A settlement reached with creditors of its former mortgage subsidiary will free Ally Financial Inc. from most of its mortgage liability to third parties.
The New York-based company announced Tuesday that it has reached a comprehensive plan support agreement with the Residential Capital LLC bankruptcy estate and its major creditors to support a Chapter 11 plan in ResCap’s Chapter 11 cases.
ResCap, which at one time was a mortgage lending powerhouse, filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York along with 27 related entities in May 2012.
The agreement reached by Ally is subject to approval by the bankruptcy court and definitive documentation. Terms of the deal will remain confidential until the debtors file a motion to approve the plan support agreement. The filing is expected next week.
Ally noted that it won’t budge on the terms of the agreement regardless of approval.
“The plan will settle all existing and potential claims between Ally and ResCap and all potential claims held by third parties related to ResCap that could be brought against Ally and subsidiaries that are not Chapter 11 debtors, except for securities claims by the Federal Housing Finance Agency and the Federal Deposit Insurance Corp., as receiver for certain failed banks,” Ally said in Tuesday’s statement.
Ally disclosed last month that it sold mortgage servicing rights on around $115 billion in home loans to Ocwen Financial Corp. and Quicken Loans Inc. The two MSR sales yielded Ally $865 million.
ResCap, meanwhile, previously reached an agreement to unload MSRs on $127 billion in loans to Ocwen. MSRs on another $44 billion were sold to Walter Investment Management Corp. earlier this year, as were ResCap’s originations and capital markets platform.
Ally Chief Executive Officer Michael A. Carpenter noted in Tuesday’s announcement that the deal marks “a seminal moment for Ally.” He added that the agreement enables Ally “to put the issues related to the mortgage industry behind us.”
