Posted on Friday, January 7, 2011
Last week Ally Financial announced that its mortgage unit, Residential Capital (ResCap), and some of its subsidiaries reached an agreement with Fannie Mae to resolve potential repurchase exposure for breaches in selling representations and warranties.
The $462 million settlement releases ResCap and its subsidiaries from liability related to about $292 billion in principal unpaid balances. It covers loans serviced by GMAC Mortgage on behalf of Fannie Mae prior to June 30, 2010 and any mortgage-backed security that Fannie Mae purchased prior to the settlement.
“At the start of 2010, we set a goal to substantially reduce risk in our mortgage operation and, during the last twelve
months, we have successfully completed a series of steps toward that objective and are largely complete,” said Ally CEO Michael A. Carpenter.
Carpenter continued, “This agreement, along with prior repurchase settlements with Freddie Mac and others and the sale of legacy assets and operations, has significantly reduced Ally’s risk related to the legacy mortgage business going forward.”
In addition to the settlement amount, ResCap and Fannie Mae have an arrangement in regard to ResCap’s payment of mortgage insurance proceeds where mortgage insurance coverage is rescinded or canceled. The settlment does not cover other contractual obligations that the company has with Fannie Mae, such as obligations that may arise in connection with mortgage servicing.
The settlement also excludes Ally Bank, which the Detroit, Michigan-based company says should not experience significant repurchase claims on loans.
“We are very encouraged to have reached this agreement with Fannie Mae,” said ResCap CEO Thomas Marano. “They are a key counterparty to our mortgage business and we look forward to continuing our important and productive relationship. With our de-risking initiatives largely complete, the mortgage business will focus predominantly on the origination and servicing of conforming mortgages, which is where the company holds leadership positions.”
By: Joy Leopold