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Government-Controlled Lender Backing Away from Gov Mortgages

Ally cutting back on third-party government mortgage production

April 16, 2012

By MortgageDaily.com staff


Despite the controlling stake in Ally Financial Inc. held by the U.S. government, the lending giant will pare back its government mortgage originations. The move follows a decision to wind down a securitization unit and layoff traders and analysts.

As of the fourth-quarter 2011, the U.S. Department of the Treasury had a 74 percent stake in Ally Financial Inc.

Government home loan production accounted for more than $7 billion of last year's more than $56 billion in total originations at Ally. But that metric is likely to shrink this year.

The Detroit-based company said in a statement that it will "significantly limit" its production of government mortgages through correspondent clients and wholesale mortgage brokers.

Impacted products include loans insured by the Federal Housing Administration as well as mortgages guaranteed by the Department of Veterans Affairs or the U.S. Department of Agriculture.

The new policy became effective on Monday.

Existing commitments from all clients as of April 16 will be honored, the statement said.

In its third-quarter earnings report, Ally said it would "reduce its focus on the correspondent mortgage channel." But the latest statement seems to somewhat hedge its remaining position in the correspondent lending market.

"This action, while difficult, is part of the company's effort to limit activity in certain areas of the correspondent and broker
channels and utilize capital most efficiently with strategic customers and products," the statement said. "The company continues to be in the correspondent and wholesale lending businesses and continues to focus the business toward clients that are most strategic for the overall operation."

Ally briefly exited third-party originations entirely in the Commonwealth of Massachusetts, though it quickly reversed that decision and resumed third-party business in the state.

The lender said it will continue to offer the government programs in its "consumer lending business" and through a "very limited number of strategic clients" in its correspondent and wholesale channels.

The departure from third-party government lending follows a decision by Ally Securities to exit its mortgage-related broker dealer activities and wind down the operation over the next few weeks.

All existing trades will be honored, according to the company statement.

"These activities are no longer strategic for Ally, and as a result it will refocus resources, capital and attention toward initiatives that more
directly support the key franchises," the statement said.

The company didn't comment on a reported 33 traders and analysts laid off in conjunction with the unit's closing.

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