Ally to pay $462M to settle loan deal with Fannie
NEW YORK (AP) - Ally Financial Inc. said Monday it will pay $462 million to settle buyback claims on $292 billion in home loans that it sold to Fannie Mae before the industry tightened underwriting standards in the wake of the financial meltdown.
GMAC Mortgage, which is part of Ally's Residential Capital unit, originates and services loans then sells them to government-sponsored mortgage companies Fannie Mae and Freddie Mac. As part of their repurchasing deals, Fannie and Freddie have the option to go back and challenge Ally's underwriting standards. If successful, they could have forced Ally to buy back the loans in question.
The settlement covers loans that GMAC serviced for Fannie Mae prior to June 30 as well as all mortgage-backed securities that Fannie Mae purchased from the company. The $462 million is slightly more than the reserves that Ally had set aside to cover a potential deal.
Ally CEO Michael A. Carpenter says the deal significantly cuts Ally's risk related to its legacy mortgage business. The company does not expect significant repurchase claims on loans at Ally Bank, noting that more than 90 percent of the Ally Bank loans serviced on behalf of Fannie Mae were originated from 2008 to 2010.
Concurrently with the settlement agreement, Ally said it increased an existing line of credit with ResCap to $1.6 billion from $1.1 billion.