By Andrew R. Johnson
Ally Financial Inc. (GMA.XX), which is largely exiting the
mortgage business through the bankruptcy of its Residential Capital
subsidiary, saw an increase in demands by Fannie Mae (FNMA) in the
second quarter to buy back defective loans, according to a
regulatory filing.
The Detroit-based lender said Friday the increase in new
"representation and warranty" claims by the government-sponsored
enterprise, or GSE, was mainly tied to loans originated in 2008,
before Ally "enhanced underwriting standards."
The value of Fannie Mae's new claims increased 30.8% from a year
earlier to $85 million, Ally said in its Form 10-Q filed with the
Securities and Exchange Commission. The figure is based on the
outstanding principal balance of loans for which Ally has received
repurchase demands.
A spokeswoman for Ally said the claims are tied to a much
smaller population of loans since ResCap's bankruptcy filing May
14.
Ally, which is 74% owned by the U.S. government, is one of
several large banks that have reported an increase in repurchase
demands by Fannie Mae and sister company Freddie Mac (FMCC).
Fannie Mae and Freddie Mac buy loans made by banks and package
and sell them as securities to generate more funding for the
housing market.
Bank of America Corp. (BAC) said Thursday it is in discussions
with Fannie Mae to resolve disagreements over soured mortgages it
sold to the GSE. Earlier this year, Fannie Mae said it ended an
agreement to buy some mortgages from Bank of America over the
dispute.
PNC Financial Services Group Inc. (PNC) in June said it was
setting aside an additional $350 million in second-quarter reserves
for demands to buy back faulty mortgages. At the time, Chief
Executive Jim Rohr said the increase in claims was tied mainly to
one GSE.
While new claims from Fannie Mae increased in the second
quarter, Ally said new claims from Freddie Mac declined 45% to $22
million.
Its reserve for such claims also plunged due to the bankruptcy
of ResCap, the operations of which have been deconsolidated from
Ally's results. As a result, Ally's reserve for representation and
warranty claims was $124 million as of June 30, down from $829
million a year earlier.
ResCap, the fifth-largest mortgage servicer and originator in
the U.S., filed for Chapter 11 bankruptcy May 14 as it faced
looming bond-related payments and rising litigation over soured
mortgage-backed securities.
The bankruptcy is intended to help Ally, whose primary business
is auto lending and online banking, sever itself from those issues
so it can focus on paying back the U.S. government, which invested
$17.2 billion in the company during the financial crisis. Ally has
paid the government $5.7 billion and is trying to sell its
international auto-lending and banking operations to aid in that
effort.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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