Ally’s mort­gage unit set­tles Fan­nie loan-buy­back de­mands for $462 mil­lion

The Pak Banker - - Company& -

NEW YORK: Ally Fi­nan­cial Inc., the auto and home lender ma­jor­ity-owned by the U.S. govern­ment, agreed to pay $462 mil­lion to set­tle re­pur­chase de­mands from Fan­nie Mae linked to $292 bil­lion in home loans.

Ally, for­merly known as GMAC Inc., said the deal cov­ers loans ser­viced by GMAC Mort­gage unit for Fan­nie Mae be­fore June 30 and mort­gage­backed se­cu­ri­ties pur­chased by the Washington-based loan­fund­ing firm. The ac­cord was reached on be­half of Ally's Res­i­den­tial Cap­i­tal unit and sub­sidiaries, the Detroit-based com­pany said yes­ter­day in a state­ment.

Chief Ex­ec­u­tive Of­fi­cer Michael Car­pen­ter is seek­ing to re­solve claims tied to faulty mort­gages as he pre­pares Ally for a pub­lic of­fer­ing to re­pay U.S. bailout funds. Mort­gage len­ders typ­i­cally prom­ise to buy back loans sold to in­vestors or cover losses if in­for­ma­tion about the bor­row­ers or prop­erty later proves to be in­cor­rect.

"At the start of 2010, we set a goal to sub­stan­tially re­duce risk in our mort­gage op­er­a­tion," Car­pen­ter, 63, said in the state­ment. "We have suc­cess­fully com­pleted a se­ries of steps to­ward that ob­jec­tive and are largely com­plete."

The govern­ment took an al­most 80 per­cent stake in Fan­nie Mae af­ter it seized the firm in 2008.

Ally had set­tled buy­back claims with six coun­ter­par­ties, the largest be­ing gov­ern­men­towned fi­nance com­pany Fred­die Mac, ac­cord­ing to a Novem­ber pre­sen­ta­tion. It agreed in May to make a one­time pay­ment to Fred­die Mac, with­out dis­clos­ing the amount.

Ally in­creased re­serves for buy­backs to $1.1 bil­lion in the third quar­ter, from $855 mil­lion in the prior pe­riod. The orig­i­nal un­paid prin­ci­pal on loans in­volved in the Fan­nie Mae set­tle­ment an­nounced yes­ter­day was $292 bil­lion, a fig­ure that nar­rowed to $84 bil­lion, Ally said.

Chris Katopis, ex­ec­u­tive di­rec­tor of the As­so­ci­a­tion of Mort­gage In­vestors, said his mem­bers are wor­ried the Ally set­tle­ment might be too low.

The deal "may set a harm­ful prece­dent for mort­gage in­vestors and the pub­lic," Katopis said in an in­ter­view. The Washington-based trade as­so­ci­a­tion rep­re­sents state pen­sion funds and other in­vestors in mort­gage-backed se­cu­ri­ties.

The agree­ment "mod­estly" ex­ceeds prior re­serves, Ally said. ResCap and Fan­nie Mae also reached an ac­cord re­gard­ing ResCap's pay­ment of mort­gage-in­surance pro­ceeds where cov­er­age is re­scinded or can­celed. -Bloomberg

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