Oct. 29 (Bloomberg) -- GMAC LLC, the money-losing auto finance and home-loan lender, is seeking to become a bank holding company after gaining access to the Federal Reserve's new program designed to unlock short-term commercial credit markets.

The Fed began buying commercial paper from companies this week to reduce interest rates and lure investors back to the market for short-term debt, which seized up last month following the bankruptcy of Lehman Brothers Holdings Inc. Detroit-based GMAC said yesterday it was approved to participate in that program.

Becoming a bank holding company would make it easier for GMAC, the primary lender to customers of General Motors Corp., to participate in the Treasury Department's banking-industry rescue and quell doubts about the lender's survival. The firm could also get direct loans from the central bank and temporary debt guarantees from the Federal Deposit Insurance Corp.

Access to the Fed's Commercial Paper Funding Facility is ``a nice plus,'' said Pete Hastings, a fixed-income analyst with Morgan Keegan Inc. in Memphis, Tennessee. ``It's one of several steps they'll need to take in order to be able to continue.'' He recommends selling GMAC's debt, which totals more than $170 billion according to Bloomberg data.

The new sources of capital may help GMAC escape a cash squeeze after $5.4 billion of losses in the past year. Chief Executive Officer Al de Molina told employees this month that the lender has ``limited if any access to funding'' for its mortgage and auto-lending units. Cerberus Capital Management LP, the New York-based buyout firm, owns 51 percent of GMAC and GM, the biggest U.S. automaker, owns the rest.

Subprime Loans

The Wall Street Journal reported earlier that GMAC was seeking approval from regulators to convert to a banking company. The firm wouldn't discuss whether it wants to convert, and Fed spokeswoman Michelle Smith declined to comment on the matter. The cost of protecting against a default by GMAC on its debt using credit-default swaps fell to the lowest in more than a month during one point in today's trading.

Ford Motor Credit received approval to access the Fed's commercial paper program, spokeswoman Meredith Libbey said today in an interview. ``It is available to us to use if we choose,'' she said, declining to provide additional details.

Chrysler Financial Corp., owned by Cerberus, also was approved to access the program, spokeswoman Amber Gowen said in an interview today.

Eligible for Funds

The conversion may make GMAC eligible to get funds from the Treasury's $700 billion rescue plan, which includes buying stakes in lenders and possible purchases of defaulted loans. GMAC has been hobbled by overdue home mortgages from its Residential Capital LLC unit.

ResCap, the 12th-biggest subprime mortgage lender in 2006, reported seven straight quarterly losses amid the worst housing market since the Great Depression. Since July, GMAC has sold its home-services unit, closed all 200 GMAC Mortgage retail offices and dismissed 60 percent of Minneapolis-based ResCap's staff.

The company owns federally insured GMAC Bank, with deposits of $16.9 billion as of June. Regulators ordered GMAC earlier this year to add $3 billion in credit to the bank and imposed curbs that limited transactions among affiliates and required federal approval of any new senior bank executives for seven years.

Highest Ratings

The Fed commercial paper program is aimed at helping borrowers with the highest ratings. General Electric Co., which sold debt to the Fed, Korea Development Bank and Morgan Stanley are among several dozen companies that have signed up for the program, which was announced on Oct. 7.

GMAC is rated junk by Standard & Poor's, Moody's Investors Service and Fitch Ratings, and both GM and GMAC have battled speculation about their survival.

``We did apply and we were approved to participate,'' Gina Proia, a spokeswoman for Detroit-based GMAC, said in an interview about the commercial-paper plan. Proia said the company can tap the Fed program through its investment-grade New Center Asset Trust unit, which issues asset-backed commercial paper.

New Center Asset Trust purchases highly rated securities backed by auto loans and other assets from GMAC units, financing its activities by issuing asset-backed commercial paper. GMAC's paper issued through New Center Asset Trust is rated P-1 by Moody's and F1+ by Fitch.

A Federal Reserve spokesman declined to comment specifically on GMAC's participation.

`No Exceptions'

``We have made no exceptions to our program; we only accept A-1, P-1 or F1-rated paper,'' said New York Federal Reserve Bank spokesman Andrew Williams. ``We don't comment on which firms are registered for the Commercial Paper Funding Facility.''

Ford Credit won't provide details until parent company Ford Motor Co. reports third-quarter financial results on Nov. 7, a spokeswoman, Brenda Hines, said yesterday.

Justin Leach, a U.S. spokesman for Toyota Motor Corp.'s finance unit, said Toyota Motor Credit, parent company of Toyota Financial Services, hasn't yet decided whether it will participate in the federal commercial-paper program.

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Greg Bensinger in New York at gbensinger1@bloomberg.net.

Last Updated: October 29, 2008 15:34 EDT