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ResCap Files Chapter 11, With Nationstar Set to Acquire

""Residential Capital LLC"":https://www.rescapholdings.com/, the embattled mortgage subsidiary of ""Ally Financial"":http://www.ally.com/financial/, filed Chapter 11 Monday, with ""Nationstar Mortgage Holdings Inc."":https://www.nationstarmtg.com/ set to acquire it.


The Detroit-based company framed the move as a way to shave losses, repay taxpayers, and preserve its position as an auto lender.

""The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,"" Ally CEO ""Michael Carpenter"":http://media.ally.com/index.php?s=13&cat=8 said in a statement. ""This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100 percent of its energies on further strengthening its already leading U.S. auto finance and direct banking franchises.""

The statement said that Carpenter will address investors about the ResCap filing Tuesday morning.

The Chapter 11 filing will write down losses on equity investments in the subsidiary to zero. Ally said that it estimated to take a $1.3 billion hit by its next filing in the second quarter.

Once the deal goes through, Ally will make a cash contribution of $750 million to the bankruptcy estate for ResCap. The company said it will also offer a stalking horse bid of up to $1.6 billion for mortgages currently owned by the mortgage unit and supply it with a financing facility worth $150 million for debtors.


The lender, known for the outsize role it plays in financing the U.S. auto industry, began taking losses when faulty home loans ripped into the mortgage subsidiary during the financial crisis. As with other major financial institutions, Treasury stepped in to shore up Ally.

Treasury undersecretary ""Timothy Massad"":http://www.treasury.gov/about/organizational-structure/Pages/Massad-e.aspx lauded the bankruptcy filing in a blog post Monday, saying that ""[w]hile... unfortunate that a Chapter 11 filing became necessary for ResCap, we believe that this action puts taxpayers in a stronger position to continue recovering their investment in Ally Financial.""

So far, Treasury has recouped some $5.5 billion from Ally for taxpayers, with the ResCap bankruptcy filing expected to round off repayment at around two-thirds of the initial investment by yearend, the lender said.

Lewisville, Texas-based Nationstar said in a separate announcement that it would acquire ResCap, with the purchase including $374 billion in mortgage servicing assets, $201 billion in primary residential mortgage servicing rights, and $173 billion in subservicing contracts.

The acquisition marks a massive shift for the lender. Nationstar said that it anticipates adding more than 2.4 million customers from the transaction, as well as $550 billion in servicing and sub-servicing contracts, a move that it said would make it the largest non-bank residential mortgage originator and one of the largest originators in the nation.

""We believe this transaction will cement Nationstar's position as the nation's pre-eminent non-bank mortgage servicer, and it reflects a record of servicing performance that has made us a partner of choice in a transforming industry,"" Nationstar CEO Jay Bray said in a statement. ""This potential transaction and our pending acquisition of servicing rights from Aurora represent terrific opportunities to acquire assets and operations from best-in-class servicers without the burden of certain legacy liabilities.""

Nationstar said it expects the acquisition to close in late 2012.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.

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