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With ResCap Deal, Ally Shifts From Home Loans to Auto Loans

After suffering from bad loans during the financial crisis, ""Ally Financial"":http://www.ally.com/financial/ looks to close the books on its share of ownership in the mortgage business.

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Executives with Ally took to the phone with investors Tuesday to explain a filing for bankruptcy protection Monday by subsidiary ""Residential Capital LLC"":https://www.rescapholdings.com/. The consensus: Residential mortgage loans are out for Ally and auto finance is back in the center.

Speaking with one investor, Ally CEO Michael Carpenter underscored the relative stability of auto finance in the financial crisis.

""Not to make a joke of it,"" he said, ""you can live in your car if you don't pay your mortgage.... If you look at what consumers pay first, the answer is their car loan.""

Senior EVP Jeffrey Brown added that resolution of the ResCap bankruptcy would leave Ally without any ""[mortgage servicing rights] on the balance sheet, [a] very clean... auto finance company.""

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A speedy exit will not leave Ally without skin in the game. If a court approves it, the bankruptcy deal for ResCap will require cash contributions, equity write-downs, and liability reserves for representations and warranties that total $1.3 billion.

The filing will sap risk out of a home loan portfolio that accounts for less than 9 percent of Ally's overall bank balance sheets but helped shift majority ownership to the federal government during the crisis. Ally will still subservice loans via ResCap while it serves as counterparty to ""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/.

""Nationstar Mortgage Holdings Inc."":https://www.nationstarmtg.com/ will acquire $374 billion in mortgage servicing assets from ResCap, along with $201 billion in primary residential mortgage servicing rights and $173 billion in subservicing contracts.

Executives expected that $14.4 billion in first-quarter mortgage assets would ""diminish over time"" as the financial institution returns to a more traditional role in auto finance. The financial institution also trumped up $5.5 billion in repayments to the ""Treasury Department"":http://www.treasury.gov/Pages/default.aspx for taxpayer funds.

""The ResCap filing will accelerate our ability to repay U.S. Treasury, substantially strengthen Ally's financial profile... and really allow us to focus all of our energy and attention on building the two tremendously strong franchises we have in U.S. auto and direct banking,"" Carpenter told investors. ""We're very excited about the end-result of all this.""

Asked by one investor about exposure by Ally to the ongoing debt and credit crises in Europe, Ally Financial executives refrained and said that the financial institution continues to implement safeguards.

A statement by the company said Monday that the auction and sale of any ResCap assets will end later this year.

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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