$462M Settlement Between Ally Financial And Fannie Mae
With the recent economic slump that had almost everyone suffering some financial loss, businesses have relied on lending to keep themselves afloat. Even mortgage companies have had their share of troubles during the economic downturn. One such troubled mortgage company is Ally Financial’s mortgage unit Residential Capital and its subsidiaries. This week, ResCap reaches an agreement with Fannie Mae in resolution of repurchase exposure that may arise from breaches in warranties and selling representations[1].
ResCap and its subsidiaries are now released from liability for the $292 billion unpaid balance it owed Fannie Mae – thanks to a $462 million settlement reached with the government-controlled GSE. The settlement will cover loans serviced by GMAC Mortgage prior to the 30th of June, 2010 on behalf of Fannie Mae. Mortgage-backed securities purchased by Fannie Mae prior to the settlement are also covered in 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. 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,” Ally CEO Michael A. Carpenter said.
The settlement does not cover contractual obligations such as those that may arise from mortgage servicing. Also, Ally Bank is excluded from the settlement. Aside from the settlement, ResCap and Fannie Mae also made arrangements for ResCap’s mortgage insurance proceeds payment for rescinded or cancelled mortgage insurance coverage.
ResCap CEO Thomas Marano said yesterday that “We are very encouraged to have reached this agreement with Fannie Mae. 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.”
[1]http://www.dsnews.com/articles/ally-financial-reaches-462-settlement-with-fannie-mae-2011-01-03
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