Driven by strong refinance business, Ally Financial Inc. loan originations jumped more than a quarter — though earnings deteriorated significantly. But a new strategy that has the company scaling back on its correspondent channel is likely to cut its losses and take a big bite out of upcoming volume.
Domestic residential loan production was $15.6 billion in the third quarter, according to earnings data released Wednesday. Business grew from the second quarter’s $12.3 billion.
But the total wasn’t so good compared to third quarter of last year, when production amounted to $20.2 billion.
The most recent numbers included $13.3 billion in prime conforming loans, $0.5 billion in jumbo business and $1.8 billion in government lending.
Volume during the first nine months of 2011 totaled $39.8 billion. Around 84 percent of year-to-date originations was correspondent production.
Ally’s primary servicing portfolio was $361 billion as of Sept. 30. However, the prior report indicated that around $5.7 billion of the portfolio was on loans outside the United States — suggesting that the U.S. portion of the portfolio was around $355.3 billion.
The mortgage servicing portfolio was $354.3 billion three months earlier and $352.8 billion a year earlier.
On Ally’s balance sheet as of the end of September were $9.3 billion in held-for-investment mortgages, $3.2 billion in held-for-sale loans, $1.6 billion in warehouse lines and $1.0 billion in other assets.
One-month delinquency improved to 3.3 percent from the second quarter’s 3.4 percent. The rate was 50 basis points better than in the third-quarter 2010.
Outstanding repurchase claims were slightly higher than the prior period at $1.1 billion. The balance was $0.9 billion a year prior. Ally added $70 million to its repurchase reserve in the third quarter. More than three fourths of new claims over the past four quarters were loans that were originated between 2006 and 2008.
The mortgage unit had a $422 million loss before taxes, worsening from $127 million three months prior. Earnings swung from a $154 million profit during the same three months of last year.
The latest numbers reflected a $311 million loss from servicing and mortgage origination — including a $471 million loss from servicing asset valuation and hedge activities — and a $111 million loss on its legacy portfolio.
“In order to proactively address the changes in the mortgage industry as a whole, the company will take immediate action to reduce its focus on the correspondent mortgage channel,” the report stated. “Ally will maintain correspondent relationships with its key customers and will continue to participate in the consumer and broker lending channels, which are higher margin businesses.”
The de-emphasis of the correspondent channel is expected to reduce volatility on its mortgage servicing rights.
Ally Financial earned $102 million before taxes on a company-wide basis, deteriorating from the second-quarter profit of $466 million. Earnings sank from the third-quarter 2010, when net income was $635 million.
