Ally’s mortgage unit settles Fannie loan-buyback demands for $462 million
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and Fannie Mae also reached an accord regarding ResCap's payment of mortgage-insurance proceeds where coverage is rescinded or canceled.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