--Ally reaches deals with FHFA and FDIC
--Regulators had sued company over sale of mortgage-backed
securities
--Company will take a $170 million charge for the third
quarter
(Adds details on Ally's settlements in the fifth through seventh
paragraphs.)
By Andrew R. Johnson
Ally Financial Inc. is settling lawsuits brought by federal
regulators over mortgage-backed securities sold during the
financial crisis as the government-owned auto lender takes another
step toward putting litigation woes behind it.
The Detroit-based company said Tuesday it will take a $170
million charge in the third quarter in connection with the
settlements with the Federal Deposit Insurance Corp. and Federal
Housing Finance Agency, the regulator for government-backed
mortgage-finance firms Freddie Mac (FMCC) and Fannie Mae
(FNMA).
The settlement is the latest in a string of agreements for the
FHFA, which sued Ally and 17 other banks in 2011 alleging they sold
shoddy mortgage securities to Freddie Mac and Fannie Mae leading up
to the financial crisis. Losses on those securities contributed to
the near collapse of the mortgage firms, which were ultimately
taken over by the government in 2008.
The FDIC had also sued Ally and other banks for allegedly
selling defective mortgage securities to other banks that
ultimately failed and were taken over by the agency.
Ally's settlement with the FDIC is $55.3 million, a spokesman
for the regulator said.
Ally and the FHFA declined to disclose the amount of their
settlement but a spokeswoman for that agency said final terms will
be finalized by the end of the year, and details of the agreement
will be released then.
Including the $170 million charge announced today, Ally has
reserved $520 million for the two agencies' suits, said Gina Proia,
a spokeswoman for the company.
The regulators' cases were excluded from a release Ally received
under a settlement it reached this summer with its subprime
mortgage subsidiary, Residential Capital LLC. That deal, which also
included ResCap's creditors, granted Ally a release from litigation
in exchange for a $2.1 billion payment to ResCap's bankruptcy
estate.
ResCap, once one of the country's largest subprime mortgage
lenders, filed for Chapter 11 bankruptcy in May 2012 as litigation
over soured mortgage securities mounted and bond payments loomed.
Such issues had been a drag on the financial health of Ally,
stalling the auto lender's efforts to pay back a $17.2 billion
bailout it received from the U.S. government during the financial
crisis.
"These settlements are key steps in Ally addressing its
remaining legacy mortgage risks," said Michael Carpenter, chief
executive officer of Ally, in a statement.
The FHFA had objected to how ResCap's bankruptcy plan handled
its fraud lawsuit against Ally. Freddie Mac bought $6 billion worth
of mortgage-backed securities from ResCap between 2005 and
2007.
The FHFA and Freddie Mac will retain some claims against Ally's
banking subsidiary, Ally Bank, as a former mortgage seller and
servicer.
ResCap filed its plan to reorganize--and eventually to
liquidate--in July. Judge Martin Glenn is set consider approval of
the Chapter 11 plan at a Nov. 19 hearing in U.S. Bankruptcy Court
in New York.
Ally's settlement is the latest in a string of agreements the
FHFA has reached with the banks it sued.
The regulator on Friday announced a $5.1 billion agreement with
J.P. Morgan Chase & Co. (JPM), which is trying to put several
mortgage probes behind it. That agreement included $4 billion to
settle the suit over mortgage securities Freddie and Fannie bought
and $1.1 billion to settle separate demands from the
government-backed firms that J.P. Morgan repurchase loans it sold
them that violated their underwriting standards.
The FHFA has also reached an $885 million settlement with UBS AG
(UBS) in July and settled for undisclosed amounts with Citigroup
Inc. (C) and General Electric Co. (GE) this year. The three
companies didn't admit any wrongdoing.
-Patrick Fitzgerald contributed to this article
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires