Davee L. Olson         Chief Executive Officer         Chief Financial Officer         March 27, 2006         March 27, 2006    90   Table of Contents      REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the Board of Directors and Stockholder of   Residential Capital Corporation:        We have completed an integrated audit of Residential Capital Corporation’s 2005 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005 and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.   Consolidated financial statements and financial statement schedules        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in stockholder’s equity, and of cash flows present fairly, in all material respects, the financial position of Residential Capital Corporation (the “Company”) at December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the condensed financial information for parent company included in Schedule I and valuation and qualifying accounts included in Schedule II present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.        As discussed in Note 3 to the consolidated financial statements, the Company has restated its 2004 and 2003 consolidated financial statements.   Internal control over financial reporting        Also, we have audited management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 8 of this Annual Report on Form 10-K, that the Company did not maintain effective internal control over financial reporting as of December 31, 2005 because the Company did not design and maintain effective controls over the preparation, review, classification and presentation of cash flows relating to certain mortgage loans, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.        We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control,  91   Table of Contents  and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.        A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.        A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As identified and included in management’s assessment as of December 31, 2005, the Company’s management has determined the Company did not design and maintain effective controls over the preparation, review, classification and presentation of cash flows relating to certain mortgage loans in its Consolidated Statement of Cash Flows. Specifically, cash outflows related to certain mortgage loan originations and purchases were not appropriately classified as either operating cash flows or investing cash flows consistent with their original designation as loans held for sale or loans held for investment. In addition, proceeds from sales and repayments related to certain mortgage loans, which initially were classified as mortgage loans held for investment and subsequently transferred to mortgage loans held for sale, were reported as operating cash flows instead of investing cash flows in the Company’s Consolidated Statements of Cash Flows, as required by Statement of Financial Accounting Standards No. 102 Statement of Cash Flows — Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale. Finally, certain non-cash proceeds and transfers were not appropriately presented in the Statements of Cash Flows or the supplemental disclosures to the Statements of Cash Flows. The Company’s controls over the preparation, review, classification and presentation of its cash flows did not prevent or detect a material misstatement in the Statements of Cash Flows including that initially expected to be filed for the year ended December 31, 2005. This control deficiency resulted in the restatement of the Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003 and the three, six and nine month periods ended March 31, June 30, and September 30, 2005 and 2004. Until remediated, this control deficiency could result in a misstatement of the statement of cash flows that would result in a material misstatement to the Company’s annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management of the Company determined that this control deficiency constitutes a material weakness.        This material weakness was considered in evaluating the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.  92   Table of Contents       In our opinion, management’s assessment that Residential Capital Corporation did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the COSO. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO.   /s/ PricewaterhouseCoopers LLP    New York, New York   March 27, 2006  93   Table of Contents  RESIDENTIAL CAPITAL CORPORATION       CONSOLIDATED BALANCE SHEET   December 31, 2005 and 2004                                 2005   2004                   (Dollars in thousands)    ASSETS         Cash and cash equivalents    $ 2,266,753     $ 899,083           Mortgage loans held for sale      19,521,566       14,032,781           Trading securities      3,896,008       2,714,700           Available for sale securities      1,068,937       1,244,658           Mortgage loans held for investment, net      67,892,660       56,835,356           Lending receivables, net      13,401,047       9,357,397           Mortgage servicing rights, net      4,015,015       3,365,992           Accounts receivable      1,951,210       2,110,417           Investments in real estate and other      1,855,298       1,397,246           Goodwill      459,768       454,278           Other assets      2,556,830       1,937,556                           Total assets    $ 118,885,092     $ 94,349,464                          LIABILITIES         Borrowings:                            Affiliate borrowings    $ 5,177,462     $ 10,006,242             Collateralized borrowings in securitization trusts      56,097,801       50,708,476             Other borrowings      42,300,507       23,703,650                               Total borrowings      103,575,770       84,418,368           Deposit liabilities      4,123,304       1,664,970           Other liabilities      3,722,048       3,900,381                           Total liabilities      111,421,122       89,983,719          STOCKHOLDER’S EQUITY         Common stock, $0.01 par value (1,000 shares authorized, issued     and outstanding) and paid-in capital      3,367,677       1,246,778           Retained earnings      3,980,587       2,959,961           Accumulated other comprehensive income      115,706       159,006                           Total stockholder’s equity      7,463,970       4,365,745                           Total liabilities and stockholder’s equity    $ 118,885,092     $ 94,349,464                       The notes to the consolidated financial statements are an integral part of these statements.  94    Table of Contents  RESIDENTIAL CAPITAL CORPORATION       CONSOLIDATED STATEMENT OF INCOME   Years Ended December 31, 2005, 2004, and 2003                                     2005   2004   2003                       (Dollars in thousands)     Revenue                                  Interest income    $ 5,797,097     $ 4,990,881     $ 3,482,652           Interest expense      3,872,102       2,404,982       1,402,709                                 Net interest income      1,924,995       2,585,899       2,079,943           Provision for loan losses      651,796       842,899       453,502                                 Net interest income after provision for loan losses      1,273,199       1,743,000       1,626,441           Gain on sale of mortgage loans, net      1,036,669       696,903       1,746,325           Servicing fees      1,416,280       1,294,256       1,185,701           Amortization and impairment of servicing rights      (761,988 )     (1,003,265 )     (2,014,914 )         Servicing asset valuation and hedge gain, net      17,186       214,911       507,244                                 Net servicing fees      671,478       505,902       (321,969 )         Gain (loss) on investment securities, net      236,362       63,703       (222,802 )         Real estate related revenues      712,174       649,239       500,414           Other income      305,378       307,979       398,100                                 Total net revenue      4,235,260       3,966,726       3,726,509       Expenses                                  Compensation and benefits      1,406,930       1,216,537       1,188,763           Professional fees      212,410       224,716       169,380           Data processing and telecommunications      199,849       191,076       189,284           Advertising      158,688       151,345       127,720           Occupancy      121,301       107,565       99,570           Other      509,156       465,135       585,856                                 Total expenses      2,608,334       2,356,374       2,360,573                                 Income before income tax expense      1,626,926       1,610,352       1,365,936           Income tax expense      606,300       642,140       509,121                             Net income    $ 1,020,626     $ 968,212     $ 856,815                             The notes to the consolidated financial statements are an integral part of these statements.  95    Table of Contents  RESIDENTIAL CAPITAL CORPORATION       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY   Years Ended December 31, 2005, 2004, and 2003                                                         Common           Accumulated           Stock and           Other   Total       Paid-in   Retained   Comprehensive   Comprehensive   Stockholder’s       Capital   Earnings   Income   Income   Equity                               (Dollars in thousands)     Balance at January 1, 2003    $ 1,193,592     $ 1,134,934             $ 45,792     $ 2,374,318             Net income      —       856,815     $ 856,815       —       856,815             Other comprehensive income, net of tax:                                                      Unrealized loss on investment securities      —       —       (37,683 )     —       (37,683 )             Foreign currency translation adjustment      —       —       15,652       —       15,652               Unrealized loss on cash flow hedges      —       —       (23,095 )     —       (23,095 )                                             Other comprehensive income      —       —       (45,126 )     (45,126 )     —                                               Comprehensive income      —       —     $ 811,689       —       —                                         Balance at December 31, 2003      1,193,592       1,991,749               666       3,186,007             Net income      —       968,212     $ 968,212       —       968,212             Capital contribution      53,186       —       —       —       53,186             Other comprehensive income, net of tax:                                                      Unrealized gain on investment securities      —       —       10,432       —       10,432               Foreign currency translation adjustment      —       —       21,109       —       21,109               Unrealized gain on cash flow hedges      —       —       126,799       —       126,799                                               Other comprehensive income      —       —       158,340       158,340                                                       Comprehensive income      —       —     $ 1,126,552       —       —                                         Balance at December 31, 2004      1,246,778       2,959,961               159,006       4,365,745                                               Net income      —       1,020,626     $ 1,020,626       —       1,020,626             Capital contributions      2,120,899       —       —       —       2,120,899             Other comprehensive income, net of tax:                                                      Unrealized loss on investment securities      —       —       (24,451 )     —       (24,451 )             Foreign currency translation adjustment      —       —       (33,103 )     —       (33,103 )             Unrealized gain on cash flow hedges      —       —       14,254       —       14,254                                               Other comprehensive income      —       —       (43,300 )     (43,300 )     —                                               Comprehensive income      —       —     $ 977,326       —       —                                         Balance at December 31, 2005    $ 3,367,677     $ 3,980,587             $ 115,706     $ 7,463,970                                         The notes to the consolidated financial statements are an integral part of these statements.  96    Table of Contents  RESIDENTIAL CAPITAL CORPORATION       CONSOLIDATED STATEMENT OF CASH FLOWS   Years Ended December 31, 2005, 2004, and 2003                                         2005   2004   2003                       (Dollars in thousands)           (Restated)   (Restated)         CASH FLOWS FROM OPERATING ACTIVITIES:                                  Net income    $ 1,020,626     $ 968,212     $ 856,815           Reconciliation of net income to net cash provided by (used in)     operating activities:                                    Amortization and impairment of mortgage servicing rights      761,988       1,003,265       2,014,914             Depreciation and amortization      605,579       528,681       354,018             Provision for loan losses      651,796       842,899       453,502             Gain on sale of mortgage loans, net      (1,036,669 )     (696,903 )     (1,746,325 )           Net gain on sale of other assets      (41,559 )     (39,700 )     (20,668 )         (Gain) loss on valuation of derivatives      (148,550 )     (296,171 )     662,642           (Gain) loss on investment securities      (236,362 )     (63,703 )     222,802           Equity in earnings of investees in excess of cash received      (137,671 )     (141,574 )     (40,245 )         (Gain) loss on valuation of mortgage servicing rights      (86,328 )     299,522       (446,239 )         Originations and purchases of mortgage loans held for sale      (159,280,861 )     (117,339,636 )     (151,319,534 )         Proceeds from sales and repayments of mortgage loans held for     sale      133,222,847       114,982,130       144,767,140           Deferred income tax      226,526       882,104       (365,706 )         Net change in:                                      Trading securities      (952,969 )     707,629       (89,484 )             Accounts receivable      152,081       (568,644 )     (96,898 )             Other assets      955,492       1,439,285       1,295,548               Other liabilities      (1,823,082 )     (810,003 )     (366,863 )                                   Net cash provided by (used in) operating activities      (26,147,116 )     1,697,393       (3,864,581 )         CASH FLOWS FROM INVESTING ACTIVITIES:                                  Net increase in lending receivables      (3,974,763 )     (1,102,164 )     (1,156,558 )         Originations and purchases of mortgage loans held for investment      (20,081,860 )     (38,400,806 )     (37,808,639 )         Proceeds from sales and repayments of mortgage loans held for     investment      27,528,658       25,095,202       10,096,381           Purchases of available for sale securities      (598,613 )     (1,165,083 )     (2,096,759 )         Proceeds from sales and repayments of available for sale     securities      747,215       24,775       4,355,408           Additions to mortgage servicing rights      (266,589 )     (241,515 )     (404,137 )         Sales of mortgage servicing rights      207,591       —       —           Purchase of and advances to investments in real estate and other      (1,249,253 )     (883,840 )     (860,323 )         Proceeds from sales of and returns of investments in real estate     and other      923,924       773,377       428,891           Acquisitions, net of cash acquired      (3,988 )     (11,764 )     (1,599 )         Other, net      724,699       209,096       193,642                                     Net cash provided by (used in) investing activities      3,957,021       (15,702,722 )     (27,253,693 )     (Continued on next page)  97   Table of Contents  RESIDENTIAL CAPITAL CORPORATION   CONSOLIDATED STATEMENT OF CASH FLOWS   Years Ended December 31, 2005, 2004, and 2003 — (Continued)                                       2005   2004   2003                       (Dollars in thousands)           (Restated)   (Restated)         CASH FLOWS FROM FINANCING ACTIVITIES:                                  Net decrease in affiliate borrowings    $ (2,828,433 )   $ (677,633 )   $ (1,161,322 )         Net increase in other short-term borrowings      4,242,935       2,988,692       5,433,408           Proceeds from issuance of collateralized borrowings in     securitization trusts      28,361,997       28,804,811       33,785,488           Repayments of collateralized borrowings in securitization trusts      (22,682,856 )     (17,498,926 )     (6,741,881 )         Proceeds from secured aggregation facilities, long-term      7,896,054       —       —           Repayments of secured aggregation facilities, long-term      (3,157,448 )     —       —           Proceeds from other long-term borrowings      9,625,279       269,000       305,000           Repayments of other long-term borrowings      (210,000 )     (220,000 )     (180,000 )         Payments of debt issuance costs      (121,413 )     (102,618 )     (103,836 )         Increase in deposit liabilities      2,458,334       383,515       333,209                                   Net cash provided by financing activities      23,584,449       13,946,841       31,670,066           Effect of foreign exchange rates on cash and cash equivalents      (26,684 )     16,478       7,359                                 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      1,367,670       (42,010 )     559,151           CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR      899,083       941,093       381,942                                 CASH AND CASH EQUIVALENTS AT END OF YEAR    $ 2,266,753     $ 899,083     $ 941,093                                     SUPPLEMENTAL DISCLOSURES:                                  Interest paid    $ 3,835,316     $ 2,274,131     $ 1,338,360           Taxes paid      713,321       387,255       806,585           Non-cash transactions:                                  Capital contribution through forgiveness of affiliate borrowings      2,000,000       —       —           Mortgage loans held for sale transferred to mortgage loans held     for investment      19,963,930       1,405,355       4,039,336           Mortgage loans held for investment transferred to mortgage loans     held for sale      3,904,330       3,505,511       931,549           Mortgage loans held for investment transferred to other assets      930,672       387,833       327,316           Originations of mortgage servicing rights from sold loans      1,272,126       1,227,835       2,044,223           Capital contributions of lending receivables      120,899       53,186       —           Other disclosures:                                  Proceeds from sales and repayments of mortgage loans held for     investment for mortgage loans originally designated as held for     sale      2,062,975       1,550,733       1,340,094               Reconciliation of mortgage loans held for sale:                                  Mortgage loans held for sale at beginning of year    $ 14,032,781     $ 11,577,746     $ 9,264,146           Originations and purchases of mortgage loans held for sale      159,280,861       117,339,636       151,319,534           Gain on sale of mortgage loans      1,045,496       772,055       1,689,456           Proceeds from sales and repayments of mortgage loans held for     sale      (133,222,847 )     (114,982,130 )     (144,767,140 )         Proceeds from sales and repayments of loans transferred from     mortgage loans held for investment      (4,231,189 )     (1,516,770 )     (716,380 )         Originations of mortgage servicing rights      (1,272,126 )     (1,227,835 )     (2,044,223 )         Transfers to mortgage loans held for investment      (19,963,930 )     (1,405,355 )     (4,039,336 )         Transfers from mortgage loans held for investment      3,904,330       3,505,511       931,549           Other      (51,810 )     (30,077 )     (59,860 )                               Mortgage loans held for sale at end of year    $ 19,521,566     $ 14,032,781     $ 11,577,746                             The notes to the consolidated financial statements are an integral part of these statements.  98   Table of Contents  RESIDENTIAL CAPITAL CORPORATION       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         1.  Organization and Operations         Residential Capital Corporation (the Company) was incorporated on August 20, 2004. The Company is a wholly-owned subsidiary of GMAC Mortgage Group, Inc. (the Group), which is a wholly-owned subsidiary of General Motors Acceptance Corporation (GMAC). GMAC is a wholly-owned subsidiary of General Motors Corporation (GM).        The Company did not conduct any operations prior to the contribution of GMAC Residential Holding Corp. and GMAC-RFC Holding Corp. in March of 2005 by the Group to the Company. Prior to the contribution, all of the entities, including the Company, were under the common control of the Group. Accordingly, the contribution of the net assets of GMAC Residential Holding Corp. and GMAC-RFC Holding Corp. were accounted for at their historical carrying values at the date of transfer. All prior periods have been presented as if the previously separate entities were combined after eliminating all significant intercompany balances and transactions. The Company conducts its operations primarily through four reportable operating business segments. Those segments are GMAC Residential, Residential Capital Group, Business Capital Group and International Business Group.        GMAC Residential primarily originates, sells and services mortgage loans, home equity loans and lines of credit and high loan-to-value (HLTV) mortgage loans. This segment utilizes a retail branch network, direct lending centers and brokers to originate loans with a focus on prime credit quality that meet the underwriting standards of the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). These loans are referred to as prime conforming. GMAC Residential also originates non-conforming first mortgage loans. Loans originated under Veterans Administration (VA) or Federal Housing Administration (FHA) programs are referred to as government mortgage loans. GMAC Bank, a federally-chartered savings bank that conducts limited banking activities, is included in this segment. GMAC Bank’s primary purpose is to support the funding and development of the mortgage business. GMAC Residential also provides interim financing to third-party mortgage lenders (warehouse lending).        Residential Capital Group originates and acquires mortgage loans from institutional clients, correspondent resellers and brokers for resale. Mortgage loans in this segment are primarily securitized through the creation of public and private mortgage and mortgage-related backed securities. The loans originated and acquired cover a broad credit spectrum and generally do not conform to the underwriting requirements of Fannie Mae or Freddie Mac. These loans are referred to as prime non-conforming, nonprime and prime second-lien. Nonprime mortgage loans are first-lien mortgage loans secured by single-family residences that are either (a) made to individuals with credit profiles that do not qualify for a prime loan; (b) have credit-related features that fall outside the parameters of traditional prime mortgage products; or (c) have performance characteristics that otherwise expose the Company to a comparatively higher risk of loss. Additionally, Residential Capital Group services the individual mortgage loans purchased with related servicing rights (primary servicing) as well as services the mortgage-backed securities issued in connection with securitizations (master servicing). Residential Capital Group also does warehouse lending.        Business Capital Group provides financing and equity capital to residential land developers and homebuilders and financing to resort and timeshare developers and healthcare-related companies.        International Business Group includes substantially all of the Company’s residential mortgage and related business in Canada, Germany, The Netherlands, Mexico and the United Kingdom.        The Company’s business operations outside of these four reportable segments include its real estate brokerage and relocation business and Mexican distressed asset business, both of which are not significant to the Company’s consolidated results of operations. These businesses are included with certain holding  99    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   company activities and other adjustments to conform the reportable segment information to the Company’s consolidated results under generally accepted accounting principles and grouped into Corporate and Other.         2.  Critical Accounting Estimates and Significant Accounting     Policies            Consolidation and Basis of Presentation         The consolidated financial statements have been prepared as if the Company had been in place for all periods presented. The consolidated financial statements include the accounts of the Company and its subsidiaries after eliminating all significant intercompany balances and transactions. The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (GAAP).        Special purpose entities are evaluated to determine whether they meet the GAAP definition of qualifying special purpose entities (QSPEs). Special purpose entities that are classified as QSPEs are excluded from the Company’s consolidated financial statements. Special purpose entities that are not classified as QSPEs are further evaluated to determine whether they meet the GAAP definition of variable interest entities. Special purpose entities that meet the definition of variable interest entities where the Company is identified as the primary beneficiary are included in the Company’s consolidated financial statements.        The financial statements of subsidiaries outside the United States generally are measured using the local currency as the functional currency. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the reporting period. The resulting translation adjustments are recorded as other comprehensive income, a component of stockholder’s equity.           Critical Accounting Estimates         The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. The Company’s estimates and assumptions primarily arise from risks and uncertainties associated with prepayment estimates, interest rate volatility, and credit exposure. In developing the estimates and assumptions, management uses all available evidence. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ from the Company’s estimates. The Company’s critical accounting estimates include the allowance for loan losses, valuation of mortgage servicing rights and the valuation of securitized retained interests.           Allowance for Loan Losses         The allowance for loan losses is management’s estimate of incurred losses inherent in the mortgage loans held for investment and lending receivables portfolios. Additions to the allowance for loan losses are reflected within the provision for loan losses on the statement of income. The allowance for loan losses consists of a component for individual loan impairment recognized and measured in accordance with Statement of Financial Accounting Standards (SFAS) No. 114 Accounting by Creditors for Impairment of a Loan and one or more components of collective loan impairment recognized in accordance with SFAS No. 5, Accounting for Contingencies. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.        Loans outside the scope of SFAS 114 and loans that are individually evaluated and determined not to be impaired under SFAS 114 are grouped into pools, based on similar risk characteristics, and evaluated  100    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   for impairment in accordance with SFAS 5. Impairment of loans determined to be impaired under SFAS 114 is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, an observable market price, or the fair value of the collateral, whichever is determined to be the most appropriate. Included in the impairment measurement are estimated costs to sell or realize the value of the collateral on a discounted basis.        Management’s judgment as to the adequacy of the allowance is a result of the Company’s ongoing, consistently applied methodology taking into consideration historical loss experience, changes in the size or characteristics of the portfolios, economic conditions and other relevant factors. The uncollectible portion of loans is charged off against the allowance when it is deemed uncollectible. Recoveries of previously charged-off amounts increase the allowance for loan losses. The adequacy of the allowance for loan losses is highly dependent upon management’s estimate of variables affecting valuation of collateral, evaluations of performance and status, and the amounts and timing of future cash flows expected to be received on impaired loans and lending receivables. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic conditions of borrowers or the value of the underlying collateral. These estimates are reviewed periodically and adjustments, if necessary, are recorded in the provision for loan losses in the periods in which they become known.           Mortgage Servicing Rights         The Company capitalizes the value expected to be realized from performing specified mortgage servicing activities for others as mortgage servicing rights (MSRs). Such capitalized servicing rights are purchased or retained upon sale or securitization of mortgages. Mortgage servicing rights are recorded on both securitizations that are accounted for as sales as well as those accounted for as secured financings. The total cost of the mortgage loans, which includes the cost to acquire the servicing rights, is allocated to the mortgage loans, the servicing rights and other retained assets based on their relative fair values. The servicing rights are amortized in proportion to, and over the period of, the estimated future net servicing cash flow stream of the related mortgage loans. Primary servicing involves the collection of payments from individual borrowers and the distribution of these payments to the investors. Master servicing rights represent the Company’s right to service mortgage and asset-backed securities and whole loan packages issued for investors. Master servicing involves the collection of borrower payments from primary servicers and the distribution of those funds to investors in mortgage and asset-backed securities and whole loan packages.        Pursuant to the Company’s risk management program, MSRs may be hedged to mitigate the effect of changes in MSR fair value resulting from changes in interest rates. If the changes in the fair value of the hedged MSRs are highly correlated to changes in the fair value of the derivative financial instruments, the carrying value of hedged MSRs and the related derivative financial instruments are adjusted for changes in fair value and the resultant gain or loss is recognized in earnings and recorded as servicing asset valuation and hedge gain in the consolidated statement of income. MSRs that do not meet the criteria for hedge accounting treatment are carried at the lower of cost or fair value.        The Company evaluates mortgage servicing rights for impairment by stratifying its portfolio on the basis of the predominant risk characteristics (loan type and interest rate). To the extent that the carrying value of an individual stratum exceeds its estimated fair value, the mortgage servicing right asset is considered to be impaired. Impairment that is considered to be temporary is recognized through the establishment of (or an increase in) a valuation allowance with a corresponding unfavorable effect on earnings. If it is later determined that all or a portion of the temporary impairment no longer exists for a particular stratum, the valuation allowance is reduced with a favorable effect on earnings. Additionally, the Company evaluates its MSRs and the related valuation allowance for other than temporary impairment. To estimate this amount, the Company analyzes historical changes in mortgage rates, other market interest  101    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   rates, and other portfolio factors to determine the magnitude of interest rate and corresponding MSR value increase with only a remote probability of occurring. To the extent recoverability is remote, both the gross MSR asset and the related valuation allowance are reduced by such amount, which is characterized as other than temporary impairment.        Since quoted market prices for MSRs are not available, the Company estimates the fair value of MSRs by determining the present value of future expected cash flows using modeling techniques that incorporate management’s best estimates of key variables, including expected cash flows, credit losses, prepayment speeds and return requirements commensurate with the risks involved. Cash flow assumptions are based on the Company’s actual performance, and where possible, the reasonableness of assumptions is periodically validated through comparisons to other market participants. Credit loss assumptions are based upon historical experience and the characteristics of individual loans underlying the MSRs. Prepayment speed estimates are determined from historical prepayment rates on similar assets or obtained from third-party data. Return requirement assumptions are determined using data obtained from market participants, where available, or based on current relevant interest rates plus a risk-adjusted spread. Since many factors can affect the estimate of the fair value of mortgage servicing rights, the Company regularly evaluates the major assumptions and modeling techniques used in its estimate and reviews such assumptions against market comparables, if available.        The Company closely monitors the actual performance of its MSRs by regularly comparing actual cash flow, credit and prepayment experience to modeled estimates. In addition to the use of derivative financial instruments, the Company periodically invests in trading and available for sale securities to mitigate the effect of changes in fair value from the interest rate risk inherent in the mortgage servicing rights.           Securitizations and Retained Interests         The Company securitizes, sells and services residential mortgage loans and home equity loans and credit lines (mortgage loans). Securitizations are structured both as sales and secured financings. Retained interests in the securitized and sold loans are generally retained in the form of mortgage-backed securities, residual interests, interest-only strips and principal-only strips. The Company’s retained interests are generally subordinate to investors’ interests.        Securitizations that are structured as sales provide a onetime impact to income or a gain on sale when the loans and related securities are initially sold (off-balance sheet securitizations) and are reported as gains on sales of mortgage loans in the consolidated statement of income. The gain on sale is determined by allocating the carrying value of the underlying mortgage loans between loans sold and the interests retained, based on relative fair values. The gain recognized is the difference between the cash proceeds of the securitization and the allocated carrying value of the loans sold. The estimate of the fair value of the retained interests requires the Company to exercise significant judgment about the timing and amount of future cash flows from the interests. As quoted market prices are generally not available, the Company estimates the fair value of retained interests by determining the present value of future expected cash flows using modeling techniques that incorporate management’s best estimates of key variables, including expected credit losses, prepayment speeds, discount rates commensurate with the risks involved and, if applicable, interest or finance rates on variable and adjustable contracts. Credit loss assumptions are based on historical experience, market information for similar investments, and the characteristics of individual loans underlying the securities. Prepayment speed estimates are determined utilizing data obtained from market participants, where available, or based on historical prepayment rates on similar assets. Discount rate assumptions are determined using data obtained from market participants, where available, or based on current relevant U.S. Treasury or LIBOR yields, plus a risk-adjusted spread based on analysis of historical spreads on similar types of securities. Estimates of interest rates on variable and adjustable  102    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   contracts are based on spreads over the applicable benchmark interest rate using market-based yield curves. Changes in the fair value of the retained interests are recorded in gain (loss) on investment securities in the consolidated statement of income or other comprehensive income, a component of stockholder’s equity, depending on whether the retained interest is classified as trading or available for sale, respectively. The majority of the retained interests are classified as trading.        In contrast, securitizations that are structured as secured financings recognize interest income over the life of the mortgage loans held for investment and interest expense for the borrowings (on-balance sheet securitizations). The mortgage loans collateralizing the debt securities for these secured financings are included in mortgage loans held for investment and the debt securities payable to investors in these securitizations are included in collateralized borrowings in securitization trusts in the consolidated balance sheet. Loan losses for the mortgage loans held for investment are provided for as they are incurred by establishing an allowance for loan loss. Whether the securitization is on- or off-balance sheet, the investors in the securities issued by the securitization trust or the securitization trust itself have no recourse to the Company’s assets beyond the mortgage loans held for investment pledged as collateral for on-balance sheet securitizations and any retained interest in the securitizations for off-balance sheet securitizations.           Significant Accounting Policies            Cash and Cash Equivalents         Cash and cash equivalents include cash on hand and short-term investments with original maturities of 90 days or less. Cash and cash equivalents that have restrictions as to the Company’s ability to withdraw the funds are included in other assets in the consolidated balance sheet.           Mortgage Loans Held for Sale         Mortgage loans held for sale are carried at the lower of cost or estimated fair value on an aggregate basis, or, if qualifying for hedge accounting, carried at fair value. Fair value is based on contractually established commitments from investors or current investor yield requirements. Mortgage loans held for sale are placed on nonaccrual status when contractually delinquent for 60 days. Interest income accrued at the date a loan is placed on nonaccrual status is reversed and subsequently realized only to the extent it is received in cash. Loan origination fees, as well as discount points and incremental direct origination costs, are initially recorded as an adjustment of the cost of the loan and are reflected in gain on sale of mortgage loans when the loan is sold.           Investment Securities         Investment securities are classified as either trading, available for sale, or held to maturity based on management’s intent. The Company’s trading securities are carried at estimated fair value with changes in fair value recorded as a component of net gain (loss) on investment securities in the consolidated statement of income. Debt securities which management has the intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost. All other investment securities are classified as available for sale and carried at fair value, with unrealized gains and losses, excluding other than temporary impairments, included in other comprehensive income, a separate component of stockholder’s equity, on an after-tax basis. Investments classified as available for sale or held to maturity are considered to be impaired when a decline in fair value is judged to be other than temporary. The Company employs a systematic methodology that considers available evidence in evaluating potential impairment of its investments. In the event that the cost of an investment exceeds its fair value, the Company evaluates, among other factors, the magnitude and duration of the decline in fair value; for debt securities the financial condition and business outlook of the issuer; for interests in securitized assets the performance of the underlying assets; and, the Company’s intent and ability to hold the investment. Once a decline in fair  103    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   value is determined to be other than temporary, an impairment charge is recorded as a component of gain (loss) on investment securities in the consolidated statement of income and a new cost basis in the investment is established. Realized gains and losses on investment securities are recorded as a component of gain (loss) on investment securities in the consolidated statement of income. Realized gains and losses on sales of securities are determined using the specific identification method.        The Company finances a portion of its trading and available-for-sale securities through repurchase agreements with various counterparties. In certain instances the purchase and financing may be with the same counterparty. The Company views the purchase and financing as two distinct transactions and accounts for them separately.           Mortgage Loans Held for Investment and Lending Receivables         Mortgage loans held for investment and lending receivables are carried at the principal amount outstanding, less net deferred origination fees and allowance. The Company’s classification of its mortgage loans between loans held for sale and loans held for investment is based on management’s assessment of its intent and ability to hold loans for the foreseeable future or until maturity. Management’s intent and ability with respect to certain mortgage loans may change from time to time depending on a number of factors, including economic conditions. Net deferred origination fees, which include origination fees reduced by origination costs, are amortized as a yield adjustment over the life of the related assets. Interest income recognition is suspended when loans are placed on nonaccrual status. Residential mortgage loans are placed on nonaccrual status when contractually delinquent for 60 days. Warehouse, construction and other lending receivables are placed on nonaccrual status when contractually delinquent for 90 days. Interest income accrued at the date a loan is placed on nonaccrual status is reversed and subsequently realized only to the extent it is received in cash. Loans are restored to accrual status only when contractually current and the collection of future payments is reasonably assured.           Accounts Receivable         Accounts receivable are recorded at net realizable value and include accrued interest receivable, servicing receivables and rent receivable. Servicing receivables arise in the ordinary course of business as the Company makes advances to investors in mortgage loans serviced by the Company. Such advances are generally made to maintain scheduled investor cash flows in the event of borrower default or delinquency and may reflect payments of property taxes and insurance premiums in advance of collection from mortgagors, principal and interest payments to investors prior to their collection from mortgagors and amounts advanced for mortgages in foreclosure. Servicing advances receive priority cash flows, including contractual interest, in the event of foreclosure or liquidation. As a result, the collection of the advances is reasonably assured.           Goodwill         Goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired. Goodwill is reviewed for impairment at least annually utilizing a two-step process. The first step of the impairment test requires the Company to define the reporting units, which is an operating unit or one level below an operating unit as defined in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Then, the fair value of each of these reporting units is compared to its carrying value. If the carrying value is higher than the fair value, there is an indication that impairment may exist and under the second step, the impairment would be measured. If the carrying value is less than the fair value, no impairment exists. The fair value of the reporting units is determined based on various analyses, including discounted cash flow projections. During 2005 and 2004, no impairment was indicated.  104    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)           Foreclosed Assets         Foreclosed assets represent properties acquired through foreclosure and are carried at the lower of cost or fair value less estimated selling costs and are reported in other assets in the consolidated balance sheet. Gains and losses on the sale of foreclosed assets are reported in other income.           Property and Equipment         Property and equipment, stated at cost net of accumulated depreciation and amortization, are reported in other assets. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets, which generally ranges from two to ten years. Direct software development costs associated with the design, construction and improvements of internal systems are capitalized. Capitalized software is generally amortized on a straight-line basis over its useful life. Capitalized software that is not expected to have substantive service potential or development costs that significantly exceed the amount originally expected are considered impaired and written down to fair value. Software expenditures that are considered general, administrative or of a maintenance nature are expensed as incurred.           Derivative Instruments and Hedging Activities         All derivative financial instruments, whether designated for hedging relationships or not, are recorded on the consolidated balance sheet as assets or liabilities and carried at fair value. At the inception of the derivative contract, the Company designates each qualifying derivative financial instrument as a hedge of the fair value of a recognized asset or liability (fair value hedge) or a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The Company also uses derivative financial instruments that do not qualify as hedges under GAAP. Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges, along with the gain or loss on the hedged asset or liability attributable to the hedged risk, are recorded in current period earnings. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative financial instruments is recorded in other comprehensive income, a component of stockholder’s equity, and recognized in the income statement when the hedged cash flows affect earnings. Changes in the fair value of derivative financial instruments held for risk management purposes that do not meet the criteria to qualify as hedges under GAAP are reported in current period earnings. The ineffective portions of fair value and cash flow hedges are immediately recognized in earnings.        The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the consolidated balance sheet, to specific firm commitments or the forecasted transactions. Both at the hedge’s inception and on an ongoing basis, the Company formally assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.        The hedge accounting treatment described above is no longer applied if a derivative financial instrument is terminated or the hedge designation is removed. For fair value hedges, any changes to the hedged asset or liability remain as part of the basis of the asset or liability and are recognized into income over the original hedge period. For cash flow hedges, any changes in fair value of the derivative financial instrument remain in other comprehensive income, a component of stockholder’s equity, and are reclassified into earnings in the period that the hedged asset or liability affects income.  105    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)           Loan Commitments         The Company enters into commitments to originate or purchase loans to be held for sale and commitments to purchase loans to be held for investment (also referred to as interest rate lock commitments or IRLCs). Held for sale IRLCs are recorded as derivatives and subsequent changes in value from the time of the lock are recognized as assets or liabilities, with a corresponding adjustment to current period earnings. The determination of the change in fair value does not include an estimate of the future MSR that will arise when the loan is sold or securitized.           Liability for Assets Sold with Recourse         In connection with the sale of certain mortgage loans, the Company estimates a liability for credit guarantees or enhancements and representation and warranties made in the normal course of the securitization process for assets sold with recourse. The Company provides for such exposures at the time the loans are sold based upon management’s estimate of losses incurred. The liability is adjusted through other expense to reflect changes in the anticipated liability. Management believes that the liability for assets sold with recourse is adequate to provide for probable losses related to loans sold with limited recourse obligations. The liability is included within other liabilities on the consolidated balance sheet.           Reinsurance Arrangements         The Company has entered into excess layer reinsurance agreements with non-affiliated private mortgage insurance (PMI) companies that provide PMI for the Company’s mortgage loan servicing portfolio. The Company assumes the risk of loss over a specified first loss percentage for covered loans and in return earns a portion of the PMI premium associated with those mortgage loans. The Company reserves for loss and loss adjustment expenses when notices of default on insured mortgage loans are received and the specified first loss percentage covered by the ceding company is exhausted. There were no loss or loss adjustment expense reserves at December 31, 2005 and 2004.           Income Taxes         The Company is included in the consolidated U.S. federal income tax return, several unitary and/or consolidated state returns, and some foreign consolidated income tax returns of GM. The Company provides for its unitary and/or consolidated state filings and foreign consolidated filings pursuant to a tax sharing arrangement with GM. GM periodically settles these income tax liabilities or receivables. Any separate Company state and local tax liabilities are accrued for on a stand-alone basis. Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. The Company also establishes liabilities related to disputed items with various tax authorities when the item becomes probable and the costs can be reasonably estimated.           Recently Issued Accounting Standards         SOP 03-3 — In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3), that addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a  106    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 does not apply to loans originated by the Company. SOP 03-3 limits the accretable yield to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows expected at acquisition over the investor’s initial investment in the loan and it prohibits carrying over or creating a valuation allowance for the excess of contractual cash flows over cash flows expected to be collected in the initial accounting of a loan acquired in a transfer. SOP 03-3 and the required disclosures are effective for loans acquired in fiscal years beginning after December 15, 2004. Adoption of SOP 03-3 did not have a material impact on the Company’s financial condition or results of operations.        Statement of Financial Accounting Standards No. 154 — In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (SFAS 154), that addresses accounting for changes in accounting principle, changes in accounting estimates, changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions and error correction. SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle and error correction unless impracticable to do so. SFAS 154 states an exception to retrospective application when a change in accounting principle, or the method of applying it, may be inseparable from the effect of a change in accounting estimate. When a change in principle is inseparable from a change in estimate, such as depreciation, amortization or depletion, the change to the financial statements is to be presented in a prospective manner. SFAS 154 and the required disclosures are effective for accounting changes and error corrections in fiscal years beginning after December 15, 2005.        Financial Accounting Standards Board Staff Position Nos. 115-1 and 124-1 — In November, 2005, the Financial Accounting Standards Board (FSAB) issued FASB Staff Position (FSP) Nos. 115-1 and 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which nullified certain requirements of The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-1). FSP 115-1 and 124-1 addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. The FSP also requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. Adoption of FSP Nos. 115-1 and 124-1 did not have a material impact on the Company’s financial condition or results of operations.        Statement of Financial Accounting Standards No. 155 — In February 2006, the FASB issued Statement of Financial Accounting Standards 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155), which provides the following: 1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, 2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, 3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, 4) clarifies the concentrations of credit in the form of subordination are not embedded derivatives, and 5) amends Statement 140 to eliminate the prohibition of a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006 with early adoption permitted. Adoption of SFAS 155 is not expected to have a material impact on the Company’s financial position or results of operations.        Statement of Financial Accounting Standards No. 156 — In March 2006, the FASB issued Statement of Financial Accounting Standards 156, Accounting for Servicing of Financial Assets (SFAS 156), which provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized, 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, 3) permits an entity to elect to measure servicing assets and  107    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur, 4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value, and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. SFAS 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings. However, SFAS 156 permits early adoption. The Company plans to early adopt SFAS 156 as of January 1, 2006 and is currently in the process of quantifying the financial impact. The Company expects that the impact to retained earnings as a result of the initial adoption will be immaterial.   3.     Restatement        The Company restated its consolidated statements of cash flows for the years ended December 31, 2004 and 2003. As management was preparing this Form 10-K, it was discovered that cash flows related to certain mortgage loans were misclassified in the Consolidated Statement of Cash Flows. Specifically, cash outflows related to certain mortgage loan originations and purchases were not appropriately classified as either operating cash flows or investing cash flows consistent with our original designation as loans held for sale or loans held for investment. In addition, proceeds from sales and repayments related to certain mortgage loans, which initially were classified as mortgage loans held for investment and subsequently transferred to mortgage loans held for sale, were reported as operating cash flows instead of investing cash flows in our Consolidated Statement of Cash Flows. Finally, certain non-cash proceeds and transfers were not appropriately presented in the Consolidated Statement of Cash Flows or the supplemental disclosures to the Consolidated Statement of Cash Flows.        Management corrected the classification of these cash flow matters by restating the consolidated statements of cash flows for the years ended December 31, 2004 and 2003. The restatement of the Consolidated Statements of Cash Flows did not result in any change to the previously reported net increase (decrease) in cash and cash equivalents and there were no changes to the Consolidated Balance Sheets, Consolidated Statements of Income or Consolidated Statements of Changes in Stockholder’s Equity for any period. However, the restatements result in a change to total cash flows from operating activities and total cash flows from investing activities.  108   Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        The restatement resulted in the following changes to prior period consolidated statements of cash flows:                               Years Ended December 31,               2004   2003                   (In thousands)         Net cash provided by (used in) operating activities:                            As previously reported    $ 4,798,006     $ 851,531             As restated      1,697,393       (3,864,581 )         Net cash used in investing activities:                            As previously reported      (18,803,335 )     (31,969,805 )           As restated      (15,702,722 )     (27,253,693 )         Non-cash transfers from mortgage loans held for sale to mortgage     loans held for investment:                            As previously reported      1,205,248       1,955,594             As restated      1,405,355       4,039,336           Non-cash transfers from mortgage loans held for investment to     mortgage loans held for sale:                            As previously reported      3,661,411       803,316             As restated      3,505,511       931,549       4.     Mortgage Loans Held for Sale        Residential mortgage loans held for sale were as follows:                         December 31,   2005   2004                   (In thousands)         Prime conforming    $ 2,878,508     $ 2,736,558           Prime non-conforming      9,510,198       5,966,166           Nonprime      4,277,968       2,840,170           Prime second-lien      2,215,518       1,774,247           Government      656,059       633,451           Other mortgage loans      —       97,865           Valuation allowance      (16,685 )     (15,676 )                         Total    $ 19,521,566     $ 14,032,781                            At December 31, 2005 and 2004, the Company pledged mortgage loans held for sale of $16.3 and $11.1 billion, respectively, as collateral for certain borrowings (see Note 14) and obligations relating to certain HLTV securitizations (see Note 23).  109    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   5.     Trading Securities        Trading securities were as follows:                         December 31,   2005   2004                   (In thousands)         U.S. Treasury securities    $ 1,173,792     $ 150,375           Mortgage and asset-backed securities      1,042,548       1,141,460           Residual interests      763,713       1,033,544           Principal-only securities      651,309       200,666           Interest-only securities      264,646       187,835           Other      —       820                           Total    $ 3,896,008     $ 2,714,700                           Net unrealized gains(a)    $ 131,019     $ 29,895           Pledged as collateral      2,721,189       2,252,532                 (a)       Unrealized gains and losses are reported in gain (loss) on     investment securities for the year then ended. Net unrealized     losses totaled $255.1 million for the year ended     December 31, 2003.         Retained interests from the Company’s off-balance sheet securitizations are retained in the form of mortgage-backed securities, residual interests, interest-only strips and principal-only strips. At December 31, 2005 and 2004, $1.3, and $1.2 billion, respectively, of trading securities were retained interests from the Company’s off-balance sheet securitizations (see Note 18).        The Company mitigates some of the credit risk inherent in certain residual interests by purchasing mortgage insurance for residuals with underlying nonprime mortgage loans and prime second-lien loans. Residual interests with a fair value of $137.6 and $38.7 million at December 31, 2005 and 2004, respectively, had limited protection through this insurance.        At December 31, 2005 and 2004, the Company pledged trading securities with a carrying value of $24.3 and $39.5 million, respectively, as collateral for contingent obligations related to prepayment risk on sales of certain investments.        The Company had trading securities purchased from and financed with the same counterparty. At December 31, 2005 and 2004, the fair value of these securities totaled $923.6 and $150.3 million, respectively.  110    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   6.     Available for Sale Securities        The cost, fair value, and gross unrealized gains and losses on available for sale securities were as follows:                                                                               2005   2004                       Gross Unrealized           Gross Unrealized                   Fair           Fair   December 31,   Cost   Gains   Losses   Value   Cost   Gains   Losses   Value                                           (In thousands)         Debt securities:                                                                            U.S. Treasury securities    $ 952,860     $ —     $ (25,719 )   $ 927,141     $ 1,103,087     $ 12,889     $ (1,444 )   $ 1,114,532             Mortgage-backed securities      99,113       20       (1,907 )     97,226       98,293       4,543       (4,778 )     98,058             Interest-only securities(a)      3,031       2,240       —       5,271       6,047       838       —       6,885             Principal-only securities      212       159       —       371       314       361       —       675             States & political subdivisions      4,882       —       (33 )     4,849       5,096       —       —       5,096             Other      33,607       36       (284 )     33,359       9,797       144       —       9,941                                                               Total debt securities      1,093,705       2,455       (27,943 )     1,068,217       1,222,634       18,775       (6,222 )     1,235,187           Equity securities      900       —       (180 )     720       10,099       —       (628 )     9,471                                                               Total    $ 1,094,605     $ 2,455     $ (28,123 )   $ 1,068,937     $ 1,232,733     $ 18,775     $ (6,850 )   $ 1,244,658                                                                     (a)       Retained interests from the Company’s off-balance sheet     securitizations (see Note 18).         The Company had other than temporary impairment writedowns of $1.3, $5.7 and $13.1 million for the years ended December 31, 2005, 2004 and 2003, respectively. Gross unrealized gains and losses on investment securities available for sale totaled $1.4 and $5.7 million, respectively, as of December 31, 2003.        The maturity distribution of available for sale securities outstanding is summarized in the following table. Actual maturities may differ from those scheduled as a result of prepayments by issuers.                         December 31, 2005   Cost   Fair Value                   (In thousands)         Due in one year or less    $ —     $ —           Due after one year through five years      699,468       682,531           Due after five years through ten years      253,392       244,609           Due after ten years      4,882       4,850           Mortgage-backed securities and interests in securitization trusts      136,863       136,947                           Total debt securities    $ 1,094,605     $ 1,068,937                            The following table presents gross gains and losses realized upon the sales of available for sale securities reported in gain (loss) on investment securities:                                 Year Ended December 31,   2005   2004   2003                       (In thousands)         Gross realized gains    $ 22,511     $ —     $ 81,366           Gross realized losses      (10,731 )     (6,506 )     (13,052 )                               Net realized gains (losses)    $ 11,780     $ (6,506 )   $ 68,314                                  Investment securities that were in an unrealized loss position as of December 31, 2005 and 2004, respectively, had a fair value of $1.1 billion and $271.4 million, and gross unrealized losses of $28.1 and $6.9 million. The fair value of these securities in a continuous loss position less than twelve months was $898.2 and $266.2 million with gross unrealized losses of $23.4 and $6.2 million as of December 31, 2005  111    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   and 2004, respectively. In the opinion of management, there were not any available for sale securities deemed to be other than temporarily impaired as of December 31, 2005.        The Company has pledged as collateral, available for sale investment securities with carrying amounts totaling $929.1 million at December 31, 2005 in connection with certain borrowings (see Note 14).        The Company had available for sale securities purchased from and financed with the same counterparty. At December 31, 2005 and 2004, the fair value of these securities totaled $48.8 and $200.5 million, respectively.         7.  Mortgage Loans Held for Investment         Mortgage loans held for investment consisted of the following:                           December 31,   2005   2004                   (In thousands)         Prime conforming    $ 1,517,456     $ 972,705           Prime non-conforming      6,186,374       4,937,544           Nonprime      56,923,366       47,425,595           Prime second-lien      4,330,537       4,370,767           Government      833       1,699                             Total      68,958,566       57,708,310           Less allowance for loan losses      (1,065,906 )     (872,954 )                         Total, net    $ 67,892,660     $ 56,835,356                            At December 31, 2005 and 2004, the unpaid principal balance of mortgage loans held for investment and related assets relating to securitization transactions accounted for as collateralized borrowings in securitization trusts and pledged as collateral totaled $58.5 and $51.7 billion, respectively. The investors in these on-balance sheet securitizations and the securitization trusts have no recourse to the Company’s assets beyond the loans pledged as collateral. Additionally, the Company pledged mortgage loans held for investment of $9.3 and $3.7 billion as collateral for other secured borrowings at December 31, 2005 and 2004, respectively (see Note 14).        At December 31, 2005 and 2004, mortgage loans held for investment on nonaccrual status totaled $6.2 and $4.6 billion, respectively. If nonaccrual mortgage loans held for investment had performed in accordance with their original terms, the Company would have recorded additional interest income of approximately $264.0, $237.9 and $147.6 million during the years ended December 31, 2005, 2004 and 2003, respectively.        The Company mitigates some of the credit risk associated with holding certain of the mortgage loans for investment by purchasing mortgage insurance. Mortgage loans with an unpaid principal balance of $3.2 and $6.5 billion at December 31, 2005 and 2004, respectively, have limited protection through this insurance.  112    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        As of December 31, 2005, the five largest state and foreign concentrations for the Company’s mortgage loans held for investment were as follows:                       California      11.6 %         Florida      8.4           United Kingdom      5.5           Texas      4.9           Michigan      4.5           All other      65.1                     100.0 %                    The Company originates and purchases mortgage loans that have contractual features that may increase the Company’s exposure to credit risk and thereby result in a concentration of credit risk. These mortgage loans include loans that may subject borrowers to significant payment increases in the future, have negative amortization of the principal balance or result in high loan-to-value ratios.        Interest-only mortgage loans allow interest-only payments for a fixed period of time. At the end of the interest-only period, the loan payment includes principal payments and increases significantly. The borrower’s new payment once the loan becomes amortizing (i.e., includes principal payments) will be greater than if the borrower had been making principal payments since the origination of the loan. The longer the interest-only period, the larger the amortizing payment will be when the interest-only period ends. The Company’s production of interest-only loans was $43.3 and $15.8 billion during the years ended December 31, 2005 and 2004, respectively. The combined exposure of interest-only loans recorded in mortgage loans held for investment and mortgage loans held for sale (unpaid principal balance) totaled $19.4 and $8.4 billion at December 31, 2005 and 2004, respectively.        Option adjustable rate mortgage loans permit a variety of repayment options. The repayment options include minimum, interest-only, fully amortizing 30-year and fully amortizing 15-year payments. The minimum payment option sets the monthly payment at the initial interest rate for the first year of the loan. The interest rate resets after the first year, but the borrower can continue to make the minimum payment. If the minimum payment is not adequate to cover the interest amount due on the mortgage loan, the loan would have negative amortization, which will result in an increase in the mortgage loan’s principal balance. The interest-only option sets the monthly payment at the amount of interest due on the loan. If the interest-only option payment would be less than the minimum payment, the interest-only option is not available to the borrower. The interest-only payment option operates in the same manner as the interest-only mortgage loans described above. Under the fully amortizing 30-year and 15-year payment options, the borrower’s monthly payment is set based on the interest rate, loan balance and remaining loan term. The Company’s production of option adjustable rate mortgage loans was $5.1 billion and $5.9 million during the years ended December 31, 2005 and 2004, respectively. The combined exposure of option adjustable rate mortgages recorded in mortgage loans held for investment and mortgage loans held for sale (unpaid principal balance) totaled $1.1 billion and $11.7 million at December 31, 2005 and 2004, respectively.        High loan-to-value mortgage loans are defined as first-lien loans with loan-to-value ratios equal to or in excess of 100%, or second-lien loans that when combined with the underlying first-lien mortgage loan result in a loan-to-value ratio equal to or in excess of 100%. The Company’s production of high loan-to-value mortgage loans was $6.6 and $9.5 billion during the years ended December 31, 2005 and 2004, respectively. The combined exposure of high loan-to-value mortgage loans recorded in mortgage loans held for investment and mortgage loans held for sale (unpaid principal balance) totaled $13.4 and $15.1 billion at December 31, 2005 and 2004, respectively.  113    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        Below market rate mortgage loans contain contractual features that limit the initial interest rate to a below market interest rate for a specified time period with an increase to a market interest rate in a future period. The increase to the market interest rate could result in a significant increase in the borrower’s monthly payment amount. The Company’s production of below market rate mortgage loans was $536.6 and $638.1 million during the years ended December 31, 2005 and 2004, respectively. The combined exposure of below market rate mortgages recorded in mortgage loans held for investment and mortgage loans held for sale (unpaid principal balance) totaled $411.4 and $704.0 million at December 31, 2005 and 2004, respectively.         8.  Lending Receivables         The composition of lending receivables was as follows:                           December 31,   2005   2004                   (In thousands)         Warehouse    $ 9,003,196     $ 5,481,622           Construction      2,677,301       2,174,688           Commercial business      1,026,572       1,086,405           Healthcare      593,230       399,770           Commercial real estate      212,272       311,659           Other      75,883       44,976                             Total      13,588,454       9,499,120           Less allowance for loan losses      (187,407 )     (141,723 )                         Total, net    $ 13,401,047     $ 9,357,397                            During 2004, the Company sold, with limited recourse, participation interests of $3.9 billion in warehouse lending receivables to a non-consolidated entity. The Company retained participation interests in these receivables of $667.2 million at December 31, 2004, which are recorded in warehouse lending receivables. These retained receivable participation interests were subordinate to the participation interests sold. At December 31, 2005 and 2004, the Company pledged lending receivables of $11.0 and $5.4 billion, respectively, as collateral for certain borrowings (see Note 14).        At December 31, 2005, approximately 86% of the Company’s total lending receivables were collateralized by residential real estate in the United States. At December 31, 2005, the five largest state and foreign concentrations for the residential real estate collateralizing the Company’s total lending receivables were as follows:                       California      24.4 %         Florida      8.9           Mexico      5.9           Texas      5.0           Arizona      4.4           All other      51.4                     100.0 %                    The Company currently has no borrower concentration risk. The Company mitigates exposure to concentrations of credit risk by fully collateralizing loans with residential mortgage loans or residential property, servicing portfolios, other trading assets or accounts receivable balances; the use of debt covenants; the use of contractual exposure limits on geographic concentrations; and, requiring borrower concentrations and credit agreements to be approved by credit committees comprised of senior management.  114    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        In 2005 and 2004, the Company received real estate secured loans relating to GM automotive dealers in the form of capital contributions. The Company accepted these loans after performing an independent analysis of underwriting criteria. If any of these financings become delinquent for a period of at least 60 days or upon the occurrence of other specified events, the Company has the right to require GMAC to purchase the loans for the unpaid principal plus accrued interest. The Company may, from time to time, extend other real estate secured financing to GM automotive dealers under this agreement with GMAC. At December 31, 2005 and 2004 the outstanding balance of these lending receivables was $169.4 and $48.2 million, respectively.        Investments in impaired lending receivables are summarized as follows:                         December 31,   2005   2004                   (In thousands)         Lending receivables considered to be impaired without allowance    $ 12,894     $ —           Lending receivables considered to be impaired with allowance      99,523       5,536           Allowance for loan losses on impaired lending receivables      11,469       1,991           Impaired lending receivables which are on nonaccrual status      67,417       3,587           Average balance of impaired lending receivables during the year      122,407       25,593            Interest income recognized on impaired receivables totaled $5.8, $0.6 and $1.0 million for the years ended December 31, 2005, 2004 and 2003, respectively, of which $0.0, $0.6 and $0.9 million was recognized using the cash method.        If nonaccrual lending receivables performed in accordance with their original terms, the Company would have recorded additional interest income of $1.3, $1.0 and $3.2 million during the years ended December 31, 2005, 2004 and 2003, respectively.        At December 31, 2005, the Company had $31.4 million of lending receivables outstanding with terms that had been modified in troubled debt restructurings. At December 31, 2004, the Company had no lending receivables outstanding with terms that had been modified in troubled debt restructurings. At December 31, 2005, there were commitments of $37.9 million to lend additional funds to customers whose lending receivables were classified as impaired. At December 31, 2004, there were no such commitments.         9.  Allowance for Loan Losses         The following is a summary of the activity in the allowance for loan losses:                                     Mortgage Loans               Held for   Lending           Investment   Receivables   Total                       (In thousands)         Balance at January 1, 2003    $ 256,086     $ 79,736     $ 335,822           Provision for loan losses      411,943       41,559       453,502           Charge-offs      (179,026 )     (12,127 )     (191,153 )         Recoveries      1,988       17,791       19,779                                 Balance at December 31, 2003      490,991       126,959       617,950           Provision for loan losses      811,731       31,168       842,899           Charge-offs      (440,400 )     (20,173 )     (460,573 )         Recoveries      10,632       3,769       14,401                                 Balance at December 31, 2004      872,954       141,723       1,014,677           Provision for loan losses      599,785       52,011       651,796           Charge-offs      (443,815 )     (6,792 )     (450,607 )         Recoveries      36,982       465       37,447                                 Balance at December 31, 2005    $ 1,065,906     $ 187,407     $ 1,253,313                            115    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        See information regarding expected credit losses on mortgage loans sold in off-balance sheet securitization transactions in Note 18.         10.  Mortgage Servicing Rights         The following table summarizes the Company’s activity related to MSRs:                                     2005   2004   2003                       (In thousands)         Balance at January 1    $ 4,294,846     $ 4,333,609     $ 4,196,918           Originations and purchases, net of sales      1,331,124       1,469,350       2,448,360           Amortization      (999,342 )     (770,381 )     (1,049,558 )         Valuation adjustments for hedge accounting      86,328       (271,669 )     446,239           Other than temporary impairment      (54,568 )     (453,332 )     (1,699,010 )         Other      —       (12,731 )     (9,340 )                               Balance at December 31      4,658,388       4,294,846       4,333,609           Valuation allowance      (643,373 )     (928,854 )     (1,149,302 )                               Carrying value at December 31    $ 4,015,015     $ 3,365,992     $ 3,184,307                                 Estimated fair value at December 31    $ 4,021,004     $ 3,366,768     $ 3,184,325                                  The following table summarizes the Company’s activity related to changes in the valuation allowance for impairment of MSRs:                                     2005   2004   2003                       (In thousands)         Balance at January 1    $ 928,854     $ 1,149,302     $ 1,882,956           Impairment      (237,353 )     232,884       965,356           Other than temporary impairment      (54,568 )     (453,332 )     (1,699,010 )         Other      6,440       —       —                                 Balance at December 31    $ 643,373     $ 928,854     $ 1,149,302                                  During 2005 and 2004, the Company recorded other than temporary impairment of $54.6 million and $453.3 million, respectively, reducing both the MSRs’ gross carrying value and valuation allowance by this amount. This amount was based on a statistical analysis of historical changes in mortgage and other market interest rates to determine the amount that the MSRs’ asset value will increase with only a remote probability of occurring. The adjustment to the valuation allowance reduces the maximum potential future increase to the MSRs’ carrying value under lower of cost or market accounting, but it has no impact on the net carrying value of the asset or on earnings.        The Company has an active risk management program to hedge the value of MSRs. The MSRs risk management program contemplates the use of derivative financial instruments, U.S. Treasury securities and principal-only securities that experience changes in value offsetting those of the MSRs in response to changes in market interest rates. Refer to Note 22 for a discussion of the derivative financial instruments used to hedge MSRs. U.S. Treasury securities used in connection with this risk management strategy are designated as trading or available for sale. At December 31, 2005, there was $2.1 billion of U.S. Treasury securities related to this risk management activity. Principal-only securities are designated as trading. At December 31, 2005, there was $596.1 million of principal-only securities related to this risk management activity.  116    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        At December 31, 2005, the Company pledged MSRs of $2.2 billion as collateral for borrowings as discussed more fully in Note 14.        See Note 25 for the unpaid principal balance, weighted-average coupon, weighted-average maturity and weighted-average servicing fee of the portfolio of loans underlying the Company’s MSRs. The key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:                                 December 31,   2005   2004   2003                       (In thousands)         Fair value of MSRs    $ 4,021,004     $ 3,366,768     $ 3,184,325                                 Range of prepayment speeds (constant prepayment rate)      8.3-28.2 %     19.7- 29.8 %     15.7- 26.4 %         Impact on fair value of 10% adverse change    $ (183,140 )   $ (185,868 )   $ (177,440 )         Impact on fair value of 20% adverse change      (344,583 )     (353,200 )     (340,295 )         Range of discount rates      8.0-12.7 %     10.0- 12.6 %     9.7-12.5 %         Impact on fair value of 10% adverse change    $ (105,946 )   $ (101,565 )   $ (108,864 )         Impact on fair value of 20% adverse change      (205,466 )     (195,970 )     (210,705 )          These sensitivities are hypothetical and should be considered with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increased market interest rates may result in lower prepayments and increased credit losses), which could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rate and prepayment risks associated with these assets.         11.  Investments In Real Estate and Other         Investments in real estate and other at December 31, 2005 and 2004 were as follows:                             December 31,   2005   2004                   (In thousands)         Residential real estate:                            Acquired through sale and leaseback agreements    $ 669,064     $ 530,486             Construction in progress      116,820       118,117             Real estate held for development      543,801       402,173                           1,329,685       1,050,776             Accumulated depreciation      (9,350 )     (6,835 )                         Total residential real estate      1,320,335       1,043,941           Other investments:                            Investments in partnerships      75,007       100,436             Investments in real estate projects      245,393       101,666             Other equity investments      214,563       151,203                               Total    $ 1,855,298     $ 1,397,246                            Depreciation expense related to the sale and leaseback agreements was $4.4, $3.4 and $3.0 million for the years ended December 31, 2005, 2004 and 2003, respectively.  117    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        At December 31, 2005, future minimum payments receivable on non-cancelable operating leases entered into under sale and leaseback transactions were as follows:                 Year Ending December 31,                   (In thousands)         2006    $ 42,856           2007      5,262           2008      1,199           2009      146                   $ 49,463                      Rental income recorded by the Company for the years ended December 31, 2005, 2004, and 2003 was $49.9, $30.0 and $25.0 million, respectively. The five lessees with the largest lease commitments accounted for approximately 90% and 84% of the residential real estate acquired through sale and leaseback transactions at December 31, 2005 and 2004, respectively.        Income from other investments was as follows:                                 Year Ended December 31,   2005   2004   2003                       (In thousands)         Investments in partnerships    $ 24,077     $ 46,460     $ 22,479           Investments in real estate projects      36,822       43,904       9,025           Other equity investments      95,721       57,749       11,290             12.  Goodwill         Following is a summary of the activity related to goodwill:                                                                 Residential   Business   International               GMAC   Capital   Capital   Business   Corporate           Residential   Group   Group   Group   and Other   Total                                   (In thousands)         Balance at January 1, 2004    $ 162,146     $ 38,652     $ 10,748     $ 61,624     $ 164,014     $ 437,184           Additions      10,890       —       —       —       438       11,328           Foreign currency translation adjustments      —       —       —       4,878       —       4,878           Other      —       —       —       888       —       888                                                   Balance at December 31, 2004      173,036       38,652       10,748       67,390       164,452       454,278           Additions      4,730       —       —       10,148       365       15,243           Disposals      —       —       —       —       —       —           Foreign currency translation adjustments      —       —       —       (6,577 )     —       (6,577 )         Other      —       —       —       (3,176 )     —       (3,176 )                                                 Balance at December 31, 2005    $ 177,766     $ 38,652     $ 10,748     $ 67,785     $ 164,817     $ 459,768                                              118    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)         13.  Property and Equipment         Property and equipment is included within other assets in the consolidated balance sheet and consists of the following:                         December 31,   2005   2004                   (In thousands)         Land and buildings    $ 17,430     $ 17,418           Furniture, fixtures and equipment      341,427       314,109           Leasehold improvements      92,512       77,528           Capitalized software      210,236       189,749                           661,605       598,804           Less: Accumulated depreciation      (465,778 )     (411,241 )                         Total    $ 195,827     $ 187,563                            Depreciation and amortization expense was $93.0, $77.8 and $86.8 million for the years ended December 31, 2005, 2004 and 2003, respectively.         14.  Borrowings         Borrowings consisted of the following:                                                 Weighted-               Average               Interest Rates           December 31,   2005   2004   2005   2004                           (In thousands)         Affiliate borrowings      7.4 %     2.9 %   $ 5,177,462     $ 10,006,242           Collateralized borrowings in securitization trusts(a)      4.8       3.4       56,097,801       50,708,476           Other borrowings:                                            Secured aggregation facilities — short-term      4.4       2.4       10,959,581       9,867,955             Secured aggregation facilities — long-term(a)      4.3       —       4,738,606       —             Repurchase agreements      4.0       2.5       9,896,658       6,598,433             Senior unsecured notes(a)      6.2       —       5,150,519       —             FHLB advances — short-term      3.4       1.6       1,506,000       853,000             FHLB advances — long-term(a)      4.3       3.1       2,922,000       654,000             Third-party bank credit facilities — short-term      2.1       0.7       450,000       1,116,500             Third-party bank credit facilities —     long-term(a)      5.6       —       1,750,000       —             Debt collateralized by mortgage loans      4.9       4.9       2,150,529       736,538             Servicing advances      5.0       —       571,532       —             Investor custodial funds      —       —       120,985       1,915,061             Securities purchased under forward contracts      —       2.6       —       226,844             Other — short-term      4.5       3.8       1,802,789       1,549,196             Other — long-term(a)      9.6       9.4       281,308       186,123                                           Total other borrowings      4.6       2.4       42,300,507       23,703,650                                       Total borrowings      4.8 %     3.1 %   $ 103,575,770     $ 84,418,368                                             (a)       Represents borrowings with an original contractual maturity in     excess of one year. In addition, affiliate borrowings had     $4.1 billion of borrowings with an original maturity in     excess of one year at December 31, 2005.   119    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        The following summarizes assets that are restricted as collateral for the payment of certain debt obligations:                           December 31,   2005   2004                   (In thousands)         Mortgage loans held for investment    $ 67,798,758     $ 55,370,161           Mortgage loans held for sale      16,147,391       10,996,204           Trading securities      2,696,896       2,213,045           Available for sale securities      929,112       1,114,532           Mortgage servicing rights      2,220,657       444,601           Lending receivables      11,020,766       5,426,695           Accounts receivable      795,149       128,366           Investments in real estate and other      357,644       8,389           Other assets      238,758       6,441                             Total assets restricted as collateral    $ 102,205,131     $ 75,708,434                           Related secured debt    $ 89,939,405     $ 69,933,446                            The assets that were pledged as collateral in the preceding table include assets that can be sold or repledged by the secured party. The assets that could be sold or repledged were as follows:                               December 31,   December 31,       2005   2004                   (In thousands)         Mortgage loans held for sale    $ 3,880,448     $ 2,185,139           Mortgage loans held for investment      2,429,880       1,672,893           Available for sale securities      927,140       1,114,531           Trading securities      2,126,393       898,041           Investments in real estate and other      6,276       —                             Total    $ 9,370,137     $ 5,870,604                            The following table presents the scheduled maturity of long-term debt at December 31, 2005, assuming that no early redemptions occur. The actual payment of secured debt may vary based on the payment activity of the related secured assets.                 Year Ending December 31,                   (In thousands)         2006    $ 409,089           2007      1,470,904           2008      8,158,711           2009      241,000           2010      3,326,862           2011 and thereafter      61,490,923                     Long-term principal      75,097,489           Unamortized discount      (27,255 )                   Total long-term debt    $ 75,070,234                      To achieve the desired balance between fixed- and variable-rate debt, the Company utilizes interest rate swap and interest rate cap agreements. The use of such derivative financial instruments had the effect of synthetically converting $26.1 billion of its $67.7 billion of variable-rate debt into fixed-rate obligations at December 31, 2005. In addition, certain of the Company’s debt obligations are denominated in currencies other than the currency of the issuing country. Foreign currency swap agreements are used to hedge exposure to changes in exchange rates of these obligations.  120    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        In July 2005, the Company obtained $3.5 billion in syndicated bank credit facilities. These credit facilities are comprised of a $1.75 billion term loan due in 2008, an $875.0 million revolving credit facility due in 2006 and an $875.0 million revolving credit facility due in 2008. At December 31, 2005, there were no outstandings under these revolving credit facilities.           Affiliate Borrowings         The Company has certain credit arrangements with GMAC and with other GMAC and GM affiliates. As of December 31, 2004, the Group had a $20 billion line of credit comprised of short- and medium-term unsecured borrowings from affiliates, which was available to the Group for domestic borrowing purposes. At December 31, 2004, the Company’s outstanding balance was $8.1 billion. The interest rate on such short-term borrowings fluctuated monthly and was generally a stated percentage above a composite of GMAC’s unsecured commercial paper rates. The interest rate on medium-term borrowings was fixed for the borrowing term, which was typically six months to one year.        During the second quarter of 2005, GMAC contributed $2.0 billion of equity to the Company by forgiving a portion of the existing borrowings outstanding from the line of credit. The remaining borrowings outstanding under the line of credit were converted to a $5.0 billion 10-year subordinated note, a $1.5 billion 1-year term loan and a $2.5 billion 2-year revolving line of credit. In the second quarter of 2005, the subordinated note and the term loan were funded. At December 31, 2005, the term loan and a portion of the subordinated note had been repaid, and the revolving line of credit had been canceled. At December 31, 2005, the subordinated note’s outstanding balance was $4.1 billion. The subordinated loan and term loan’s interest rate fluctuated monthly and was a stated percentage above LIBOR.        Interest on these borrowings totaled $334.8, $236.4 and $206.1 million for the years ended December 31, 2005, 2004 and 2003, respectively.        The Company’s subsidiaries in the United Kingdom and Europe can borrow up to $2.1 billion under short-term uncommitted facilities with a GMAC affiliate with interest rates at a stated percentage above GMAC’s commercial paper portfolio cost. At December 31, 2005 and 2004, $1.0 and $1.6 billion, respectively, were outstanding under these facilities.        The Company’s subsidiaries in Canada can borrow up to $429.2 million under short-term uncollateralized facilities from another GMAC affiliate. At December 31, 2004, $265.4 million was outstanding under this facility. There were no outstandings at December 31, 2005.           Collateralized borrowings in securitization trusts         Due to the structure of certain mortgage loan securitizations, the Company accounts for them as financing transactions. The debt securities issued by the securitization trusts are classified as collateralized borrowings and the related mortgage loans as mortgage loans held for investment (see Note 7). The principal and interest on these debt securities are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt securities. Accordingly, the timing of the principal payments on these debt securities is dependent on the payments received on the underlying mortgages. The interest rates on the debt securities vary by security. The interest rates on the floating rate securities are a stated percentage above LIBOR. At December 31, 2005, the range of interest rates on the fixed rate securities was between 2.17% and 9.20%.        The Company securitized investment securities through Collateralized Debt Obligations (CDOs) that are treated as secured borrowings. The debt securities issued by the securitization trusts are classified as collateralized borrowings. The principal and interest on these debt securities are paid using the cash flows from the underlying investment securities. At December 31, 2005, trading securities in the amount of $541.6 million were pledged as collateral for these borrowings.  121    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)           Other borrowings         Secured aggregation facilities — The Company funds certain residential mortgage loans pending sale or securitization to permanent investors and lending receivables through committed secured aggregation facilities. The secured aggregation facilities are primarily funded through commercial paper issued by third parties, secured by the underlying mortgage loans, and paid down as sales and securitizations occur. Certain of these facilities are included in the combined financial statements as discussed more fully in Note 19. At December 31, 2005, the Company pledged mortgage loans held for sale, mortgage loans held for investment and lending receivables in the amount of $5.2 billion, $513.1 million and $3.5 billion, respectively, as collateral for these borrowings. At December 31, 2004, the Company pledged mortgage loans held for sale and mortgage loans held for investment of $3.5 billion and $744.3 million, respectively, as collateral.        The Company uses a series of wholly-owned special purpose entities to purchase loans and receivables and finance senior participation interests in the form of secured revolving notes. As of December 31, 2005, the Company had pledged mortgage loans held for sale and lending receivables of $1.9 billion and $5.7 billion, respectively, as collateral for these borrowings. At December 31, 2004, the Company had pledged mortgage loans held for sale and lending receivables of $2.0 billion and $4.1 billion, respectively, as collateral for these borrowings.        The Company uses a secured aggregation facility to finance domestic construction lending receivables. The facility is funded though financing obtained from third-party asset-backed commercial paper conduits. As of December 31, 2005 and 2004, the Company pledged lending receivables in the amount of $1.6 and $1.3 billion, respectively, as collateral for these borrowings.        Repurchase agreements — The Company enters into repurchase agreements with various counterparties in order to finance certain mortgage loans and securities. Under these repurchase agreements, the counterparties have agreed to resell to the Company either the same or a similar loan or security upon maturity of the agreement. For certain repurchase agreements, the counterparties may re-pledge the collateral. As of December 31, 2005, the Company pledged mortgage loans held for sale, mortgage loans held for investment, trading securities, available for sale securities, real estate and accounts receivable of $4.1, $2.4 and $2.2 billion, and $927.1, $6.3, and $28.0 million, respectively, as collateral for these borrowings. As of December 31, 2004, the Company pledged mortgage loans held for sale, mortgage loans held for investment, trading securities, available for sale securities, real estate and accounts receivable of $2.7, $1.7, $1.7 and $1.1 billion, and $8.4 and $32.9 million, respectively, as collateral for these borrowings. Additionally, the Company pledged the excess cash flows on certain mortgage loans securitized through on-balance sheet securitizations as collateral for repurchase agreements. The excess cash flows pledged generally represent the difference between the cash received on the underlying mortgage loans and the amounts paid to the collateralized debt holders in the securitization. The excess cash flows pledged related to mortgage loans with an underlying principal balance of $34.9 and $34.8 billion at December 31, 2005 and 2004, respectively, and are recorded in mortgage loans held for investment.        Senior unsecured notes — These notes are public debt. In the fourth quarter of 2005, the Company filed a $12.0 billion shelf registration and subsequently issued $1.3 billion of notes.        FHLB advances — Amounts outstanding under an advance agreement with the Federal Home Loan Bank of Pittsburgh (FHLB) as of December 31, 2005 and 2004 were $4.4 and $1.5 billion, respectively. These amounts were collateralized by held to maturity securities of $4.5 and $4.9 million and lending receivables of $169.4 and $48.2 million, mortgage loans held for sale with carrying amounts of $2.6 and $2.0 billion, and mortgage loans held for investment with carrying amounts of $6.3 and $1.2 billion, as of December 31, 2005 and 2004, respectively, and available for sale securities of $2.0 million and other assets  122    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   of $234.2 million as of December 31, 2005. The borrowing capacity is based upon GMAC Bank’s asset base and was $7.1 and $3.3 billion at December 31, 2005 and 2004, respectively.        Third-party bank credit facilities — In July 2005, the Company obtained $3.5 billion in syndicated bank credit facilities. These credit facilities were comprised of a $1.75 billion term loan due in 2008, an $875.0 million revolving credit facility due in 2006 and an $875.0 million revolving credit facility due in 2008.        The Company had unsecured lines of credit with four third-party banks permitting the Company to borrow a maximum aggregate of $2.9 billion at December 31, 2004. Generally, loans under the lines of credit had a term of 30 days. The lines were generally renewable at the discretion of the third-party banks. GMAC guaranteed repayment of amounts borrowed from these banks under the credit lines. Interest paid was based on the amount of bank balances maintained by the Company, which may have included escrow and custodial funds from the Company’s loan servicing activities and other banking considerations. These lines of credit were terminated in 2005.        The Company participates in a master note program with a third-party bank. The Company’s outstanding balances under this program were $50.0 million as of December 31, 2004. Under the program, borrowings are currently unsecured. However, at the request of the financial institution, the Company is required to pledge as collateral mortgage servicing rights valued at 200% of the then current outstanding balance. This program was terminated in 2005.        Debt collateralized by mortgage loans — Included in debt collateralized by mortgage loans are collateralized lines of credit permitting the Company to borrow up to $2.7 and $1.3 billion as of December 31, 2005 and 2004, respectively. The Company uses these facilities to fund residential mortgage loans. As of December 31, 2005, the Company pledged mortgage loans held for sale in the amount of $2.3 billion as collateral for these borrowings. As of December 31, 2004, the Company pledged mortgage loans held for sale and mortgage loans held for investment in the amounts of $760.3 and $29.8 million, respectively, as collateral for these borrowings.        Investor custodial funds — Certain investors in loans serviced by the Company permit custodial funds to be used by the Company in its daily operations prior to their remittance to the investors. The amounts of custodial funds that may be utilized in operations are subject to certain limitations. In order to remain eligible to use these custodial funds, the Company must meet certain net worth, operational and other requirements. These arrangements are modified periodically in the normal course of business and are generally terminable at the investor’s discretion.        Securities purchased under forward contracts — The Company entered into an agreement during 2004 whereby a third-party purchases securities on the Company’s behalf in return for a financing charge. As of December 31, 2004, the Company pledged trading securities and cash in the amount of $226.3 and $1.6 million, respectively, as collateral for the securities purchased under forward contracts.  123   Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)         15.  Income Taxes         The significant components of income tax expense were as follows:                                     Year Ended December 31,   2005   2004   2003                       (In thousands)         Current income tax expense (benefit):                                    U.S. Federal    $ 317,897     $ (260,802 )   $ 761,550             State and local      48,501       16,147       112,962             Foreign      13,376       4,691       315                                 379,774       (239,964 )     874,827           Deferred income tax expense (benefit):                                    U.S. Federal      132,971       745,415       (351,276 )           State and local      49,981       105,959       (36,962 )           Foreign      43,574       30,730       22,532                                 226,526       882,104       (365,706 )                                   Total income tax expense    $ 606,300     $ 642,140     $ 509,121                                  The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:                             December 31,   2005   2004                   (In thousands)         Deferred tax assets:                            Allowance for loan losses    $ 157,827     $ 131,879             Accruals not currently deductible      74,294       118,278             Basis difference in mortgage loans and securities      232,969       127,342             Loss carryforwards      40,458       13,335             Depreciation      22,680       24,637             Foreign intercompany tax settlements      —       18,789             Available for sale securities      8,984       —             Other      2,863       4,021                               Total deferred tax assets      540,075       438,281           Deferred tax liabilities:                            Mortgage servicing rights      857,116       515,269             Foreign intercompany tax settlements      35,830       —             Securitization activity      7,710       89,714             Cash flow hedges      62,726       56,391             Available for sale securities      —       4,182             Amortization of intangibles      33,971       23,276             Other      19,449       9,259                               Total deferred tax liabilities      1,016,802       698,091                               Net deferred tax liability    $ (476,727 )   $ (259,810 )                          For the years ended December 31, 2005 and 2004, GM had consolidated Federal net operating losses. After GM utilized all prior year Federal carryback potential, the remaining net operating losses were carried forward. The consolidated Federal net operating losses also created charitable contribution deduction and foreign tax credit carryforwards. Pursuant to the tax sharing agreement between GM and the Company, the Company’s 2005 and 2004 Federal net operating losses, charitable contributions deduction, and foreign tax credits are carried forward subject to utilization in the carryforward period by GM.  124    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        At December 31, 2005, the Company had an intercompany tax receivable from GM of $346.4 million. The receivable is comprised of Federal net operating loss carryforward of $335.6 million, charitable contributions carryforward of $8.8 million, and foreign tax credit carryforward of $2.0 million. A valuation allowance has not been established for the intercompany tax receivable because the Company has determined that it is more likely than not that all Company carryforwards will be utilized by GM.        At December 31, 2005 and 2004, the Company had foreign net operating loss carryforwards of $179.8 and $91.6 million, respectively. Of the December 31, 2005 loss carryforwards, $56.9 million is expected to expire unutilized because the Company believes the use of these foreign net loss carryforwards is remote and accordingly no deferred tax asset has been recognized. Of the remaining foreign net operating loss carryforwards at December 31, 2005, $93.7 million is from Latin American operations and is available to offset future Latin American taxable income through 2014 and $15.3 million is from operations in Canada and is available to offset future Canadian taxable income through 2012. Additionally, $13.9 million is from operations in Europe and is available to offset future taxable income in Europe indefinitely.        A valuation allowance has not been established against any of the Company’s remaining deferred tax assets because the Company has determined that it is more likely than not that all such tax assets will be realized.        At December 31, 2005 and 2004, income tax receivable, primarily from affiliates, of $276.9 and $267.0 million, respectively, is included in other assets.        At December 31, 2005 and 2004, federal income taxes had not been provided on $573.2 and $345.2 million, respectively, of undistributed earnings of foreign subsidiaries earned after 1997 that have been reinvested for an indefinite period of time. Quantification of the deferred tax liability, if any, associated with permanently reinvested earnings is not practicable.        The following table is a reconciliation of the statutory federal income tax expense and rate to the effective income tax expense and rate:                                                               2005   2004   2003                   Year Ended December 31,   Amount   Percent   Amount   Percent   Amount   Percent                                   (In thousands)         Computed income tax expense    $ 569,424       35.0 %   $ 563,623       35.0 %   $ 478,078       35.0 %         State income taxes, net of federal income tax benefits      64,942       4.0       79,368       4.9       49,399       3.6           Impact of foreign operations      (18,565 )     (1.1 )     (5,294 )     (0.3 )     (4,623 )     (0.3 )         Other, net      (9,501 )     (0.6 )     4,443       0.3       (13,733 )     (1.0 )                                                   Total income tax expense    $ 606,300       37.3 %   $ 642,140       39.9 %   $ 509,121       37.3 %                                                   16.  Deposit Liabilities         Deposit liabilities consisted of the following:                         December 31,   2005   2004                   (In thousands)         Non-interest bearing deposits    $ 1,368,345     $ 1,302,677           NOW and money-market checking accounts      508,830       353,609           Certificates of deposit      2,246,129       8,684                           Total    $ 4,123,304     $ 1,664,970                      125    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        Non-interest bearing deposits primarily represent third-party escrows associated with the Company’s loan servicing portfolio. The escrow deposits are not subject to an executed agreement and can be withdrawn without penalty at any time. At December 31, 2005, certificates of deposit included $1.6 billion of brokered certificates of deposit.        The following table presents the scheduled maturity of brokered deposits at December 31, 2005.                 Year Ending December 31,           (In thousands)         2006    $ 1,328,221           2007      270,579           2008      —           2009      —           2010      2,821           2011 and thereafter      1,998                     Total brokered deposits    $ 1,603,619                 17.     Employee Benefit Plans        The Company is a participant in the Group’s noncontributory defined benefit retirement plan, which covers all eligible employees. The defined benefit retirement plan is fully funded as of December 31, 2005. In addition, the Company participates in the Group’s defined contribution savings plan for domestic employees meeting certain eligibility requirements. Employees may contribute a percentage of base compensation to the plan, not to exceed annual limits. The Company matches employee contributions up to 6% each year, with certain limitations. International employees of the Company who meet certain eligibility requirements are participants in defined contribution savings plans. Funds contributed and earned by the defined contribution savings plans can be withdrawn only under specific conditions.        Employee benefit plan expense consisted of:                                 Year Ended December 31,   2005   2004   2003                       (In thousands)         Defined benefit plan    $ 17,139     $ 25,512     $ 20,408           Defined contribution plan      22,398       20,036       17,954                                 Total    $ 39,537     $ 45,548     $ 38,362                             18.     Off-Balance Sheet Securitization Transactions        The Company sells residential mortgage loans in securitization transactions structured as sales and retains servicing responsibilities and subordinated interests. The Company receives primary and master servicing fees of up to 338 basis points per annum and rights to future cash flows arising after the investors in the securitization trust have received the return for which they contracted. The investors and the securitization trusts have no recourse to the Company’s assets for failure of debtors to pay when due. The value of any retained interests are subject to credit, prepayment and interest rate risks on the transferred financial assets.        For the years ended December 31, 2005, 2004, and 2003, the Company recognized pretax gains of $512.9, $601.1 and $480.8 million, respectively, on the securitization of residential mortgage loans structured as sales.  126    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        Key economic assumptions used in measuring the retained interests at the date of securitizations structured as sales and completed during the years ended December 31, 2005 and 2004 were as follows:                                                     Prime           Prime   Nonprime   Second-Lien   Government       Non-Conforming   Mortgage   Mortgage   Mortgage   Year Ended December 31, 2005   Mortgage Loans   Loans   Loans   Loans                             Prepayment speeds      7.0-28.3 %     0.0-60.0 %     31.6-36.3 %     15.0 %         Weighted-avg. life (years)      3.1-8.5       1.8-6.6       2.0-3.3       1.1           Expected credit losses      0.0-1.5 %     0.1-4.8 %     1.9-2.3 %     4.9 %         Discount rate      8.0-12.5 %     11.5-21.4 %     12.0-16.5 %     6.5 %                                                       Prime           Prime   Nonprime   Second-Lien   Government       Non-Conforming   Mortgage   Mortgage   Mortgage   Year Ended December 31, 2004   Mortgage Loans   Loans   Loans   Loans                             Prepayment speeds      7.0-33.4 %     0.0-51.3 %     33.2-44.6 %     15.0 %         Weighted-avg. life (years)      2.8-6.0       1.1-4.7       1.6-3.2       1.1           Expected credit losses      0.6-2.1 %     0.2-10.9 %     1.5-2.3 %     5.4 %         Discount rate      8.0-12.5 %     11.5-24.8 %     12.0 %     6.5 %          The following summarizes certain cash flows received from and paid to securitization trusts for sales of finance receivables and loans that were completed:                                                       Prime           Prime   Nonprime   Second-Lien   Government       Non-Conforming   Mortgage   Mortgage   Mortgage   Year Ended December 31, 2005   Mortgage Loans   Loans   Loans   Loans                           (In millions)     Cash inflows:                                            Proceeds from new securitizations    $ 27,548.2     $ 9,311.6     $ 5,071.3     $ 56.1             Servicing fees received      135.2       69.0       40.0       0.8             Other cash flows received on retained interests      142.2       285.2       133.0       22.3             Repayments of servicing advances      336.3       755.7       22.7       0.7       Cash outflows:                                            Servicing advances      (353.5 )     (807.2 )     (2.1 )     (0.6 )     Purchase obligations and options:                                            Mortgage loans under conditional call option      —       —       —       (8.5 )           Representations and warranties obligations      (10.0 )     (17.6 )     (1.7 )     —             Asset performance conditional calls      (19.1 )     (50.3 )     (29.9 )     —             Clean-up calls      (118.2 )     (1,889.0 )     (195.2 )     —                                       Net cash flow    $ 27,661.1     $ 7,657.4     $ 5,038.1     $ 70.8                                  127    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)                                                       Prime           Prime   Nonprime   Second-Lien   Government       Non-Conforming   Mortgage   Mortgage   Mortgage   Year Ended December 31, 2004   Mortgage Loans   Loans   Loans   Loans                           (In millions)     Cash inflows:                                            Proceeds from new securitizations    $ 14,628.5     $ 9,440.2     $ 5,235.5     $ 108.1             Servicing fees received      108.1       68.1       30.3       1.1             Other cash flows received on retained interests      166.6       392.5       140.3       30.1             Repayments of servicing advances      85.7       293.1       567.1       0.7       Cash outflows:                                            Servicing advances      (92.9 )     (324.1 )     (617.4 )     (0.8 )     Purchase obligations and options:                                            Mortgage loans under conditional call option      —       —       —       (21.6 )           Representations and warranties obligations      (2.7 )     (37.1 )     (25.7 )     —             Asset performance conditional calls      (35.9 )     (87.7 )     (12.0 )     (1.1 )           Clean-up calls      (3,448.3 )     (207.1 )     (141.5 )     —                                       Net cash flow    $ 11,409.1     $ 9,537.9     $ 5,176.6     $ 116.5                                                                                       Prime           Prime   Nonprime   Second-Lien   Government       Non-Conforming   Mortgage   Mortgage   Mortgage   Year Ended December 31, 2003   Mortgage Loans   Loans   Loans   Loans                           (In millions)     Cash inflows:                                            Proceeds from new securitizations    $ 20,558.4     $ 6,241.6     $ 2,648.9     $ 116.6             Servicing fees received      153.2       63.8       31.6       1.2             Other cash flows received on retained interests      218.8       545.0       159.8       31.2             Repayments of servicing advances      149.0       364.7       693.9       0.7       Cash outflows:                                            Servicing advances      (142.2 )     (416.2 )     (682.8 )     (0.7 )     Purchase obligations and options:                                            Mortgage loans under conditional call option      —       —       —       (33.8 )           Representations and warranties obligations      (12.3 )     (122.7 )     (12.3 )     (6.9 )           Asset performance conditional calls      (37.2 )     (70.1 )     (14.7 )     —             Clean-up calls      (1,737.7 )     —       (181.3 )     —                                       Net cash flow    $ 19,150.0     $ 6,606.1     $ 2,643.1     $ 108.3                                  128    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        At December 31, 2005 and 2004, key economic assumptions and the sensitivity of the current fair value of retained interests to immediate 10% and 20% adverse changes in those assumptions are as follows:                                                     Prime           Prime   Nonprime   Second-Lien   Government       Non-Conforming   Mortgage   Mortgage   Mortgage   December 31, 2005   Mortgage Loans   Loans   Loans   Loans                           (In millions)         Carrying amount/fair value of retained interest securities    $ 433.5     $ 359.3     $ 247.9     $ 16.0           Prepayment speeds      7.0-37.5 %     0-60.0 %     23.8-42.8 %     15.0 %         Impact on fair value of 10% adverse change    $ (19.6 )   $ (10.6 )   $ (15.5 )   $ —           Impact on fair value of 20% adverse change      (37.7 )     (15.8 )     (28.7 )     —           Weighted average life (years)      2.8-6.2       1.8-3.6       1.0-2.1       1.1           Expected credit losses      0-2.0 %     0-16.9 %     0.7-2.8 %     4.9 %         Impact on fair value of 10% adverse change    $ (4.3 )   $ (25.4 )   $ (12.7 )   $ (0.7 )         Impact on fair value of 20% adverse change      (8.7 )     (45.5 )     (25.3 )     (1.4 )         Discount rate      8.0-12.8 %     10.2- 40.0 %     11.5- 13.5 %     6.5 %         Impact on fair value of 10% adverse change    $ (16.5 )   $ (10.5 )   $ (6.7 )   $ (0.1 )         Impact on fair value of 20% adverse change      (31.8 )     (20.3 )     (13.0 )     (0.2 )         Interest rates on variable and adjustable contracts         Forward benchmark interest rate yield curve plus contractual     spread         Impact on fair value of 10% adverse change    $ 0.3     $ (7.3 )   $ (3.5 )   $ (0.9 )         Impact on fair value of 20% adverse change      0.2       (14.9 )     (9.3 )     (1.7 )                                                       Prime           Prime   Nonprime   Second-Lien   Government       Non-Conforming   Mortgage   Mortgage   Mortgage   December 31, 2004   Mortgage Loans   Loans   Loans   Loans                           (In millions)         Carrying amount/fair value of retained interest securities    $ 316.6     $ 681.5     $ 226.4     $ 23.0           Prepayment speeds      7.0-55.0 %     0-50.0 %     31.9-45.7 %     15.0 %         Impact on fair value of 10% adverse change    $ (18.0 )   $ (7.6 )   $ (22.1 )   $ —           Impact on fair value of 20% adverse change      (34.2 )     (12.4 )     (38.0 )     —           Weighted average life (years)      3.3-7.7       1.2-3.0       1.1-2.6       1.1           Expected credit losses      0-4.2 %     0.2- 26.1 %     0.6-2.8 %     5.4 %         Impact on fair value of 10% adverse change    $ (3.8 )   $ (37.2 )   $ (9.6 )   $ (1.1 )         Impact on fair value of 20% adverse change      (7.3 )     (66.8 )     (19.0 )     (2.2 )         Discount rate      8.0-12.5 %     11.5- 40.0 %     11.5- 13.5 %     6.5 %         Impact on fair value of 10% adverse change    $ (13.7 )   $ (18.0 )   $ (4.9 )   $ (0.1 )         Impact on fair value of 20% adverse change      (26.3 )     (33.9 )     (9.5 )     (0.2 )         Interest rates on variable and adjustable contracts         Forward benchmark interest rate yield curve plus contractual     spread         Impact on fair value of 10% adverse change    $ (1.2 )   $ (12.0 )   $ (0.6 )   $ (1.3 )         Impact on fair value of 20% adverse change      (2.1 )     (24.4 )     (1.2 )     (2.6 )          Changes in fair value based on 10% variations in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. In addition, the effect of a variation in a particular assumption on the fair value of the retained interest has been presented without calculating the effect of changes in assumptions. The Company currently has a hedge program in place to manage the risk of changes in the fair value of its prime first mortgage interest-only securities due to interest rate movements and differences in the indices for various fixed and floating rate loans and floating rate securities. The sensitivities have been presented without taking into account offsetting hedge effects.  129    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        At December 31, 2005, 2004 and 2003, expected net credit losses as a percentage of the original unpaid principal balance of loans securitized are presented in the table below. Expected net credit losses include actual incurred losses plus projected losses over the remaining life of the securitization.                                 December 31,   2005   2004   2003                         Prime non-conforming      0.0- 2.0 %     0.0- 4.2 %     0.0- 2.0 %         Nonprime      0.0-16.9       0.2-26.1       0.2-26.1           Prime second-lien      0.7-2.8       0.6-2.8       0.7-2.9           Government      4.9       5.4       5.1            The following tables present additional quantitative information about delinquencies and net credit losses for securitized financial assets and other assets managed together with them:                                               Year Ended           December 31,       At December 31, 2005   2005                   Total Principal   Loans 60 Days or   Net Credit   Type of Mortgage Loan   Amount of Loans   More Past Due   Losses                       (In millions)         Prime conforming    $ 4,396     $ 29     $ —           Prime non-conforming      67,504       702       43           Nonprime      79,817       7,363       801           Prime second-lien      15,064       177       38           Government      803       411       3                                 Total managed loans(a)      167,584     $ 8,682     $ 885                                 Less:                                    Mortgage loans securitized and sold      79,087                             Mortgage loans held for sale/securitization      19,538                                                   Mortgage loans held for investment    $ 68,959                                                       (a)       Total managed loans represent loans retained on the balance     sheet or that have been securitized and sold, excluding     securitized loans that the Company continues to service but has     no other continuing involvement.   130    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)                                               Year Ended           December 31,       At December 31, 2004   2004                   Total Principal   Loans 60 Days or   Net Credit   Type of Mortgage Loan   Amount of Loans   More Past Due   Losses                       (In millions)         Prime conforming    $ 3,749     $ 15     $ 1           Prime non-conforming      44,935       550       48           Nonprime      68,265       5,642       841           Prime second-lien      11,795       130       50           Government      831       350       3                                 Total managed loans(a)      129,575     $ 6,687     $ 943                                 Less:                                    Mortgage loans securitized and sold      57,819                             Mortgage loans held for sale/securitization      14,048                                                   Mortgage loans held for investment    $ 57,708                                                       (a)       Total managed loans represent loans retained on the balance     sheet or that have been securitized and sold, excluding     securitized loans that the Company continues to service but has     no other continuing involvement.          19.  Variable Interest Entities         The following describes the Company’s variable interest entities that the Company has consolidated or in which it has a significant variable interest.        Mortgage Warehouse Funding — The Company transfers residential mortgage loans, lending receivables, home equity loans and lines of credit pending permanent sale or securitization through various structured finance arrangements in order to provide funds for the origination and purchase of future mortgage-related products. These structured finance arrangements include transfers to warehouse funding entities including Group-, Company-, and bank-sponsored commercial paper conduits. Transfers of assets from the Company into each facility are accounted for as either sales (off-balance sheet) or secured financings (on-balance sheet) based on the provisions of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. However, in either case, creditors of these facilities have no legal recourse to the general credit of the Company. Some of these warehouse funding entities represent variable interest entities under FIN 46R.        Management has determined that for certain mortgage warehouse funding facilities, the Company is the primary beneficiary and, as such, consolidates the entities in accordance with FIN 46R. The assets of these residential mortgage warehouse entities totaled $7.2 billion at December 31, 2005, the majority of which are included in mortgage loans held for sale in the Company’s consolidated balance sheet. The beneficial interest holders of these variable interest entities do not have legal recourse to the general credit of the Company.        Warehouse Lending — The Company has a facility in which it transfers mortgage warehouse lending receivables to a Special Purpose Entity (SPE) which then sells a senior participation interest in the receivables to an unconsolidated QSPE. The QSPE funds the purchase of the participation interest from the SPE through financing obtained from third-party asset-backed commercial paper conduits. The SPE funds the purchase of the receivables from the Company with cash obtained from the QSPE, as well as a subordinated loan and/or an equity contribution from the Company. The senior participation interest sold to the QSPE and the commercial paper issued were not included in the assets or liabilities of the Company in 2004. However, the QSPE was terminated and a new SPE was created in 2005. As a result,  131   Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   the senior participation interest sold and commercial paper issued were included in the Company’s consolidated balance sheet at December 31, 2005. Once the receivables have been sold, they may not be purchased by the Company except in very limited circumstances, such as a breach in representations or warranties.        Management has determined that the Company is the primary beneficiary of the SPE, and as such, consolidates the entity in accordance with FIN 46R. The assets of the SPE totaled $3.5 billion at December 31, 2005, which are included in lending receivables, net of unearned income, in the Company’s consolidated balance sheet. The beneficial interest holders of this variable interest entity do not have legal recourse to the general credit of the Company.        Collateralized Debt Obligations (CDO) — The Company sponsors and manages the collateral of a CDO. Under CDO transactions, a trust is established that purchases a portfolio of securities and issues debt and equity certificates which represent interests in the portfolio of assets. Bonds representing the collateral for the CDO include both those issued by the Company from loan securitizations and those issued by third parties. The Company receives compensation for managing the portfolio and retains an equity investment in the CDO.        The Company is the primary beneficiary of the CDO, and as such, consolidates the entity in accordance with FIN 46R. The assets in this entity totaled $569.3 million at December 31, 2005, the majority of which are included in investment securities in the Company’s consolidated balance sheet. The beneficial interest holders of this variable interest entity do not have legal recourse to the general credit of the Company.        Construction and Real Estate Lending — The Company uses a special purpose entity to finance construction lending receivables. The special purpose entity purchases and holds the receivables and funds the majority of the purchases through financing obtained from third-party asset-backed commercial paper conduits.        The Company is the primary beneficiary, and as such, consolidates the entity in accordance with FIN 46R. The assets in this entity totaled $1.6 and $1.2 billion at December 31, 2005 and 2004, respectively, which were included in lending receivables, net of unearned income, in the Company’s consolidated balance sheet.        The Company has subordinated real estate lending arrangements with certain entities. These entities are created to develop land and construct residential homes. Management has determined that the Company does not have the majority of the expected losses or returns, and as such, consolidation is not appropriate under FIN 46R. Total assets in these entities were $496.3 million at December 31, 2005 of which $134.2 million represents the Company’s maximum exposure.        Other Relationships — The Company has investments with several mortgage loan originators. These investments may include common or preferred equity investments, working capital or other subordinated lending, and warrants, in addition to warehouse lending arrangements. The Company is not the primary beneficiary of these entities, and as such, consolidation is not appropriate under FIN 46R. Total assets in these entities were $138.7 million at December 31, 2005, of which $264.9 million represents the Company’s maximum exposure.  132    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   20.     Other Comprehensive Income        The following table presents the components and annual activity in other comprehensive income:                                                           Accumulated       Unrealized Gain   Foreign       Other       (Loss) on   Currency   Unrealized Gain   Comprehensive       Investment   Translation   (Loss) on Cash   Income       Securities(a)   Adjustment(b)   Flow Hedges   (Loss)                           (In thousands)         Balance at January 1, 2003    $ 35,018     $ 10,774     $ —     $ 45,792             2003 net change      (37,683 )     15,652       (23,095 )     (45,126 )                                     Balance at December 31, 2003      (2,665 )     26,426       (23,095 )     666             2004 net change      10,432       21,109       126,799       158,340                                       Balance at December 31, 2004      7,767       47,535       103,704       159,006             2005 net change      (24,451 )     (33,103 )     14,254       (43,300 )                                     Balance at December 31, 2005    $ (16,684 )   $ 14,432     $ 117,958     $ 115,706                                             (a)       Represents the after-tax difference between the fair value and     amortized cost of the available for sale securities portfolio.       (b)       Includes after-tax gains and losses on foreign currency     translation from operations for which the functional currency is     other than the U.S. dollar. Net change amounts were net of taxes     totaling $0.1, $0.1 and $0.2 million for the years ended     December 31, 2005, 2004, and 2003, respectively.   133    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        The net changes in the following table represent the sum of net unrealized gains or losses on available for sale securities and cash flow hedges with the respective reclassification adjustments. Reclassification adjustments are amounts recognized in net income during the year due to realized gains or losses.                                 Year Ended December 31,   Pretax   Tax Effect   Net of Tax                       (In thousands)     2005                                  Available for sale securities:                                  Net unrealized losses arising during the year    $ (25,742 )   $ 9,010     $ (16,732 )         Reclassification of net gains included in net income      (11,780 )     4,061       (7,719 )                               Net unrealized losses arising during the year, net of     reclassification adjustment    $ (37,522 )   $ 13,071     $ (24,451 )                               Cash flow hedges:                                  Net unrealized gains arising during the year    $ 27,136     $ (8,627 )   $ 18,509           Reclassification of net gains included in net income      (6,548 )     2,293       (4,255 )                               Net unrealized gains arising during the year, net of     reclassification adjustment    $ 20,588     $ (6,334 )   $ 14,254                             2004                                  Available for sale securities:                                  Net unrealized gains arising during the year    $ 9,691     $ (3,449 )   $ 6,242           Reclassification of losses included in net income      6,506       (2,316 )     4,190                                 Net unrealized gains arising during the year, net of     reclassification adjustment    $ 16,197     $ (5,765 )   $ 10,432                                 Cash flow hedges:                                  Net unrealized gains arising during the year    $ 205,261     $ (72,197 )   $ 133,064           Reclassification of net gains included in net income      (9,665 )     3,400       (6,265 )                               Net unrealized gains arising during the year, net of     reclassification adjustment    $ 195,596     $ (68,797 )   $ 126,799                             2003                                  Available for sale securities:                                  Net unrealized gains arising during the year    $ 10,344     $ (3,620 )   $ 6,724           Reclassification of net gains included in net income      (68,314 )     23,907       (44,407 )                               Net unrealized losses arising during the year, net of     reclassification adjustment    $ (57,970 )   $ 20,287     $ (37,683 )                               Cash flow hedges:                                  Net unrealized losses arising during the year    $ (35,833 )   $ 12,345     $ (23,488 )         Reclassification of net losses included in net income      332       61       393                                 Net unrealized losses arising during the year, net of     reclassification adjustment    $ (35,501 )   $ 12,406     $ (23,095 )                           21.     Fair Value of Financial Instruments        The fair value of financial instruments is the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation. When possible, the Company uses quoted market prices to determine fair value. Where quoted market prices are not available, the fair value is internally derived based upon appropriate valuation methodologies with respect to the amount and timing of future cash flows and estimated discount rates. Changes to these estimation methodologies could significantly affect fair value, and accordingly, the net realizable value could be materially different from the estimates presented below. In addition, the estimates below are only  134    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   indicative of individual financial instrument fair values and should not be considered an indication of the fair value of the Company taken as a whole.        The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:                                             2005   2004                   Carrying   Estimated   Carrying   Estimated   December 31,   Amount   Fair Value   Amount   Fair Value                           (In thousands)     Assets                                          Cash and cash equivalents    $ 2,266,753     $ 2,266,753     $ 899,083     $ 899,083           Mortgage loans held for sale      19,521,566       19,589,428       14,032,781       14,273,983           Trading securities      3,896,008       3,896,008       2,714,700       2,714,700           Available for sale securities      1,068,937       1,068,937       1,244,658       1,244,658           Mortgage loans held for investment, net      67,892,660       69,061,822       56,835,356       57,625,916           Lending receivables, net      13,401,047       13,398,363       9,357,397       9,358,445           Derivatives — asset position      681,411       681,411       593,976       593,976           Other assets      298,021       299,005       44,398       44,356       Liabilities                                          Affiliate borrowings    $ 5,177,462     $ 5,177,462     $ 10,006,242     $ 10,006,242           Collateralized borrowings in securitization trusts      56,097,801       56,318,710       50,708,476       50,732,853           Other borrowings      42,300,507       42,283,758       23,703,650       23,704,528           Deposit liabilities      4,123,304       4,048,344       1,664,970       1,573,001           Derivatives — liability position      252,275       252,275       278,991       278,991           Other liabilities      —       —       37,793       37,793            Financial instruments not recognized on the balance sheet:                                               2005   2004                       Estimated       Estimated   December 31,   Notional   Fair Value   Notional   Fair Value                           (In thousands)         Unfunded commitments to extend credit:                                            Home equity lines of credit    $ 4,060,452     $ —     $ 4,428,984     $ —             Warehouse lending receivables      8,917,946       —       7,787,227       —             Construction lending receivables      1,568,951       —       1,942,382       —             Commercial business lending receivables      730,182       —       646,214       —             Healthcare lending receivables      194,372       —       274,269       —             Residential construction loans      308,792       —       201,948       —           Commitments to provide capital to equity method investees      213,141       —       323,394       —           Commitments to originate mortgage loans held for investment      94,895       298       210,062       (980 )         Standby letters of credit      48,074       (220 )     69,070       (245 )         Set-aside letters      53,523       (109 )     84,876       (236 )          The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:        Cash and cash equivalents, lending receivables and other assets — The estimated fair value for these financial instruments approximates carrying value due to the relative short-term period of time between origination of the instrument and its expected realization and/or due to the short-term floating interest rates on such investments.        Mortgage loans held for sale — The estimated fair value of these financial instruments is based upon actual prices received on recent sales of mortgage loans and securities to investors and projected prices  135    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   obtained through investor indications. These indications consider interest rates, mortgage loan type and credit quality.        Trading and available for sale securities — Fair values are based on quoted market prices if available. If market prices are not available, fair value is estimated using valuations from external parties. Absent third-party valuations, fair value is estimated based on valuation models which calculate expected future cash flows. Valuation models incorporate management’s best estimate of assumptions including, but not limited to, prepayment speeds, prepayment penalty income, credit losses, discount rates commensurate with the risks involved and, if applicable, interest rates on variable contracts.        Mortgage loans held for investment — The estimated fair value of these financial instruments is based on discounted cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality; the net realizable value of collateral and/or estimated sales price is based on quoted market prices where available or actual prices received on comparable sales of mortgage loans to investors, adjusted for management estimates to reflect the unique characteristics of the underlying loans.        Derivative financial instruments — The estimated fair value of derivative financial instruments generally reflect the estimated amounts the Company would receive or pay to terminate the contracts. Dealer quotes are generally available for the Company’s derivative financial instruments.        Affiliate borrowings — The estimated fair value of these financial instruments is based on discounted cash flow analysis using current interest rates for borrowings of similar remaining maturities.        Collateralized borrowings — The estimated fair value of these financial instruments is based on quoted market prices.        Other borrowings — The estimated fair value of these financial instruments approximates carrying amounts due to the short-term floating interest rates on the borrowings.        Deposit liabilities — The estimated fair value of deposits with no stated maturity is equal to their carrying amount. The fair value of fixed-maturity deposits was estimated by discounting cash flows using currently offered rates for deposits of similar maturities.        Other liabilities — The estimated fair value of these financial instruments approximates carrying value due to the short-term period between establishment and payment.        Unfunded commitments to extend credit and commitments to provide capital to equity method investees — No value is assigned to these financial instruments as they primarily represent commitments to lend at market rates tied to short-term indices.        Commitments to originate mortgage loans held for investment — The estimated fair value for these commitments is the difference in fair value of the underlying mortgage loan on the first day of the commitment compared to the fair value of the underlying mortgage loan the day the commitment funds into a loan. The determination of the fair value of the underlying mortgage loan is described above.        Standby letters of credit and set-aside letters — The fair value of these financial instruments is based on fees collected net of fees paid.   22.     Derivative Instruments        The Company’s risk management objectives are to minimize market risk and cash flow volatility associated with interest rate, prepayment, and basis risks related to certain assets and liabilities. Derivative financial instruments are used as part of the Company’s risk management policy to manage risk related to specific groups of assets and liabilities, including trading securities, mortgage loans held for sale, mortgage loans held for investment, mortgage servicing rights and collateralized borrowings in securitization trusts. The Company also utilizes foreign currency swaps and forward contracts to hedge foreign currency denominated assets and liabilities. In addition, the Company holds derivative instruments such as  136    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   commitments to purchase or originate mortgage loans that it has entered into in the normal course of business. The following summarizes the Company’s derivative activity:           Fair Value Hedges         The Company uses derivatives designated as fair value hedges to manage the risk of changes in fair value of mortgage servicing rights and mortgage loans held for sale.        Mortgage servicing rights — The Company’s primary risk associated with holding mortgage servicing rights is the risk of impairment loss due to a change in fair value caused by changes in interest rates. Pursuant to the Company’s risk management program, MSRs are hedged to mitigate the effect of changes in MSR fair value resulting from changes in interest rates using fair value hedges. In order to manage this risk, the Company has entered into a combination of derivative contracts that are designated as hedges of the servicing rights associated with groups of similar mortgage loans. These derivatives include interest rate caps and floors, futures options, futures, mortgage-backed security options, interest rate swaps and swaptions. The maturities of these instruments range between six months and twenty years. The Company has entered into written options on treasury futures for notional amounts lower than purchased options on futures. The purchased option coverage is at a strike price less than or equal to the corresponding written option coverage, thereby mitigating the Company’s loss exposure. The Company is required to deposit cash in margin accounts maintained by counterparties for unrealized losses on futures contracts. Deposits in margin accounts were $2.0 and $4.1 million at December 31, 2005 and 2004, respectively, and are included within accounts receivable in the consolidated balance sheet.        The Company assesses whether its hedge relationships are highly effective using historical hedge period data. Effectiveness is measured employing a statistical based approach that must meet thresholds for R-squared, Slope and F-statistic. Hedge ineffectiveness is measured as the difference between the changes in value of the hedged assets and the changes in value of the designated derivatives and is recognized in earnings in the current period. If the changes in the fair value of the hedged MSRs are highly correlated to changes in the fair value of the derivative financial instruments, the carrying value of hedged MSRs and the related derivative financial instruments are adjusted for the change in fair value and the resultant gain or loss is recognized in earnings. MSRs that do not meet the criteria for hedge accounting treatment are carried at the lower of cost or fair value.        The derivative contracts contain an element of credit risk in the event that the counterparties may be unable to meet the terms of such agreements. The Company minimizes its risk exposure by limiting the counterparties to major banks, investment bankers and private investors that meet established credit and capital guidelines. In the event the counterparties are unable to fulfill their obligations, the Company would not incur any material loss by replacing the position at market rates in effect on December 31, 2005 and 2004. The Company does not expect any counterparty to default on their obligations. In order to further mitigate the risk of counterparty default, the Company has entered into several collateral agreements with counterparties for its mortgage servicing rights derivatives. The agreements require both parties to maintain cash on deposit in the event the fair values of the derivatives meet established thresholds. Deposits in these collateral accounts consisted of $213.0 and $265.6 million at December 31, 2005 and 2004, respectively, in cash received by the Company from counterparties, which was included within other liabilities on the accompanying consolidated balance sheet.        Mortgage loans held for sale and commitments to purchase/originate mortgages — The Company uses derivative financial instruments to manage its exposure to risk associated with certain of its mortgage loans held for sale and commitments to purchase/originate mortgages. The Company designates a hedging relationship between most first mortgage loans held for sale and various derivative contracts for loans held by GMAC Residential. The Company assesses whether its hedge is highly effective if it meets thresholds for R-squared, Slope and F-statistic. Hedge ineffectiveness is measured as the difference between the  137    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   change in the value of the hedge assets and the change in the value of the designated derivatives and is recognized in earnings in the current period.        Prior to mortgage funding, the Company often enters into an interest rate lock commitment with borrowers whereby the Company commits to a particular interest rate, provided the borrower elects to close the loan. After the loans are funded, the Company’s prime conforming and government mortgage loans held for sale are sold into the secondary market to various investors, primarily as mortgage-backed securities sponsored by Fannie Mae, Freddie Mac and Ginnie Mae. Mortgage loans that are not eligible for agency sponsored securitization (non-conforming and nonprime) are sold through public or private securitization transactions or in whole loan sales. During the time between the loan’s funding or interest rate lock commitment and its sale to the secondary market, the Company is exposed to certain risks. The primary risk associated with its locked pipeline (loans with interest rate lock commitments not yet closed) and warehouse (closed loans) is a decrease in the fair value of the loans due to an unfavorable fluctuation in interest rates. The Company’s primary strategy to protect against this risk is selling loans or mortgage-backed securities forward to investors using mandatory and optional forward commitments.        Interest rate lock commitments are specifically prohibited from being designated as a hedged asset in a fair value hedging relationship. However, certain loan commitments to purchase or originate mortgages have been defined as derivatives and are therefore recorded on the balance sheet as assets or liabilities, and measured at fair value. Subsequent changes in fair value from the time of the rate lock are recognized as assets or liabilities, with a corresponding adjustment to current period earnings. The determination of the change in fair value does not include an estimate of the future mortgage servicing right that will arise when the loan is sold. Commitments to originate or purchase mortgage loans held for sale accounted for as derivatives had an unrealized gain position of $36.9 and $8.3 million recorded in other assets and an unrealized loss position of $0.7 and $22.7 million recorded in other liabilities at December 31, 2005 and 2004, respectively.        As of December 31, 2005 and 2004, the Company had forward delivery commitments to sell mortgages and/or mortgage-backed securities into mandatory delivery contracts with investment bankers, private mortgage investors and agency mortgage-backed securities, as well as options and futures contracts outstanding on U.S. Treasury instruments and Eurodollar futures. The Company is required to deposit cash in margin accounts maintained by counterparties for unrealized losses on futures contracts. Deposits in margin accounts were $10.5 and $10.1 million at December 31, 2005 and 2004, respectively, and are included in accounts receivable.        Senior unsecured notes — The Company utilizes interest rate swaps to convert U.S. dollar denominated fixed-rate notes to a variable rate. The terms of the swaps match the terms of the related notes.           Cash Flow Hedges         The Company hedges cash flows primarily related to debt treated as secured borrowings issued as part of its securitizations. Cash flows are hedged on existing variable rate debt as well as forecasted fixed rate debt.        The primary risk associated with variable rate debt is changes in market rates, which may cause variability in future interest payments. The Company uses interest rate swaps to hedge the variability in expected future cash flows attributable to the variable rate debt. Effectiveness is measured using appropriate methods under GAAP. The effective portion of the gain or loss on the change in the fair value is reported in other comprehensive income (OCI), a component of stockholder’s equity, and the ineffective portion recognized in current period earnings.  138    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        The primary risk associated with fixed rate debt is changes in market rates prior to the issuance of the fixed rate debt causing variability in future cash flows related to the debt issuance. The Company’s primary strategy to hedge against this risk is to sell U.S. Treasury and/or mortgage-backed securities forward. The hedging relationship ceases when the debt is issued. While the hedging relationship exists, effectiveness is measured with the effective portion of the gain or loss on the change in the fair value of the hedging instrument reported in OCI and the ineffective portion is recognized in current period earnings. As the hedged item impacts earnings, the effective portion is reclassified into earnings.           Derivatives Not Designated as Accounting Hedges         The Company utilizes certain derivative financial instruments to manage interest rate, price and foreign exchange risks that do not qualify or are not designated as accounting hedges. These derivatives are used to manage risk associated with trading securities, mortgage loans held for sale, and mortgage loans held for investment. Because these derivatives are not designated as accounting hedges, changes in the fair value of these derivatives are recognized in earnings each period.        The Company enters into loan purchase agreements with certain third parties. These agreements require the Company to remit to third parties certain cash flows from these loans. These agreements meet the definition of a derivative and are carried at fair value. At December 31, 2005 and 2004, the Company recorded a liability of $70.4 and $44.2 million, respectively, for these obligations, which are included in other liabilities.        The Company has elected not to treat currency swaps used to convert foreign currency denominated assets and liabilities into the functional currency at a floating rate as hedges for accounting purposes. The Company has elected this treatment because the changes in the fair values of the currency swaps are substantially offset by the foreign currency revaluation gains and losses of the underlying debt.           Income Statement Presentation         The following table summarizes the pretax earnings impact of the changes in hedge ineffectiveness for each type of accounting hedge classification segregated by the asset or liability hedged:                                       Year Ended December 31,   2005   2004   2003   Income Statement Classification                           (In thousands)             Fair value hedge ineffectiveness gain (loss):                                        Mortgage servicing rights    $ 56,791     $ 69,888     $ 347,835          Servicing asset valuation and hedge gain           Mortgage loans held for sale      (22,680 )     (9,500 )     (1,674 )        Gain on sale of mortgage loans           Senior unsecured notes      (1,553 )     —       —          Interest expense         Cash flow hedge ineffectiveness gain (loss):                                        Debt and future debt issuance      5,773       (3,535 )     (1,212 )        Interest expense                                   Total    $ 38,331     $ 56,853     $ 344,949                                    139    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        The following table summarizes the component of the derivative instruments’ gain (loss) excluded from the assessment of hedge effectiveness and the reclassification from other comprehensive income to earnings expected to occur in the next 12 months:                                 Year Ended December 31,   2005   2004   2003                       (In thousands)         Net gain on fair value hedges excluded from assessment of     effectiveness (time component)    $ 59,233     $ 180,414     $ 174,948           Expected reclassifications from other comprehensive income to     earnings in the next 12 months      10,716       101,473       (32,171 )     23.     Guarantees, Commitments, and Contingencies           Guarantees         Guarantees are defined as contracts or indemnification agreements that contingently require the Company to make payments to third parties based on changes in an underlying agreement that is related to a guaranteed party. The following summarizes the Company’s outstanding guarantees made to third parties.                                               2005   2004                       Carrying       Carrying       Maximum   Value   Maximum   Value   December 31,   Liability   of Liability   Liability   of Liability                           (In thousands)         Standby letters of credit    $ 48,074     $ 220     $ 69,070     $ 245           Securitization and sales:                                            HLTV and international securitizations      204,637       574       450,055       11,208             Mortgage-related securities      —       —       30,896       29,210           Agency loan program      6,196,091       —       4,711,372       —           Servicing advances      *       3,421       —       —           Set-aside letters      53,523       109       84,876       236           Repurchase guarantees      256,335       96       —       —           Credit enhancement guarantees      24,894       335       7,868       250           Performance guarantees      4,264       —       —       —           Other      47,654       —       42,586       —                 *       The maximum obligation for servicing advances cannot be     determined. At any point in time, the maximum obligation would     be the difference between the amount advanced to the owners of     the mortgage loans and the amount received from mortgagees.         Standby letters of credit — The Company issues financial standby letters of credit as part of its warehouse and construction lending activities. Expiration dates on the letters of credit range from 2006 to ongoing commitments and are generally collateralized by assets of the client.        HLTV and international securitizations — The Company has entered into agreements to provide credit loss protection for certain HLTV and international securitization transactions. The maximum potential obligation for certain agreements is equal to the lesser of a specified percentage of the original loan pool balance or a specified percentage of the current loan pool balance. The Company is required to perform on its guaranty obligation when losses exceed cash available each period. The Company has pledged mortgage loans held for sale of $53.4 and $96.9 million and cash of $43.1 and $58.1 million as collateral for this obligation as of December 31, 2005 and 2004, respectively.        For certain other HLTV securitizations, the maximum potential obligation is equivalent to the pledged collateral amount. The Company pledged mortgage loans held for sale totaling $70.4 and  140    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   $133.3 million as of December 31, 2005, and 2004, respectively. The event, which will require the Company to perform on its guaranty obligation, occurs when the security credit enhancements are exhausted and losses are passed through to over-the-counter dealers. The guarantees terminate the first calendar month during which the security aggregate note amount is reduced to zero.        Mortgage-related securities — The Company had contingent obligations related to prepayment risk on sales of certain mortgage-related securities. The obligations required payment of remaining principal upon maturity of senior classes of issued securities and were capped at $31 million with this cap decreasing as the underlying securities paid down. This obligation matured and was paid in January of 2005.        Agency loan program — The Company delivers loans to certain agencies under programs that allow streamlined loan processing and limited documentation requirements. In the event any loans delivered under these programs reach a specified delinquency status, the Company may be required to provide certain required documentation, or in some cases, repurchase the loan or indemnify the investor for any losses sustained. Each program includes termination features whereby once the loan has performed satisfactorily for a specified period of time, the Company is no longer obligated under the program. The maximum liability amount represents the principal balance for loans sold under these programs at that point in time.        Third-party debt guarantees — Under certain arrangements, the Company guarantees the repayment of third-party debt obligations in the case of default. Some of these guarantees are collateralized by letters of credit.        Set-aside letters — In the event of default or cessation of work by a developer who has borrowed funds, the Company may be required to release set-aside funds to the Surety/General Contractor for the purpose of funding the completion of the project.        Repurchase guarantees — The Company has issued repurchase guarantees to buyers of certain mortgage loans whereby in the event that a closing condition or document deficiency is identified by an investor after the closing, the Company may be required to indemnify the investor in the event that the loan becomes delinquent.        Credit enhancement guarantees — The Company has sold certain mortgage loans to investors which contain a guarantee for the payment of the third-party debt.        Performance guarantees — The Company issues performance guarantees to certain real estate projects’ beneficiaries. In the event that a beneficiary incurs costs to complete a project or had a letter of credit issued by the beneficiary that was drawn upon, the Company is required to reimburse the beneficiary.        Other — In connection with two International Swap Dealers Association agreements, the Company guarantees the payment of all amounts payable to the counterparties in each swap transaction. The agreement is in effect until canceled by the Company. The estimated maximum potential obligation under these guarantees totaled $23.0 and $15.0 million at December 31, 2005 and 2004, respectively. Also in connection with its hedging activities, the Company has entered into collateral agreements with counterparties to its mortgage servicing rights derivatives. As further discussed in Note 22, the agreements require both parties to maintain cash on deposit in the event the fair values of the derivatives exceed established thresholds.        In connection with certain acquisitions, the Company has guaranteed, under certain conditions, payments with a total estimated maximum of $24.7 and $27.6 million as of December 31, 2005 and 2004, respectively. There was no liability recorded in connection with these guarantees as of December, 31, 2005 and 2004. The guaranty for the most significant acquisition expires in 2007.  141    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)           Commitments and Contingencies         At December 31, 2005, the Company was obligated under non-cancelable operating leases for office space and equipment. Future minimum rental payments, including escalation clauses, under leases with terms of one year or more at December 31, 2005, were as follows:                 Year Ending December 31,                   (In thousands)         2006    $ 86,132           2007      74,892           2008      51,946           2009      29,813           2010      19,911           2011 and thereafter      49,404                   $ 312,098                      Rental expense recorded by the Company for the years ended December 31, 2005, 2004, and 2003 was $95.8, $92.8 and $90.3 million, respectively.        The Company is subject to potential liability under laws and government regulation and various claims and legal actions that are pending or may be asserted against it. Some of the pending actions purport to be class actions. Liabilities are established for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts established for those claims. Based on information currently available, advice of counsel, available insurance coverage and established liabilities, it is the opinion of management that the eventual outcome of the actions will not have a material adverse effect on the Company’s consolidated balance sheet, results of operations or cash flows.   24.     Related Party Transactions        The Company invested in GMAC Demand Notes resulting in interest income of $0.0, $0.1 and $0.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.        The Company paid GMAC guarantor fees of $0.0, $0.2 and $0.4 million for the years ended December 31, 2005, 2004 and 2003, respectively, for transactions where GMAC acted as a guarantor for certain of the Company’s obligations. In addition, the Company incurred interest expense of $330.2 and $81.4 million for the year ended December 31, 2005, $235.0 and $75.3 million for the year ended December 31, 2004, and $205.6 and $45.8 million for the year ended December 31, 2003, related to borrowings from GMAC and other GM affiliated entities, respectively.        The Company pays GMAC fees to guarantee the notes payable and other borrowings of its international subsidiaries. The Company paid GMAC fees of $1.5, $1.3 and $0.5 million for the years ended December 31, 2005, 2004 and 2003, respectively. The Company has agreed to reimburse GMAC for any losses related to these guarantees.        The Company has entered into an agreement with GM to provide certain services through the Company’s call center operations. In exchange for these services, the Company received $3.1, $9.5 and $18.7 million from GM during the years ended December 31, 2005, 2004 and 2003, respectively.        During 2004, the Company entered into a participation agreement with GMAC, which includes provisions that require GMAC to purchase commercial real estate lending receivables from the Company at the Company’s request, upon loan default or occurrence of other specified events.  142    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        The Company provides working capital funding and construction lending financing for a subsidiary of an equity method investee. The subsidiary of the investee had outstanding working capital balances of $25.6 and $32.0 million at December 31, 2005 and 2004, respectively. The Company recognized interest income of $3.4, $3.9 and $4.0 million for the years ended December 31, 2005, 2004 and 2003, respectively, on these balances. The subsidiary of the investee had outstanding construction lending balances of $156.2 and $115.8 million at December 31, 2005 and 2004, respectively. The Company recognized interest income on these receivables of $8.4, $6.2 and $6.5 million for the years ended December 31, 2005, 2004 and 2003, respectively.        The Company provides working capital and warehouse funding to other equity method investees. The investees had outstanding working capital balances of $0.0 and $17.1 million at December 31, 2005 and 2004, respectively. The Company recognized interest income of $0.0, $0.2 and $0.3 million for the years ended December 31, 2005, 2004 and 2003, respectively, on these balances. Outstanding warehouse lending balances for the investees were $158.3 and $159.3 million as of December 31, 2005 and 2004, respectively. The Company recognized interest income on these receivables of $8.7, $5.0 and $4.4 million for the years ended December 31, 2005, 2004 and 2003, respectively. The Company purchased $320.2 and $826.4 million of loans at market prices from the investee during 2005 and 2004, respectively.        The Company had short-term receivables from unconsolidated affiliates of $18.8 and $13.8 million included within accounts receivable at December 31, 2005 and 2004, respectively.        The Company provides global relocation services to GMAC for certain relocations of their employees. The Company received $5.8 and $6.5 million for such services in 2005 and 2004, respectively. In addition, GM and GMAC paid mortgage-related fees for certain of their employees of $5.9 and $7.0 million for 2005 and 2004, respectively.        GMAC has provided the Company with certain services for which a management fee was paid. The Company paid GMAC management fees of $8.7 and $5.4 million for 2005 and 2004, respectively.        The Company paid fees to GMAC for access to a revolving line of credit. The Company paid fees of $2.9 million in 2005. This line of credit was terminated in December 2005.   25.     Mortgage Loans Serviced        The Company’s primary servicing portfolio consists of loans owned by the Company, loans sold to third-party investors where the Company has retained the servicing rights and loans that have never been and currently are not owned by the Company. Additionally, the Company master services mortgage-backed securities and whole loan packages issued for investors. At December 31, 2005, the Company’s mortgage loan primary servicing portfolio consists of the following:                                                                   Weighted-   Weighted-           Unpaid   Weighted-   Average   Average       Number   Principal   Average   Remaining   Service       of Loans   Balance   Coupon   Maturity Months   Fees                               (Dollars in thousands)         Prime conforming      1,393,379     $ 186,404,390       5.82 %     293       0.43 %         Prime non-conforming      325,453       89,252,680       5.76       313       0.25           Nonprime      562,903       67,776,541       7.88       306       0.36           Prime second-lien      501,634       17,108,065       8.22       201       0.33           Government      181,679       18,098,329       5.85       321       0.49                                               Total      2,965,048     $ 378,640,005                                                                143    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)        The Company performs, or pays third parties to perform, primary servicing on loans in all fifty states, Europe and Canada. At December 31, 2005, the five largest concentrations for the Company’s servicing portfolio are as follows:                       California      19.8 %         Florida      6.0           Michigan      4.6           United Kingdom      4.3           Texas      4.3           All other      61.0                     Total      100.0 %                    As of December 31, 2005, the Company was acting as sub-servicer for 272,427 loans with an unpaid principal balance of $39.1 billion. These loans are excluded from the primary servicing portfolio above.        At December 31, 2005 and 2004, the Company has fiduciary responsibility for mortgage escrow and custodial funds totaling approximately $7.7 and $6.1 billion, respectively. The amount of funds segregated in custodial bank accounts, which are not included in the assets and liabilities of the Company, were $6.3 and $4.8 billion at December 31, 2005 and 2004, respectively. The remaining funds are deposited at GMAC Bank and are included in deposit liabilities in the consolidated balance sheet.        In connection with its servicing activities, the Company makes certain payments of property taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before collecting them from specific mortgagors or primary servicers. These advances are included in accounts receivable in the consolidated balance sheet and totaled $900.4 and $604.2 million at December 31, 2005 and 2004, respectively. Servicing advances receive priority cash flows, including contractual interest, in the event of foreclosure or liquidation, thus making their collection reasonably assured. The Company maintains an allowance for uncollected servicing advances which totaled $4.7 and $1.9 million at December 31, 2005 and 2004, respectively.   26.     Segment Information        Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The operating segments are managed separately as each operating segment represents a strategic business unit that offers different products and/or serves different markets.        The Company has four reportable operating business segments: GMAC Residential, Residential Capital Group, Business Capital Group and International Business Group. Other includes the Company’s real estate brokerage and relocation business, Mexican distressed asset business, GMAC-RFC Holding Corp.’s holding company activities and certain adjustments to conform management reporting to the consolidated results. The accounting policies of the operating segments are the same as those described in Note 2 except that the disaggregated financial results have been prepared using a management approach, which is substantially consistent with the basis and manner in which management internally disaggregates  144    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   financial information for the purposes of assisting the operating decision-making process. Intersegment sales and transfers are not significant. Financial results for the Company’s segments are as follows:                                                                         Residential   Business   International                   GMAC   Capital   Capital   Business   Corporate and           Year Ended December 31,   Residential   Group   Group   Group   Other   Eliminations   Consolidated                                       (In thousands)     2005                                                                  Net interest income (expense)    $ 289,838     $ 1,336,230     $ 147,894     $ 152,156     $ (1,123 )   $ —     $ 1,924,995           Provision for loan losses      (3,034 )     (621,272 )     (25,847 )     (1,678 )     35       —       (651,796 )         Other income      1,199,537       741,321       280,552       232,068       509,697       (1,114 )     2,962,061                                                         Total net revenue      1,486,341       1,456,279       402,599       382,546       508,609       (1,114 )     4,235,260           Operating expenses      954,314       822,629       81,213       253,298       496,880       —       2,608,334                                                         Income before income tax expense      532,027       633,650       321,386       129,248       11,729       (1,114 )     1,626,926           Income tax expense (benefit)      224,599       238,099       120,809       39,159       (15,938 )     (428 )     606,300                                                         Net income    $ 307,428     $ 395,551     $ 200,577     $ 90,089     $ 27,667     $ (686 )   $ 1,020,626                                                         Total assets    $ 23,058,446     $ 77,225,029     $ 5,545,713     $ 10,694,661     $ 19,308,813     $ (16,947,570 )   $ 118,885,092                                                                                                                           Residential   Business   International                   GMAC   Capital   Capital   Business   Corporate and           Year Ended December 31,   Residential   Group   Group   Group   Other   Eliminations   Consolidated                                       (In thousands)     2004                                                                  Net interest income (expense)    $ 327,610     $ 2,050,190     $ 124,175     $ 105,474     $ (21,550 )   $ —     $ 2,585,899           Provision for loan losses      2,763       (819,971 )     (20,984 )     (4,494 )     (213 )     —       (842,899 )         Other income      942,554       406,140       208,799       176,861       489,372       —       2,223,726                                                         Total net revenue      1,272,927       1,636,359       311,990       277,841       467,609       —       3,966,726           Operating expenses      767,416       844,678       71,789       200,448       472,043       —       2,356,374                                                         Income before income tax expense      505,511       791,681       240,201       77,393       (4,434 )     —       1,610,352           Income tax expense (benefit)      224,950       302,796       91,877       26,075       (3,558 )     —       642,140                                                         Net income (loss)    $ 280,561     $ 488,885     $ 148,324     $ 51,318     $ (876 )   $ —     $ 968,212                                                         Total assets    $ 15,325,139     $ 66,856,173     $ 4,429,835     $ 8,133,785     $ (393,634 )   $ (1,834 )   $ 94,349,464                                                    145    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)                                                                         Residential   Business   International                   GMAC   Capital   Capital   Business   Corporate           Year Ended December 31,   Residential   Group   Group   Group   and Other   Eliminations   Consolidated                                       (In thousands)     2003                                                                  Net interest income (expense)    $ 385,700     $ 1,581,557     $ 81,148     $ 52,292     $ (20,754 )   $ —     $ 2,079,943           Provision for loan losses      (7,960 )     (380,345 )     (62,563 )     (2,198 )     (436 )     —       (453,502 )         Other income      1,079,226       329,515       136,048       126,250       429,029       —       2,100,068                                                         Total net revenue      1,456,966       1,530,727       154,633       176,344       407,839       —       3,726,509           Operating expenses      891,620       786,935       54,664       138,628       488,726       —       2,360,573                                                         Income before income tax expense      565,346       743,792       99,969       37,716       (80,887 )     —       1,365,936           Income tax expense (benefit)      204,865       284,533       38,238       13,677       (32,192 )     —       509,121                                                         Net income (loss)    $ 360,481     $ 459,259     $ 61,731     $ 24,039     $ (48,695 )   $ —     $ 856,815                                                         Total assets    $ 13,879,801     $ 55,207,175     $ 3,045,471     $ 6,033,436     $ 394,803     $ (1,096 )   $ 78,559,590                                                          Information concerning principal geographic areas is presented in the following table. Revenue consists of total net revenue and long-lived assets consist of net operating lease assets, goodwill, intangible assets and property and equipment. These items are attributed to geographic areas based on the location of the assets.                                 Long-Lived   Year Ended December 31,   Revenue   Assets                   (In thousands)     2005                          Europe    $ 321,555     $ 90,556           Canada      35,272       18,901           Mexico      99,756       773           Asia Pacific      1,207       100                           Total foreign      457,790       110,330           Total domestic      3,777,470       560,181                           Total    $ 4,235,260     $ 670,511                       2004                          Europe    $ 235,843     $ 101,654           Canada      25,665       16,648           Mexico      51,029       901           Asia Pacific      931       133                           Total foreign      313,468       119,336           Total domestic      3,653,258       541,104                           Total    $ 3,966,726     $ 660,440                       2003                          Europe    $ 162,897     $ 83,916           Canada      6,074       15,815           Mexico      48,215       1,175           Asia Pacific      506       152                           Total foreign      217,692       101,058           Total domestic      3,508,817       523,752                           Total    $ 3,726,509     $ 624,810                      146    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)         27.  Regulatory Matters         Certain subsidiaries of the Company associated with the Company’s mortgage and real estate operations are required to meet certain regulatory net worth requirements. Failure to meet minimum capital requirements can initiate certain mandatory actions by federal and state agencies that could have a material effect on the Company’s results of operations and financial condition. These entities were in compliance with these requirements as of December 31, 2005.        As a federally chartered savings bank regulated by the Office of Thrift Supervision, GMAC Bank has complied with the following regulatory capital guidelines:                                                     Actual at               December 31       Minimum   Minimum to be           Required   Well-Capitalized   2005   2004                             Tier 1 leverage      4 %     5 %     7.3 %     11.9 %         Tier 1 risk-based capital      4       6       11.5       17.3           Total risk-based capital      8       10       11.6       17.5             28.  Supplemental Financial Information         The following supplemental financial information presents the condensed consolidating balance sheet, statement of income and statement of cash flows for the Company, the guarantor and non-guarantor subsidiaries. The senior unsecured notes issued by the Company are unconditionally and jointly and severally guaranteed by certain domestic subsidiaries.        As a holding company, the Company is dependent upon dividends and other payments from its subsidiaries to generate the funds necessary to meet potential future obligations. The Company and any guarantor subsidiary are able to control receipt of dividends and other payments from that respective subsidiaries subject to the satisfaction of covenants and conditions contained in any existing and future financing documents. Certain statutory restrictions or regulatory constraints may also restrict the payment of amounts to the Company or any guarantor subsidiary.  147    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   RESIDENTIAL CAPITAL CORPORATION   CONDENSED CONSOLIDATING BALANCE SHEET   December 31, 2005                                                             Guarantor   Non-Guarantor               Parent   Subsidiaries   Subsidiaries   Eliminations   Consolidated                               (In thousands)     ASSETS                                                  Cash and cash equivalents    $ 1,626,814     $ 158,167     $ 556,252     $ (74,480 )   $ 2,266,753           Mortgage loans held for sale      —       5,681,618       13,839,159       789       19,521,566           Trading securities      —       2,538,042       1,357,966       —       3,896,008           Available for sale securities      —       1,733,792       135,434       (800,289 )     1,068,937           Mortgage loans held for investment, net      —       3,368,743       64,609,179       (85,262 )     67,892,660           Lending receivables, net      —       1,708,764       11,691,200       1,083       13,401,047           Mortgage servicing rights, net      —       4,010,165       4,850       —       4,015,015           Accounts receivable      6,661       984,269       1,179,505       (219,225 )     1,951,210           Investments in real estate and other      —       261,287       1,594,011       —       1,855,298           Goodwill      —       218,803       240,965       —       459,768           Other assets      95,129       5,856,223       1,652,992       (5,047,514 )     2,556,830           Investment in and loans to subsidiaries      16,885,741       3,635,143       —       (20,520,884 )     —                                             Total assets    $ 18,614,345     $ 30,155,016     $ 96,861,513     $ (26,745,782 )   $ 118,885,092                                             LIABILITIES                                                  Borrowings:                                                    Affiliate borrowings    $ 4,130,000     $ 10,427,971     $ 1,047,462     $ (10,427,971 )   $ 5,177,462             Collateralized borrowings in securitization trusts      —       —       56,097,801       —       56,097,801             Other borrowings      6,900,519       10,142,507       26,275,899       (1,018,418 )     42,300,507                                                 Total borrowings      11,030,519       20,570,478       83,421,162       (11,446,389 )     103,575,770           Deposit liabilities      —       —       4,212,784       (89,480 )     4,123,304           Other liabilities      119,856       3,126,768       5,597,193       (5,121,769 )     3,722,048                                             Total liabilities      11,150,375       23,697,246       93,231,139       (16,657,638 )     111,421,122           STOCKHOLDER’S EQUITY                                                  Common stock and paid-in capital      3,367,677       2,367,676       1,333,427       (3,701,103 )     3,367,677           Retained earnings      3,980,587       3,974,388       2,165,466       (6,139,854 )     3,980,587           Accumulated other comprehensive income      115,706       115,706       131,481       (247,187 )     115,706                                             Total stockholder’s equity      7,463,970       6,457,770       3,630,374       (10,088,144 )     7,463,970                                             Total liabilities and stockholder’s equity    $ 18,614,345     $ 30,155,016     $ 96,861,513     $ (26,745,782 )   $ 118,885,092                                        148    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   RESIDENTIAL CAPITAL CORPORATION   CONDENSED CONSOLIDATING BALANCE SHEET   December 31, 2004                                                             Guarantor   Non-Guarantor               Parent   Subsidiaries   Subsidiaries   Eliminations   Consolidated                               (In thousands)     ASSETS                                                  Cash and cash equivalents    $ —     $ 648,511     $ 293,712     $ (43,140 )   $ 899,083           Mortgage loans held for sale      —       3,143,434       10,889,347       —       14,032,781           Trading securities      —       1,043,475       1,682,676       (11,451 )     2,714,700           Available for sale securities      —       1,931,851       113,096       (800,289 )     1,244,658           Mortgage loans held for investment, net      —       3,316,144       53,516,238       2,974       56,835,356           Lending receivables, net      —       2,154,450       7,205,728       (2,781 )     9,357,397           Mortgage servicing rights, net      —       3,362,749       3,243       —       3,365,992           Accounts receivable      —       1,201,725       909,644       (952 )     2,110,417           Investments in real estate and other      —       216,172       1,181,074       —       1,397,246           Goodwill      —       214,073       240,205       —       454,278           Other assets      —       835,893       1,260,676       (159,013 )     1,937,556           Investment in subsidiaries      —       2,789,850       —       (2,789,850 )     —                                             Total assets    $ —     $ 20,858,327     $ 77,295,639     $ (3,804,502 )   $ 94,349,464                                             LIABILITIES                                                  Borrowings:                                                    Affiliate borrowings    $ —     $ 8,117,000     $ 1,889,242     $ —     $ 10,006,242             Collateralized borrowings in securitization trusts      —       1,220       50,718,707       (11,451 )     50,708,476             Other borrowings      —       8,089,244       16,417,476       (803,070 )     23,703,650                                                 Total borrowings      —       16,207,464       69,025,425       (814,521 )     84,418,368           Deposit liabilities      —       —       1,708,110       (43,140 )     1,664,970           Other liabilities      —       285,118       3,773,239       (157,976 )     3,900,381                                             Total liabilities      —       16,492,582       74,506,774       (1,015,637 )     89,983,719           STOCKHOLDER’S EQUITY                                                  Common stock and paid-in capital      —       1,246,778       1,173,043       (1,173,043 )     1,246,778           Retained earnings      —       2,959,961       1,463,941       (1,463,941 )     2,959,961           Accumulated other comprehensive income      —       159,006       151,881       (151,881 )     159,006                                             Total stockholder’s equity      —       4,365,745       2,788,865       (2,788,865 )     4,365,745                                             Total liabilities and stockholder’s equity    $ —     $ 20,858,327     $ 77,295,639     $ (3,804,502 )   $ 94,349,464                                        149    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   RESIDENTIAL CAPITAL CORPORATION   CONDENSED CONSOLIDATING STATEMENT OF INCOME   Year Ended December 31, 2005                                                         Guarantor   Non-Guarantor               Parent   Subsidiaries   Subsidiaries   Eliminations   Consolidated                               (In thousands)     Revenue                                                  Interest income    $ 422,721     $ 1,133,814     $ 4,664,518     $ (423,956 )   $ 5,797,097           Interest expense      406,437       746,299       3,164,078       (444,712 )     3,872,102                                             Net interest income      16,284       387,515       1,500,440       20,756       1,924,995           Provision for loan losses      —       149,577       512,403       (10,184 )     651,796                                             Net interest income after provision for loan losses      16,284       237,938       988,037       30,940       1,273,199           Gain on sale of mortgage loans, net      —       727,633       339,986       (30,950 )     1,036,669           Servicing fees      —       1,420,086       (1,296 )     (2,510 )     1,416,280           Amortization and impairment of servicing rights      —       (761,674 )     (314 )     —       (761,988 )         Servicing asset valuation and hedge gain, net      —       17,186       —       —       17,186                                             Net servicing fees      —       675,598       (1,610 )     (2,510 )     671,478           Gain (loss) on investment securities, net      (1,553 )     134,859       102,493       563       236,362           Real estate related revenues      —       132,345       579,829       —       712,174           Other income      —       193,718       216,071       (104,411 )     305,378                                             Total net revenue      14,731       2,102,091       2,224,806       (106,368 )     4,235,260           Expenses                                                  Compensation and benefits      —       866,030       540,900       —       1,406,930           Professional fees      15       165,688       46,707       —       212,410           Data processing and telecommunications      —       139,208       60,641       —       199,849           Advertising      —       131,766       26,922       —       158,688           Occupancy      —       75,015       46,286       —       121,301           Other      4,677       322,868       299,542       (117,931 )     509,156                                             Total expenses      4,692       1,700,575       1,020,998       (117,931 )     2,608,334                                             Income (loss) before income tax expense      10,039       401,516       1,203,808       11,563       1,626,926           Income tax expense      3,840       169,775       422,283       10,402       606,300                                             Income (loss) before equity in net earnings of subsidiaries      6,199       231,741       781,525       1,161       1,020,626           Equity in net earnings of subsidiaries      1,014,427       782,686       —       (1,797,113 )     —                                         Net income    $ 1,020,626     $ 1,014,427     $ 781,525     $ (1,795,952 )   $ 1,020,626                                        150    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   RESIDENTIAL CAPITAL CORPORATION   CONDENSED CONSOLIDATING STATEMENT OF INCOME   Year Ended December 31, 2004                                                         Guarantor   Non-Guarantor               Parent   Subsidiaries   Subsidiaries   Eliminations   Consolidated                               (In thousands)     Revenue                                                  Interest income    $ —     $ 759,816     $ 4,258,905     $ (27,840 )   $ 4,990,881           Interest expense      —       354,805       2,087,786       (37,609 )     2,404,982                                             Net interest income      —       405,011       2,171,119       9,769       2,585,899           Provision for loan losses      —       264,536       578,363       —       842,899                                             Net interest income after provision for loan losses      —       140,475       1,592,756       9,769       1,743,000           Gain on sale of mortgage loans, net      —       437,963       264,220       (5,280 )     696,903           Servicing fees      —       1,303,354       (6,843 )     (2,255 )     1,294,256           Amortization and impairment of servicing rights      —       (1,003,745 )     480       —       (1,003,265 )         Servicing asset valuation and hedge gain, net      —       214,911       —       —       214,911                                             Net servicing fees      —       514,520       (6,363 )     (2,255 )     505,902           Gain (loss) on investment securities, net      —       96,383       (32,680 )     —       63,703           Real estate related revenues      —       107,810       541,429       —       649,239           Other income      —       163,470       249,698       (105,189 )     307,979                                             Total net revenue      —       1,460,621       2,609,060       (102,955 )     3,966,726           Expenses                                                  Compensation and benefits      —       708,259       508,278       —       1,216,537           Professional fees      —       175,549       49,167       —       224,716           Data processing and telecommunications      —       144,689       46,387       —       191,076           Advertising      —       125,288       26,057       —       151,345           Occupancy      —       69,554       38,011       —       107,565           Other      —       275,264       272,903       (83,032 )     465,135                                             Total expenses      —       1,498,603       940,803       (83,032 )     2,356,374                                             Income (loss) before income tax expense      —       (37,982 )     1,668,257       (19,923 )     1,610,352           Income tax expense      —       49,084       600,479       (7,423 )     642,140                                             Income (loss) before equity in net earnings of subsidiaries      —       (87,066 )     1,067,778       (12,500 )     968,212           Equity in net earnings of subsidiaries      —       1,055,278       —       (1,055,278 )     —                                         Net income    $ —     $ 968,212     $ 1,067,778     $ (1,067,778 )   $ 968,212                                        151    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   RESIDENTIAL CAPITAL CORPORATION   CONDENSED CONSOLIDATING STATEMENT OF INCOME   Year Ended December 31, 2003                                                         Guarantor   Non-Guarantor               Parent   Subsidiaries   Subsidiaries   Eliminations   Consolidated                               (In thousands)     Revenue                                                  Interest income    $ —     $ 1,051,237     $ 2,432,591     $ (1,176 )   $ 3,482,652           Interest expense      —       416,661       995,539       (9,491 )     1,402,709                                             Net interest income      —       634,576       1,437,052       8,315       2,079,943           Provision for loan losses      —       223,966       229,536               453,502                                             Net interest income after provision for loan losses      —       410,610       1,207,516       8,315       1,626,441           Gain on sale of mortgage loans, net      —       1,483,472       257,766       5,087       1,746,325           Servicing fees      —       1,188,299       (2,598 )     —       1,185,701           Amortization and impairment of servicing rights      —       (2,020,661 )     5,747       —       (2,014,914 )         Servicing asset valuation and hedge gain, net      —       507,244       —       —       507,244                                             Net servicing fees      —       (325,118 )     3,149       —       (321,969 )         Gain (loss) on investment securities, net      —       168,902       (391,704 )     —       (222,802 )         Real estate related revenues      —       29,381       471,033       —       500,414           Other income      —       281,456       245,270       (128,626 )     398,100                                             Total net revenue      —       2,048,703       1,793,030       (115,224 )     3,726,509           Expenses                                                  Compensation and benefits      —       753,155       435,608       —       1,188,763           Professional fees      —       138,928       30,452       —       169,380           Data processing and telecommunications      —       135,182       54,102       —       189,284           Advertising      —       103,965       23,755       —       127,720           Occupancy      —       65,612       33,958       —       99,570           Other      —       365,548       348,935       (128,627 )     585,856                                             Total expenses      —       1,562,390       926,810       (128,627 )     2,360,573                                             Income before income tax expense      —       486,313       866,220       13,403       1,365,936           Income tax expense      —       194,412       309,752       4,957       509,121                                             Income before equity in net earnings of subsidiaries      —       291,901       556,468       8,446       856,815           Equity in net earnings of subsidiaries      —       564,914       —       (564,914 )     —                                         Net income    $ —     $ 856,815     $ 556,468     $ (556,468 )   $ 856,815                                        152    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   RESIDENTIAL CAPITAL CORPORATION   CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS   Year Ended December 31, 2005                                                         Guarantor   Non-Guarantor               Parent   Subsidiaries   Subsidiaries   Eliminations   Consolidated                               (In thousands)         NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES    $ 20,529     $ (23,247,733 )   $ (2,657,083 )   $ (262,829 )   $ (26,147,116 )         CASH FLOWS FROM INVESTING ACTIVITIES:                                                  Net (increase) decrease in lending receivables      —       414,063       (4,388,826 )     —       (3,974,763 )         Originations and purchases of mortgage loans held for investment      —       (14,818,629 )     (5,347,369 )     84,138       (20,081,860 )         Proceeds from sales and repayments of mortgage loans held for     investment      —       5,078,443       22,450,215       —       27,528,658           Purchases of available for sale securities      —       (551,489 )     (47,124 )     —       (598,613 )         Proceeds from sales and repayments of available for sale     securities      —       724,436       22,779       —       747,215           Additions to mortgage servicing rights      —       (263,737 )     (2,852 )     —       (266,589 )         Sales of mortgage servicing rights      —       207,591       —       —       207,591           Purchase of and advances to investments in real estate and other      —       (47,300 )     (1,201,953 )     —       (1,249,253 )         Proceeds from sales of and returns of investments in real estate     and other      —       120,757       803,167       —       923,924           Acquisitions, net of cash acquired      —       —       (3,988 )     —       (3,988 )         Payment of capital contribution      —       (39,487 )     —       39,487       —           Net (increase) decrease in affiliate lending      (3,477,487 )     —       —       3,477,487       —           Other, net      (4,100 )     156,373       572,426       —       724,699                                             Net cash provided by (used in) investing activities      (3,481,587 )     (9,018,979 )     12,856,475       3,601,112       3,957,021           CASH FLOWS FROM FINANCING ACTIVITIES:                                                  Net increase (decrease) in affiliate borrowings      (1,879,000 )     3,310,972       (841,433 )     (3,418,972 )     (2,828,433 )         Net increase in other short-term borrowings      —       2,052,041       2,193,509       (2,615 )     4,242,935           Proceeds from issuance of collateralized borrowings in     securitization trusts      —       26,413,355       1,937,191       11,451       28,361,997           Repayments of collateralized borrowings in securitization trusts      —       —       (22,682,856 )     —       (22,682,856 )         Proceeds from secured aggregation facilities, long-term      —       —       7,896,054       —       7,896,054           Repayments of secured aggregation facilities, long-term      —       —       (3,157,448 )     —       (3,157,448 )         Proceeds from other long-term borrowings      7,003,053       —       2,622,226       —       9,625,279           Repayments of other long-term borrowings      —       —       (210,000 )     —       (210,000 )         Payments of debt issuance costs      (36,181 )     —       (85,232 )     —       (121,413 )         Proceeds from capital contribution      —       —       39,487       (39,487 )     —           Dividends paid      —       —       (80,000 )     80,000       —           Increase in deposit liabilities      —       —       2,458,334       —       2,458,334                                             Net cash provided by (used in) financing activities      5,087,872       31,776,368       (9,910,168 )     (3,369,623 )     23,584,449           Effect of foreign exchange rates on cash and     cash equivalents      —       —       (26,684 )     —       (26,684 )                                           NET DECREASE IN CASH AND CASH EQUIVALENTS      1,626,814       (490,344 )     262,540       (31,340 )     1,367,670           CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR      —       648,511       293,712       (43,140 )     899,083                                             CASH AND CASH EQUIVALENTS AT END OF YEAR    $ 1,626,814     $ 158,167     $ 556,252     $ (74,480 )   $ 2,266,753                                         SUPPLEMENTAL DISCLOSURES FOR NON-CASH TRANSACTIONS:   Transfer of $14.9 billion of mortgage loans held for investment from guarantor subsidiaries to non-guarantor subsidiaries.   Transfer of $14.5 billion of collateralized borrowings in securitization trusts from guarantor subsidiaries to non-guarantor subsidiaries.   Transfer of ownership of subsidiaries from GMAC Mortgage Group to parent of $4.4 billion.   Transfer of affiliate debt of subsidiaries to parent of $8.0 billion.   Capital infusion in parent via forgiveness of debt from GMAC Mortgage Group of $2.0 billion.  153    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   RESIDENTIAL CAPITAL CORPORATION   CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS   Year Ended December 31, 2004                                                         Guarantor   Non-Guarantor               Parent   Subsidiaries   Subsidiaries   Eliminations   Consolidated                               (In thousands)       (Restated)(a)         NET CASH PROVIDED BY OPERATING ACTIVITIES    $ —     $ 1,768,711     $ 139,384     $ (210,702 )   $ 1,697,393           CASH FLOWS FROM INVESTING ACTIVITIES:                                                  Net (increase) decrease in lending receivables      —       349,026       (1,451,190 )     —       (1,102,164 )         Originations and purchases of mortgage loans held for investment      —       (37,137,192 )     (1,263,614 )     —       (38,400,806 )         Proceeds from sales and repayments of mortgage loans held for     investment      —       9,150,037       15,945,165       —       25,095,202           Purchases of available for sale securities      —       (1,103,427 )     (61,656 )     —       (1,165,083 )         Proceeds from sales and repayments of available for sale     securities      —       6,006       18,769       —       24,775           Additions to mortgage servicing rights      —       (240,659 )     (856 )     —       (241,515 )         Purchase of and advances to investments in real estate and other      —       (43,375 )     (840,465 )     —       (883,840 )         Proceeds from sales of and returns of investments in real estate     and other      —       137,140       636,237       —       773,377           Acquisitions, net of cash acquired      —       (11,764 )     —       —       (11,764 )         Payment of capital contribution      —       (37,196 )     —       37,196       —           Other, net      —       221,183       (12,087 )     —       209,096                                             Net cash provided by (used in) investing activities      —       (28,710,241 )     12,970,303       37,196       (15,702,722 )         CASH FLOWS FROM FINANCING ACTIVITIES:                                                  Net increase (decrease) in affiliate borrowings      —       (1,346,345 )     668,712       —       (677,633 )         Net increase in other short-term borrowings      —       1,249,313       1,739,379       —       2,988,692           Proceeds from issuance of collateralized borrowings in     securitization trusts      —       27,020,623       1,780,618       3,570       28,804,811           Repayments of collateralized borrowings in securitization trusts      —       —       (17,498,926 )     —       (17,498,926 )         Proceeds from other long-term borrowings      —       —       269,000       —       269,000           Repayments of other long-term borrowings      —       —       (220,000 )     —       (220,000 )         Payments of debt issuance costs      —       —       (102,618 )     —       (102,618 )         Proceeds from capital contribution      —       —       37,196       (37,196 )     —           Dividends paid      —       —       (185,000 )     185,000       —           Increase in deposit liabilities      —       —       383,515       —       383,515                                             Net cash provided by (used in) financing activities      —       26,923,591       (13,128,124 )     151,374       13,946,841           Effect of foreign exchange rates on cash and     cash equivalents      —       —       16,478       —       16,478                                             NET DECREASE IN CASH AND CASH EQUIVALENTS      —       (17,919 )     (1,959 )     (22,132 )     (42,010 )         CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR      —       666,430       295,671       (21,008 )     941,093                                             CASH AND CASH EQUIVALENTS AT END OF YEAR    $ —     $ 648,511     $ 293,712     $ (43,140 )   $ 899,083                                                   (a)       See Note 3 to the Consolidated Financial Statements for     matters that impacted the Condensed Consolidating Statement of     Cash Flows.    SUPPLEMENTAL DISCLOSURES FOR NON-CASH TRANSACTIONS:   Transfer of $27.4 billion of mortgage loans held for investment from guarantor subsidiaries to non-guarantor subsidiaries.   Transfer of $27.0 billion of collateralized borrowings in securitization trusts from guarantor subsidiaries to non-guarantor subsidiaries.  154   Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   RESIDENTIAL CAPITAL CORPORATION   CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS   Year Ended December 31, 2003                                                         Guarantor   Non-Guarantor               Parent   Subsidiaries   Subsidiaries   Eliminations   Consolidated                               (In thousands)       (Restated)(a)         NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES    $ —     $ 4,000,615     $ (7,886,637 )   $ 21,441     $ (3,864,581 )         CASH FLOWS FROM INVESTING ACTIVITIES:                                                  Net (increase) decrease in lending receivables      —       735,942       (1,892,500 )     —       (1,156,558 )         Originations and purchases of mortgage loans held for investment      —       (37,368,451 )     (412,760 )     (27,428 )     (37,808,639 )         Proceeds from sales and repayments of mortgage loans held for     investment      —       3,514,615       6,581,766       —       10,096,381           Purchases of available for sale securities      —       (1,994,868 )     (101,891 )     —       (2,096,759 )         Proceeds from sales and repayments of available for sale     securities      —       4,221,513       133,895       —       4,355,408           Additions to mortgage servicing rights      —       (402,856 )     (1,281 )     —       (404,137 )         Purchase of and advances to investments in real estate and other      —       (64,570 )     (795,753 )     —       (860,323 )         Proceeds from sales of and returns of investments in real estate     and other      —       42,318       386,573       —       428,891           Acquisitions, net of cash acquired      —       —       (1,599 )     —       (1,599 )         Payment of capital contribution      —       (393,161 )     —       393,161       —           Other, net      —       249,242       (55,600 )     —       193,642                                             Net cash provided by (used in) investing activities      —       (31,460,276 )     3,840,850       365,733       (27,253,693 )         CASH FLOWS FROM FINANCING ACTIVITIES:                                                  Net increase (decrease) in affiliate borrowings      —       (1,698,907 )     537,585       —       (1,161,322 )         Net increase (decrease) in other short-term borrowings      —       (2,518,276 )     7,747,997       203,687       5,433,408           Proceeds from issuance of collateralized borrowings in     securitization trusts      —       31,999,929       2,004,267       (218,708 )     33,785,488           Repayments of collateralized borrowings in securitization trusts      —       —       (6,741,881 )     —       (6,741,881 )         Proceeds from other long-term borrowings      —       —       305,000       —       305,000           Repayments of other long-term borrowings      —       —       (180,000 )     —       (180,000 )         Payments of debt issuance costs      —       —       (103,836 )     —       (103,836 )         Proceeds from capital contribution      —       —       393,161       (393,161 )     —           Increase in deposit liabilities      —       —       333,209       —       333,209                                             Net cash provided by financing activities      —       27,782,746       4,295,502       (408,182 )     31,670,066           Effect of foreign exchange rates on cash and     cash equivalents      —       —       7,359       —       7,359                                             NET INCREASE IN CASH AND CASH EQUIVALENTS      —       323,085       257,074       (21,008 )     559,151           CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR      —       343,345       38,597       —       381,942                                             CASH AND CASH EQUIVALENTS AT END OF YEAR    $ —     $ 666,430     $ 295,671     $ (21,008 )   $ 941,093                                                   (a)       See Note 3 to the Consolidated Financial Statements for     matters that impacted the Condensed Consolidating Statement of     Cash Flows.    SUPPLEMENTAL DISCLOSURES FOR NON-CASH TRANSACTIONS:   Transfer of $32.8 billion of mortgage loans held for investment from guarantor subsidiaries to non-guarantor subsidiaries.   Transfer of $32.0 billion of collateralized borrowings in securitization trusts from guarantor subsidiaries to non-guarantor subsidiaries.  155   Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)   29.     Quarterly Financial Data (Unaudited)                                               Three Months Ended               March 31,   June 30,   September 30,   December 31,                           (In thousands)         Year ended December 31, 2005                                            Total net revenue    $ 1,127,577     $ 1,098,405     $ 1,173,622     $ 835,656             Operating expenses      598,727       639,358       702,320       667,929             Income tax expense      207,055       158,621       191,197       49,427                                         Net income    $ 321,795     $ 300,426     $ 280,105     $ 118,300                                       Year ended December 31, 2004                                            Total net revenue      944,677     $ 1,100,088     $ 904,936     $ 1,017,025             Operating expenses      555,031       613,103       572,891       615,349             Income tax expense      154,939       214,147       129,309       143,745                                         Net income    $ 234,707     $ 272,838     $ 202,736     $ 257,931                                         30.  Restatement of Interim Cash Flow Information (Unaudited)         As described in Note 3, the Company identified matters that impacted the consolidated statement of cash flows for the years ended December 31, 2004 and 2003 and the three, six and nine month periods ended March 31, June 30, and September 30, 2005 and 2004, respectively. The Company restated the operating and investing cash flows for the years ended December 31, 2004 and 2003 within this Form 10-K. The Company also intends to restate the three, six and nine month periods ended March 31, June 30, and September 30, 2005 and 2004, respectively.        The restatement of this information does not change net increase (decrease) in cash and cash equivalents reflected in any of the previously reported Consolidated Statements of Cash Flows. Furthermore, the restatement has no effect on the Company’s Consolidated Statements of Income, Consolidated Balance Sheets or Consolidated Statements of Changes in Stockholder’s Equity for any period during 2005, 2004 or 2003.        The following comparative table presents the corrected cash flow amounts for the applicable periods:                               Nine Months Ended       September 30,               2005   2004                   (In thousands)       (Unaudited)         Net cash provided by (used in) operating activities:                            As previously reported    $ (2,442,819 )   $ 2,947,350             As restated      (12,619,685 )     487,166           Net cash provided by (used in) investing activities:                            As previously reported      (4,776,111 )     (17,754,402 )           As restated      5,400,755       (15,294,218 )         Net cash provided by financing activities:                            Prior to restatement      9,155,111       14,218,214             As restated      9,155,111       14,218,214      156   Table of Contents  RESIDENTIAL CAPITAL CORPORATION   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)                               Six Months Ended June 30,               2005   2004                   (In thousands)       (Unaudited)         Net cash provided by (used in) operating activities:                            As previously reported    $ (650,515 )   $ 3,019,143             As restated      (4,795,510 )     1,234,605           Net cash provided by (used in) investing activities:                            As previously reported      (1,098,317 )     (13,227,658 )           As restated      3,046,678       (11,443,120 )         Net cash provided by financing activities:                            Prior to restatement      3,051,707       9,833,010             As restated      3,051,707       9,833,010                                   Three Months Ended March 31,               2005   2004                   (In thousands)       (Unaudited)         Net cash provided by (used in) operating activities:                            As previously reported    $ (4,206,092 )   $ 796,123             As restated      (7,718,223 )     (756,795 )         Net cash provided by (used in) investing activities:                            As previously reported      (116,450 )     (7,615,739 )           As restated      3,395,681       (6,062,821 )         Net cash provided by financing activities:                            Prior to restatement      3,973,473       6,091,111             As restated      3,973,473       6,091,111      157    Table of Contents  RESIDENTIAL CAPITAL CORPORATION       SUPPLEMENTARY FINANCIAL DATA   SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY        There was no parent company activity during the two years ended December 31, 2004 other than the initial capitalization of Residential Capital Corporation for $10 in August 2004.   CONDENSED BALANCE SHEET   December 31, 2005   (In thousands)                       ASSETS                  Cash and cash equivalents    $ 1,626,814           Accounts receivable      6,661           Other assets      95,129           Investments in and loans to subsidiaries      16,885,741                     Total assets    $ 18,614,345                 LIABILITIES                  Borrowings:                    Affiliate borrowings    $ 4,130,000             Other borrowings      6,900,519                         Total borrowings      11,030,519           Other liabilities      119,856                     Total liabilities      11,150,375       STOCKHOLDER’S EQUITY                  Common stock and paid-in capital      3,367,677           Retained earnings      3,980,587           Accumulated other comprehensive income      115,706                     Total stockholder’s equity      7,463,970                     Total liabilities and stockholder’s equity    $ 18,614,345                158    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   SUPPLEMENTARY FINANCIAL DATA   SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY — (Continued)   CONDENSED STATEMENT OF INCOME   Year Ended December 31, 2005   (In thousands)                   Revenue                  Interest income    $ 422,721           Interest expense      406,437                     Net interest income      16,284           Loss on investment securities, net      (1,553 )                   Total net revenue      14,731       Expenses                  Professional fees      15           Other      4,677                     Total expenses      4,692           Income before income tax expense      10,039           Income tax expense      3,840                     Income before equity in net earnings of subsidiaries      6,199           Equity in net earnings of subsidiaries      1,014,427                 Net income    $ 1,020,626                 CONDENSED STATEMENT OF CASH FLOWS   Year Ended December 31, 2005   (In thousands)                       NET CASH PROVIDED BY OPERATING ACTIVITIES    $ 20,529           CASH FLOWS FROM INVESTING ACTIVITIES:                  Net increase in affiliate lending      (3,477,487 )         Other, net      (4,100 )                   Net cash used in investing activities      (3,481,587 )         CASH FLOWS FROM FINANCING ACTIVITIES:                  Net decrease in affiliate borrowings      (1,879,000 )         Proceeds from other long-term borrowings      7,003,053           Payments of debt issuance costs      (36,181 )                   Net cash provided by financing activities      5,087,872                     CASH AND CASH EQUIVALENTS AT END OF YEAR    $ 1,626,814                159    Table of Contents  RESIDENTIAL CAPITAL CORPORATION   SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS                                                   Column A   Column B   Column C   Column D   Column E                               Additions                                   Balance at   Charged to   Charged to       Balance at       Beginning of   Costs and   Other       End of       Period   Expenses   Accounts   Deductions(1)   Period                               (In thousands)         Year ended December 31, 2005                                                    Valuation allowance for mortgage loans held for sale    $ 15,676     $ 11,798     $ —     $ 10,789     $ 16,685             Allowance for loan losses      1,014,677       651,796       —       413,160       1,253,313             Allowance for uncollectible servicing advances      3,169       3,157       —       1,636       4,690             Allowance for trade and other receivables      6,383       1,305       —       2,256       5,432             Liability for assets sold with recourse      58,835       (8,402 )     —       13,418       37,015                                           $ 1,098,740     $ 659,654     $ —     $ 441,259     $ 1,317,135                                             Year ended December 31, 2004                                                    Valuation allowance for mortgage loans held for sale    $ 18,064     $ 21,296     $ —     $ 23,684     $ 15,676             Allowance for loan losses      617,950       842,899       —       446,172       1,014,677             Allowance for uncollectible servicing advances      5,179       1,944       —       3,954       3,169             Allowance for trade and other receivables      11,843       1,453       —       6,913       6,383             Liability for assets sold with recourse      71,339       3,786       —       16,290       58,835                                           $ 724,375     $ 871,378     $ —     $ 497,013     $ 1,098,740                                             Year ended December 31, 2003                                                    Valuation allowance for mortgage loans held for sale    $ 15,735     $ 30,939     $ —     $ 28,610     $ 18,064             Allowance for loan losses      335,822       453,502       —       171,374       617,950             Allowance for uncollectible servicing advances      6,168       (339 )     1,363       2,013       5,179             Allowance for trade and other receivables      12,843       2,308       —       3,308       11,843             Liability for assets sold with recourse      61,285       24,677       —       14,623       71,339                                           $ 431,853     $ 511,087     $ 1,363     $ 219,928     $ 724,375                                                   (1)       Actual losses charged against the valuation allowance, net of     recoveries and reclassification.   160    Table of Contents            Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING     AND FINANCIAL DISCLOSURE.         None.             Item 9A.  CONTROLS AND PROCEDURES.    Evaluation of Disclosure Controls and Procedures        We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures.        Based on management’s evaluation and solely because of the material weakness related to our controls over the preparation, review, presentation and disclosure of our consolidated statements of cash flows as described in our Management’s Report on Internal Control over Financial Reporting in Item 8, our Chief Executive and Chief Financial Officers each concluded that our disclosure controls and procedures were not effective as of December 31, 2005.        Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon are set forth in Part II, Item 8 of this Annual Report on Form 10-K.   Restatement of Statements of Cash Flows        Our controls over the preparation, review, presentation and disclosure of our Consolidated Statements of Cash Flows did not prevent or detect a material misstatement in the Statements of Cash Flows, and resulted in the restatement of the Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003. We also intend to restate (i) the nine-month period included in our previously filed quarterly report on Form 10-Q for the quarterly periods ended September 30, 2005 and 2004, and (ii) the three- and six-month periods included in our previously filed Form 10 for the quarterly periods ended March 31 and June 30, 2005 and 2004, respectively. We have included disclosure about these interim period restatements in Note 30 (unaudited) to the consolidated financial statements.        The restatement of the aforementioned information had no impact on the previously reported net increase (decrease) in cash and cash equivalents as presented in the Consolidated Statement of Cash Flows. As further described in Note 3 to the Consolidated Financial Statements, the restatement had no effect on our Consolidated Statements of Income, Consolidated Balance Sheets or Consolidated Statements of Changes in Stockholder’s Equity for any period. Our cash flows have been properly classified in our Consolidated Statements of Cash Flows for the year ended December 31, 2005, and for the restated years ended December 31, 2004 and 2003.   Changes in Internal Control Over Financial Reporting        In order to address the material weakness in our internal control over financial reporting, we are working to design and implement enhanced controls to aid in the correct preparation, review, presentation and disclosures of the consolidated statement of cash flows. We will monitor, evaluate and test the operating effectiveness of these controls.        There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our most recent fiscal quarter that may have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.        Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon are set forth in part II, Item 8 of the Annual Report on Form 10-K.  161   Table of Contents            Item 9B.  OTHER INFORMATION.         None.       PART III             Item 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT.         Omitted.             Item 11.  EXECUTIVE COMPENSATION.         Omitted.             Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND     MANAGEMENT.         Omitted.             Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.         Omitted.               Item 14.     PRINCIPAL     ACCOUNTANT FEES AND SERVICES.         We retained PricewaterhouseCoopers LLP (PwC) to audit our consolidated financial statements for the years ended December 31, 2005 and 2004. We also retained PwC, as well as other accounting and consulting firms, to provide various other services in 2005 and 2004.        The aggregate fees billed to us for professional services performed by PwC were as follows:                         Year Ended December 31,   2005   2004                   (in millions)         Audit fees (a)    $ 11,011     $ 11,869           Audit-related fees (b)      448       1,070           Tax fees (c)      602       360           All other fees      —       —                           Total principal accountant fees    $ 12,061     $ 13,299                                 (a)   Audit fees pertain to the audit of our annual     Consolidated Financial Statements, including reviews of the     interim financial statements contained in our Quarterly Reports     on Form 10-Q,     completion of statutory reports, comfort letters to underwriters     in connection with debt issuances, attest services, consents to     the incorporation of the PwC audit report in publicly filed     documents and assistance with and review of documents filed with     the SEC.       (b)   Audit-related fees pertain to assurance and related     services that are traditionally performed by the principal     accountant, including employee benefit plan audits, due     diligence related to mergers and acquisitions, accounting     consultations and audits in connection with proposed or     consummated acquisitions, internal control reviews, attest     services that are not required by statute or regulation and     consultation concerning financial accounting and reporting     standards       (c)   Tax fees pertain to services performed for tax     compliance, tax planning and tax advice, including preparation     of tax returns and claims for refund and tax payment-planning     services. Tax planning and advice also includes assistance with     tax audits and appeals, and tax advice related to specific     transactions.   162    Table of Contents       The services performed by PwC in 2005 were pre-approved in accordance with the pre-approval policy of the GM Audit Committee. This policy requires that during its first meeting of the fiscal year, the GM Audit Committee will be presented, for approval, a description of the Audit-related, Tax and Other services expected to be performed by the principal accountant during the fiscal year. Any requests for such services in excess of $1 million not contemplated during the first meeting must be submitted to the GM Audit Committee for specific pre-approval. Requests for services less than $1 million must be pre-approved by the Chairman of the GM Audit Committee, and reported to the full Committee at its next regularly scheduled meeting. Proposed fees for Audit services are presented to the GM Audit Committee for approval in May each year.        The GM Audit Committee determined that all services provided by PwC during 2005 were compatible with maintaining their independence as principal accountants.       PART IV             Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.         The exhibits listed on the accompanying index of Exhibits are filed or incorporated by reference as a part of this report. Such index is incorporated by reference.  163    Table of Contents      SIGNATURES        Pursuant to the requirement of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 28th day of March, 2006.                RESIDENTIAL CAPITAL CORPORATION          (Registrant)             By:       /s/ Bruce J. Paradis                            Bruce J. Paradis          Chief Executive Officer         Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated on March 28, 2006.                 Signatures   Title                    /s/ Eric A. Feldstein  Eric A. Feldstein        Chairman            /s/ Bruce J. Paradis  Bruce J. Paradis        Chief Executive Officer and Director            /s/ David M. Applegate  David M. Applegate        Chief Operating Officer and Director            /s/ Davee L. Olson  Davee L. Olson        Chief Financial Officer and Director            /s/ James N. Young  James N. Young        Chief Accounting Officer and Controller            /s/ Thomas Jacob  Thomas Jacob        Director            /s/ Sanjiv Khattri  Sanjiv Khattri        Director            /s/ Thomas C. Melzer  Thomas C. Melzer        Director            /s/ David C. Walker  David C. Walker        Director            /s/ Linda K. Zukauckas  Linda K. Zukauckas        Director    164   Table of Contents      EXHIBIT INDEX                 Exhibit       No   Description             3 .1        Certificate of Incorporation of Residential Capital Corporation.     (Incorporated by reference to Exhibit 3.1 to the     Registrant’s Registration Statement on Form S-4 (File     No. 333-126640), filed on July 15, 2005.)     3 .2        Bylaws of Residential Capital Corporation. (Incorporated by     reference to Exhibit 3.2 to the Registrant’s     Registration Statement on Form S-4 (File     No. 333-126640), filed on July 15, 2005.)     3 .3        Certificate of Incorporation of GMAC Residential Holding Corp.     (Incorporated by reference to Exhibit 3.3 to the     Registrant’s Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     3 .4        Bylaws of GMAC Residential Holding Corp. (Incorporated by     reference to Exhibit 3.4 to the Registrant’s     Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     3 .5        Certificate of Incorporation of GMAC-RFC Holding Corp.     (Incorporated by reference to Exhibit 3.5 to the     Registrant’s Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     3 .6        Bylaws of GMAC-RFC Holding Corp. (Incorporated by reference to     Exhibit 3.6 to the Registrant’s Registration Statement     on Form S-4 (File No. 333-126640), filed on     September 2, 2005.)     3 .7        Certificate of Incorporation of GMAC Mortgage Corporation.     (Incorporated by reference to Exhibit 3.7 to the     Registrant’s Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     3 .8        Bylaws of GMAC Mortgage Corporation. (Incorporated by reference     to Exhibit 3.8 to the Registrant’s Registration     Statement on Form S-4 (File No. 333-126640), filed on     September 2, 2005.)     3 .9        Certificate of Incorporation of Residential Funding Corporation.     (Incorporated by reference to Exhibit 3.9 to the     Registrant’s Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     3 .10        Bylaws of Residential Funding Corporation. (Incorporated by     reference to Exhibit 3.10 to the Registrant’s     Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     3 .11        Certificate of Incorporation of Homecomings Financial Network,     Inc. (Incorporated by reference to Exhibit 3.11 to the     Registrant’s Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     3 .12        Bylaws of Homecomings Financial Network, Inc. (Incorporated by     reference to Exhibit 3.12 to the Registrant’s     Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     4 .1        Indenture among Residential Capital Corporation, the guarantors     party thereto and Deutsche Bank Trust Company Americas, dated     June 24, 2005. (Incorporated by reference to     Exhibit 10.3 to the Registrant’s Registration     Statement on Form S-4 (File No. 333-126640), filed on     September 20, 2005.)     4 .2        Supplemental Indenture among Residential Capital Corporation,     the guarantors party thereto and Deutsche Bank Trust Company     Americas, dated June 24, 2005. (Incorporated by reference     to Exhibit 10.3 to the Registrant’s Registration     Statement on Form S-4 (File No. 333-126640), filed on     September 20, 2005.)     4 .3        Second Supplemental Indenture among Residential Capital     Corporation, the guarantors party thereto and Deutsche Bank     Trust Company Americas, dated November 21, 2005.     10 .1        Operating Agreement among General Motors Corporation, General     Motors Acceptance Corporation and Residential Capital     Corporation, dated June 24, 2005. (Incorporated by     reference to Exhibit 10.1 to the Registrant’s     Registration Statement on Form S-4 (File     No. 333-126640), filed on July 15, 2005.)    165    Table of Contents                Exhibit       No   Description             10 .2        Subordinated Note Agreement between Residential Capital     Corporation and General Motors Acceptance Corporation, dated     June 24, 2005. (Incorporated by reference to     Exhibit 10.2 to the Registrant’s Registration     Statement on Form S-4 (File No. 333-126640), filed on     September 2, 2005.)     10 .3        Tax Allocation Agreement between Residential Capital Corporation     and General Motors Acceptance Corporation, dated June 24,     2005. (Incorporated by reference to Exhibit 10.3 to the     Registrant’s Registration Statement on Form S-4 (File     No. 333-126640), filed on September 20, 2005.)     10 .4        Trademark License Agreement among Residential Capital     Corporation, General Motors Corporation and General Motors     Acceptance Corporation, dated June 24, 2005. (Incorporated     by reference to Exhibit 10.4 to the Registrant’s     Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     10 .5        Services and Facilities Agreement among Residential Capital     Corporation, General Motors Corporation and General Motors     Acceptance Corporation, dated June 24, 2005. (Incorporated     by reference to Exhibit 10.5 to the Registrant’s     Registration Statement on Form S-4 (File     No. 333-126640), filed on September 2, 2005.)     10 .6        Revolving Credit Facility among Residential Capital Corporation,     the several lenders from time to time parties thereto and     General Motors Acceptance Corporation, as Agent, dated     June 24, 2005. (Incorporated by reference to     Exhibit 10.6 to the Registrant’s Registration     Statement on Form S-4 (File No. 333-126640), filed on     September 2, 2005.)     12 .1        Computation of Ratio of Earnings to Fixed Charges.     23 .1        Consent of Independent Registered Public Accounting Firm.     31 .1        Certification of Principal Executive Officer pursuant to     Rule 13a-14(a)/ 15d-14(a).     31 .2        Certification of Principal Financial Officer pursuant to     Rule 13a-14(a)/ 15d-14(a).        The following exhibit shall not be deemed “filed” for     purposes of Section 18 of the Securities Exchange Act of     1934 or otherwise subject to the liability of that Section. In     addition Exhibit No. 32.1 shall not be deemed incorporated     into any filing under the Securities Act of 1933 or the     Securities Exchange Act of 1934.         32 .1        Certification of Principal Executive Officer and Principal     Financial Officer pursuant to 18 U.S.C. Section 1350.    166      EX-4.3 2 k01745exv4w3.htm SECOND SUPPLEMENTAL INDENTURE    exv4w3       Exhibit 4.3  RESIDENTIAL CAPITAL CORPORATION  SECOND SUPPLEMENTAL INDENTURE            SECOND SUPPLEMENTAL INDENTURE, dated as of November 21, 2005 (this “Supplemental Indenture”), between RESIDENTIAL CAPITAL CORPORATION, a Delaware corporation (the “Company”), the Guarantors and DEUTSCHE BANK TRUST COMPANY AMERICAS, a banking corporation duly incorporated and existing under the laws of the State of New York, as trustee (the “Trustee”).  RECITALS            WHEREAS, the Company, the Guarantors and the Trustee have entered into an indenture dated as of June 24, 2005 (as supplemented and in effect from time to time, the “Indenture”);            WHEREAS, pursuant to Section 10.1(d) of the Indenture, the Company, the Guarantors and the Trustee are permitted to enter into indentures supplemental to the Indenture without the consent of the Holders of any Securities at the time outstanding for the purpose of correcting any provision contained in the Indenture that may be defective, provided that such action does not adversely affect the interests of the Holders of any Securities;            WHEREAS, the Company and the Guarantors wish to correct several provisions contained in the Indenture as set forth in this Supplemental Indenture;            WHEREAS, the Company and the Guarantors have requested the Trustee to join with them in the execution and delivery of this Supplemental Indenture;            WHEREAS, the Company has caused to be delivered to the Trustee an Opinion of Counsel to the effect that, subject to the assumptions and qualifications contained therein, this Supplemental Indenture complies with the provisions of Article Ten of the Indenture; and            WHEREAS, all the conditions and requirements necessary to make this Supplemental Indenture, when duly executed and delivered, a valid and binding agreement in accordance with its terms and for the purposes herein expressed, have been performed and fulfilled.            NOW THEREFORE, the Company, the Guarantors and the Trustee hereby agree as follows:  ARTICLE I  RELATION TO INDENTURE; RULES OF CONSTRUCTION            Section 1.01 RELATION TO INDENTURE. This Supplemental Indenture constitutes an integral part of the Indenture.            Section 1.02 RULES OF CONSTRUCTION. For all purposes of this Supplemental Indenture:            (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture;              (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture;       (c) the terms “herein,” “hereof,” “hereunder” and other words of similar import refer to this Supplemental Indenture; and       (d) in the event of a conflict with the definition of terms in the Indenture, the definitions in this Supplemental Indenture shall control.  ARTICLE II  AMENDMENTS       Section 2.01 AMENDMENTS. The Indenture is hereby amended as follows:       (a) Section 7.06 of the Indenture is hereby amended and restated in its entirety to read as follows:       “Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation, and, except as otherwise expressly provided the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation, expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. If any property other than cash shall at any time be subject to the lien of this Indenture, the Trustee, if and to the extent authorized by a receivership or bankruptcy court of competent jurisdiction or by the supplemental instrument subjecting such property to such lien, shall be entitled to make advances for the purpose of preserving such property or of discharging tax liens or other prior liens or encumbrances hereon. The Company also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability or reasonable expense incurred without negligence or bad faith on the part of the Trustee, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim of liability in the premises. The obligations of the Company under this Section to compensate the Trustee and to pay or reimburse the Trustee for reasonable expenses, disbursements and advances shall constitute additional indebtedness hereunder, and shall survive discharge of the Indenture, payment in full at maturity of the Securities, and resignation or removal of the Trustee. Such additional indebtedness shall be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities or Coupons.”       (b) Section 11.01 of the Indenture is hereby amended and restated in its entirety to read as follows:       “Company May Consolidate, etc., on Certain Terms. The Company covenants that it will not merge or consolidate with any other Corporation or sell, assign, transfer, lease or otherwise convey all or substantially all of its property or assets to any Person, unless (i) either  2       the Company shall be the continuing Corporation, or the successor Person (if other than the Company) shall be a Corporation organized and existing under the laws of the United States of America or a state thereof and such Corporation shall expressly assume the due and punctual payment of the principal of (and premium, if any), interest, if any, and Additional Amounts, if any, on all the Securities and any Coupons, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such Corporation, (ii) each Guarantor shall, by supplemental indenture, confirm that their Guarantee shall apply to the surviving entity’s obligations under the Securities and this Indenture, as modified by such supplemental indenture, and confirm the due and punctual performance of the Guarantee and the covenants of the Guarantor in this Indenture, and (iii) the Company or such successor Corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition.      For purposes of the foregoing, any sale, assignment, transfer, lease or other conveyance of the properties and assets of one or more Significant Subsidiaries (other than to the Company or another Subsidiary of the Company), which, if such assets were owned by the Company, would constitute all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company.”       (c) Section 12.02 of the Indenture is hereby amended and restated in its entirety to read as follows:       “Satisfaction, Discharge and Defeasance of Securities of any Series. If pursuant to Section 2.01 provision is made for the defeasance of Securities of a series, then the provisions of this Section 12.02 shall be applicable except as otherwise specified as contemplated by Section 2.01 for Securities of such series. The Company shall cease to be under any obligation to comply with any term, provision, condition or covenant of Section 4.07 and 4.08 with respect to the outstanding Securities of any series or any other term, provision, condition or covenant of the outstanding Securities of any such Series specified as contemplated by Section 2.01, when                      (1) either       (A) with respect to all outstanding Securities of such series, the Company has deposited or caused to be deposited with the Trustee:       (i) as trust funds in trust (in such currency in which such outstanding Securities and any related Coupons are then specified as payable at stated maturity) in an amount as will be; or       (ii) as obligations in trust direct noncallable obligations of, or noncallable obligations the payment of principal of and interest on which is fully guaranteed by, the United States of America (or, in the case of Securities payable in a currency other than the U.S. Dollars, by the government that issued such currency), or to the payment of which obligations or guarantees the full faith and credit of the United States of  3       America (or, in the case of Securities payable in a currency other than the U.S. Dollars, by the government that issued such currency) is pledged, maturing as to principal and interest in such amounts and at such times as will, together with the income to accrue thereon (but without reinvesting any proceeds thereof), be; or       (iii) a combination of (i) and (ii);  sufficient to pay and discharge the entire indebtedness on all outstanding Securities of such series for principal (and premium, if any), interest, if any, and Additional Amounts, if any, to the stated maturity or any redemption date as contemplated by the last paragraph of this Section 12.02, as the case may be, in installments on the dates such principal (and premium, if any), interest, if any, and Additional Amounts, if any, shall be due; or       (B) the Company has properly fulfilled such other terms and conditions to the satisfaction and discharge as is specified, as contemplated by Section 2.01, as applicable to the Securities of such series, and       (2) the Company has paid or caused to be paid all other sums payable with respect to the outstanding Securities of such series, and       (3) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of the entire indebtedness on all outstanding Securities of any such series have been complied with.       Notwithstanding the discharge and defeasance of any term, provision, condition or covenant set forth in Section 4.07 and 4.08 with respect to the Securities of a series or any term, provision, condition or covenant of the Securities of a series specified as contemplated by Section 2.01 with respect to the Securities of a series at the time outstanding, all other obligations of the Company in this Indenture, including without limitation, the Company’s primary liability for the payment of the principal (premium, if any), interest, if any, and Additional Amounts, if any, on all Securities of such series shall survive until the payment of all such principal (premium, if any), interest, if any, and Additional Amounts, if any, has been made, unless the Company has delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the outstanding Securities and any related Coupons will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amounts and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred. Upon delivery of such opinion and satisfaction of the other conditions in this Section 12.02, the Company shall be deemed to have paid and discharged the entire indebtedness of all outstanding Securities of such series (and the Trustee shall execute proper instruments acknowledging satisfaction and discharge of such indebtedness), except (i) rights of registration  4       of transfer and exchange in accordance with Section 2.05, and (ii) substitution of mutilated, destroyed, lost or stolen Securities in accordance with Section 2.07.       Any deposits with the Trustee referred to in Section 12.02(1)(A) above shall be irrevocable and shall be made under the terms of an escrow trust agreement in form and substance satisfactory to the Trustee. If any outstanding Securities of such series are to be redeemed prior to their stated maturity, whether pursuant to any optional redemption provisions or in accordance with any mandatory sinking fund requirement or otherwise, the applicable escrow trust agreement shall provide therefor and the Company shall make such arrangements as are satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company.”  ARTICLE III  MISCELLANEOUS PROVISIONS            Section 3.01 RATIFICATION. The Indenture, as supplemented and amended by this Supplemental Indenture, is in all respects hereby adopted, ratified and confirmed.            Section 3.02 COUNTERPARTS. This Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed an original, and all such counterparts shall together constitute but one and the same instrument.            Section 3.03 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  [Signature page follows]  5            IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the day and year first above written.                        RESIDENTIAL CAPITAL CORPORATION                    By:   /s/ Louise M. Herrle                     Name:    Louise M. Herrle        Title:    Treasurer                   GMAC RESIDENTIAL HOLDING CORP., as Guarantor                    By:   /s/ David M. Bricker                     Name:    David M. Bricker        Title:    Senior Vice President and Chief Financial Officer                   GMAC MORTGAGE CORPORATION, as Guarantor                    By:   /s/ David M. Bricker                     Name:    David M. Bricker        Title:    Senior Vice President and Chief Financial Officer                   GMAC-RFC HOLDING CORP., as Guarantor                    By:   /s/ Bruce J. Paradis                     Name:    Bruce J. Paradis        Title:    President                                   RESIDENTIAL FUNDING CORPORATION, as Guarantor                    By:   /s/ Bruce J. Paradis                     Name: Title:    Bruce J. Paradis President                   HOMECOMINGS FINANCIAL NETWORK, INC., as Guarantor                    By:   /s/ Michael J. Kozlak                     Name: Title:    Michael J. Kozlak President                   DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee                    By:   /s/ Annie Jaghatspanyan                     Name: Title:     Annie Jaghatspanyan Assistant Vice President             EX-12.1 3 k01745exv12w1.htm COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES    exv12w1       Exhibit 12.1   Residential Capital Corporation   Exhibit 12.1 — Computation of the Ratio of Earnings to Fixed Charges        The following table sets forth our ratio of earnings to fixed charges on a historical basis for the periods indicated for the years ended December 31, 2005, 2004 and 2003. For purposes of computing the ratio of earnings to fixed charges, earnings represent income before taxes and fixed charges. Fixed charges consist of interest expense and one-third of rental expense, which we believe to be representative of the interest portion of rent expense.                               Twelve Months     Ended December 31,         (Dollars in thousands) 2005   2004   2003                            Net income $ 1,020,626   $ 968,212   $ 856,815         Income tax expense    606,300     642,140     509,121         Interest expense    3,872,102     2,404,982     1,402,709         Interest portion of rental expense    38,165     30,631     29,814                   Earnings available to cover fixed charges  $ 5,537,193   $ 4,045,965   $ 2,798,459                       Fixed Charges:                         Interest expense  $ 3,872,102  $ 2,404,982   $ 1,402,709           Interest portion of rental expense    38,165    30,631    29,814                     Total fixed charges  $ 3,910,267  $ 2,435,613   $ 1,432,523                      Ratio of earnings to fixed charges    1.42    1.66    1.95                       EX-23.1 4 k01745exv23w1.htm CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    exv23w1       Exhibit 23.1  CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-128689) of Residential Capital Corporation of our report dated March 27, 2006 relating to the financial statements, financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.  /s/ PricewaterhouseCoopers LLP  New York, New York March 28, 2006          EX-31.1 5 k01745exv31w1.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A)    exv31w1       Exhibit 31.1   Residential Capital Corporation   I, Bruce J. Paradis, certify that:         1.       I have reviewed this report on Form 10-K of Residential     Capital Corporation;       2.       Based on my knowledge, this report does not contain any untrue     statement of a material fact or omit to state a material fact     necessary to make the statements made, in light of the     circumstances under which such statements were made, not     misleading with respect to the period covered by this report;       3.       Based on my knowledge, the financial statements, and other     financial information included in this report, fairly present in     all material respects the financial condition, results of     operations and cash flows of the registrant as of, and for, the     periods presented in this report;       4.       The registrant’s other certifying officer and I are     responsible for establishing and maintaining disclosure controls     and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:             a)       designed such disclosure controls and procedures, or caused such     disclosure controls and procedures to be designed under our     supervision, to ensure that material information relating to the     registrant, including its consolidated subsidiaries, is made     known to us by others within those entities, particularly during     the period in which this report is being prepared;         b)       designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;         c)       evaluated the effectiveness of the registrant’s disclosure     controls and procedures and presented in this report our     conclusions about the effectiveness of the disclosure controls     and procedures, as of the end of the period covered by this     report based on such evaluation; and         d)       disclosed in this report any change in the registrant’s     internal control over financial reporting that occurred during     the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has     materially affected, or is reasonably likely to materially     affect, the registrant’s internal control over financial     reporting; and          5.       The registrant’s other certifying officer and I have     disclosed, based on our most recent evaluation of internal     control over financial reporting, to the registrant’s     auditors and the audit committee of registrant’s board of     directors (or persons performing the equivalent functions):             a)       all significant deficiencies and material weaknesses in the     design or operation of internal control over financial reporting     which are reasonably likely to adversely affect the     registrant’s ability to record, process, summarize and     report financial information; and         b)       any fraud, whether or not material, that involves management or     other employees who have a significant role in the     registrant’s internal control over financial reporting.    Date: March 28, 2006   /s/ BRUCE J. PARADIS   Bruce J. Paradis   Chief Executive Officer       EX-31.2 6 k01745exv31w2.htm CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A)    exv31w2       Exhibit 31.2   Residential Capital Corporation   I, Davee L. Olson, certify that:         1.       I have reviewed this report on Form 10-K of Residential     Capital Corporation;       2.       Based on my knowledge, this report does not contain any untrue     statement of a material fact or omit to state a material fact     necessary to make the statements made, in light of the     circumstances under which such statements were made, not     misleading with respect to the period covered by this report;       3.       Based on my knowledge, the financial statements, and other     financial information included in this report, fairly present in     all material respects the financial condition, results of     operations and cash flows of the registrant as of, and for, the     periods presented in this report;       4.       The registrant’s other certifying officer and I are     responsible for establishing and maintaining disclosure controls     and procedures (as defined in Exchange Act Rules 13a-15(e)     and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:             a)       designed such disclosure controls and procedures, or caused such     disclosure controls and procedures to be designed under our     supervision, to ensure that material information relating to the     registrant, including its consolidated subsidiaries, is made     known to us by others within those entities, particularly during     the period in which this report is being prepared;         b)       designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;         c)       evaluated the effectiveness of the registrant’s disclosure     controls and procedures and presented in this report our     conclusions about the effectiveness of the disclosure controls     and procedures, as of the end of the period covered by this     report based on such evaluation; and         d)       disclosed in this report any change in the registrant’s     internal control over financial reporting that occurred during     the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has     materially affected, or is reasonably likely to materially     affect, the registrant’s internal control over financial     reporting; and          5.       The registrant’s other certifying officer and I have     disclosed, based on our most recent evaluation of internal     control over financial reporting, to the registrant’s     auditors and the audit committee of registrant’s board of     directors (or persons performing the equivalent functions):             a)       all significant deficiencies and material weaknesses in the     design or operation of internal control over financial reporting     which are reasonably likely to adversely affect the     registrant’s ability to record, process, summarize and     report financial information; and         b)       any fraud, whether or not material, that involves management or     other employees who have a significant role in the     registrant’s internal control over financial reporting.    Date: March 28, 2006   /s/ DAVEE L. OLSON   Davee L. Olson   Chief Financial Officer       EX-32.1 7 k01745exv32w1.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 1350    exv32w1       Exhibit 32.1   Residential Capital Corporation   Certification of Principal Executive Officer and Principal Financial Officer   Pursuant to 18 U.S.C. Section 1350   In connection with the Annual Report of Residential Capital Corporation (the Company) on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:         1)       The Report fully complies with the requirements of     section 13(a) or 15(d) of the Securities Exchange Act of     1934; and       2)       The information contained in the Report fairly presents, in all     material respects, the financial condition and results of     operations of the Company.    /s/ Bruce J. Paradis        Bruce J. Paradis   Chief Executive Officer   March 28, 2006   /s/ Davee L. Olson        Davee L. Olson   Chief Financial Officer   March 28, 2006       -----END PRIVACY-ENHANCED MESSAGE-----