The U.S. Treasury's decision against a bankruptcy restructuring for GMAC may have increased taxpayer bailout costs for the auto finance company and made it less viable, an oversight group said on Thursday.

The Congressional Oversight Panel, in a new monthly report, said despite three separate bailouts totaling $17.2 billion, GMAC Financial Services continues to struggle with its troubled mortgage liabilities.

The panel remains unconvinced that bankruptcy was not a viable option in 2008, it said in the report. In connection with the Chrysler and General Motors bankruptcies, Treasury might have been able to orchestrate a strategic bankruptcy for GMAC.

The watchdog group said such a bankruptcy restructuring could have preserved GMAC's core automotive lending functions while hiving off Residential Capital, its mortgage lending business, which remains a millstone around the company's neck. A bankruptcy, and perhaps merging GMAC back into GM, could have put the lender on a sounder footing, the panel said.

But the Treasury chose against letting GMAC fail in late 2008, constraining its options in 2009 when it restructured the auto industry, the panel said.

The Obama administration currently estimates that taxpayer losses on the GMAC bailout may be at least $6.3 billion.

After the capital infusions made by both the Bush and Obama administrations, the government owns 56.3 percent of the lender, which serves as the primary source of dealer and car buyer financing for GM and Chrysler.

The panel also criticized Treasury for its inconsistent treatment of GMAC. Bailout funds for the lender were classified under the $700 billion Troubled Asset Relief Program's automotive industry finance program, but in practice, Treasury treated the firm more like large banks such as Citigroup, the report said.

The Treasury wiped out common stockholders in GM and Chrysler, but GMAC's original shareholders including Cerberus Capital Management, although diluted, still stand to profit from the taxpayers' help, it said.

The Treasury committed funds to GMAC under a bank stress test program last year, but provided a final $3.8 billion under the auto program.

EXIT STRATEGY?

The oversight panel, led by Harvard Law School professor and bankruptcy expert Elizabeth Warren, also said the Treasury needed to insist that GMAC produce a viable business plan to deal with mortgage troubles and a near-term exit strategy that takes into consideration government stakes in GM and Chrysler.

In light of the scale of these potential (taxpayer) losses, the panel is deeply concerned that Treasury has not required GMAC to lay out a clear path to viability or a strategy for fully repaying taxpayers.

More than a year has elapsed since the government first bailed out GMAC, and it is long past time for taxpayers to have a clear view of the road ahead, the panel said in the report.

The Treasury has said a bankruptcy for GMAC would have been too costly, requiring $40 billion to $50 billion in taxpayer-supplied debtor financing because it would have been the sole source of critical dealer floorplan financing for vehicle inventories.

It also would have complicated the much larger bankruptcies for GM and Chrysler, Ron Bloom, the Obama administration's top automotive and industrial official told the panel last month. A collapse of financing could have brought down the automakers by choking off vital sales, he argued.

After considerable analysis and deliberation, Treasury viewed the course taken as the least costly and least disruptive of all the options available, Treasury spokeswoman Meg Reilly said in a statement on Wednesday.

Had Treasury allowed GMAC to fail, no single competitor or group of competitors could have stepped in to absorb GMAC's entire loan portfolio, she said, adding that GM estimated that a new provider would have taken up to six months to create the infrastructure necessary to fill the void created by a GMAC failure.

Treasury officials have said they hope to sell off GMAC through an initial public stock offering, but they have conceded that step is likely more than a year away.

(Reporting by David Lawder; editing by Carol Bishopric)