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Ally Settles Repurchase Obligations on $84 Billion in Loans

Settlement with Fannie costs $462 million

Dec. 28, 2010

By staff

Ally Financial Inc. has taken in big step in limiting its repurchase liabilities.

In July, the Federal Housing Finance Agency disclosed that it had filed 64 subpoenas against private-label issuers whose mortgage-backed securities had been acquired by either Fannie Mae or Freddie Mac.

The two secondary lenders had been trying to determine whether private-label MBS issuers were liable for loan losses but were being stonewalled by the issuers, the regulator said at the time.

Among those that were subpoenaed were various mortgage entities owned by Ally Financial.

In a filing Monday with the Securities and Exchange Commission, Ally disclosed that it reached a settlement agreement with the Federal National Mortgage Association, or Fannie Mae.

The deal, which calls for a $462 million cash payment, impacts all mortgages serviced by GMAC Mortgage LLC on behalf of Fannie as of or before June 30.

Around $292 billion in securitizations with unpaid balances of $84 billion are impacted by the agreement.

As a result of the settlement, the Ally subsidiaries and their officers, employees and directors are released from potential liability from mortgage repurchase obligations where selling representations and warranties were breached on MBS purchased by Fannie.

While Ally Bank is excluded from the agreement -- it does cover GMAC Mortgage, Residential Capital LLC, Residential Funding Securities LLC, Residential Asset Mortgage Products Inc., Residential Funding Company LLC, Residential Funding Mortgage Securities I Inc., Residential Accredit Loans Inc. and Homecomings Financial LLC.

Fannie agreed not to enforce any potential representation or warranty claim tied to the underlying mortgages.

GMAC Mortgage, however, remains responsible for other contractual obligations it has with Fannie on the loans covered in the settlement such as indemnification obligations that might arise in connection with its servicing. It also remains liable for any violation of servicing obligations including failure to comply with statutory foreclosure requirements on securitized loans.

FHFA agreed to withdraw the subpoenas related to Fannie as part of the deal.

"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," Ally Chief Executive Officer Michael A. Carpenter said in a separate announcement. "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 said it had already set aside reserves for most of the settlement.

Ally also said it increased a line of credit with ResCap to $1.6 billion from $1.1 billion.

GMAC profile

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