Ally mortgage unit files bankruptcy

Diane Alter – Fourth Estate Cooperative Reporter

Midvale, Utah, United States (4E) – Ally Financial ResCap mortgage on Monday filed for prepackaged bankruptcy protection.

The bank, owned by taxpayers, said the filing will allow the bank to take another step to repay the U.S. treasury.

Ally’s ResCap unit operates under the GMAC Mortgage brand. At one time, it was the nation’s leading subprime lender. Problems with those home loans for risker borrowers, and the steep drop in the company’s core auto finance business, forced the Treasury to shell out some $ 15.8 billion in bailout funds in 2009 in an effort to rescue the ailing auto industry and bubble-bursting housing market.

ResCap began as the finance unit of automaker General Motors under the GMAC name. It changed its name to Ally after the bailout. In addition to its auto finance business, Ally also operates as an online commercial bank.

The struggling bank said it is seeking strategic alternatives for its international businesses, a euphemism that the overseas arm is up for sale.

Ally said it expects GMAC to continue to make and service mortgage loans during the bankruptcy process. Its portfolio of home loans, currently valued at less than half its original value, will be auctioned off as part of the bankruptcy process.

GMAC said it will make a so-called “stalking horse” bid of $ 1.6 billion for those loans, adding that it anticipates them to attract higher bids from investors.

In a statement, Ally CEO Michael A. Carpenter said, “The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us. This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100 percent of its energies on further strengthening its already leading U.S. auto finance and direct bank franchises.”

At present, the U.S. Treasury owns about 74 percent of Ally’s outstanding stock. To date, Ally has repaid, through dividends and loan repayments, about $ 5.5 billion of the bailout funds it received.

The company also said Monday that upon successful completion of the bankruptcy auction and disposal of its international business, it should be able to pay back roughly two-thirds of the government bailout.

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