Ally Bank 2011 Annual Report Download - page 227

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10−K
The Consent Order further requires GMAC Mortgage, LLC to retain independent consultants to conduct a risk assessment related to mortgage
servicing activities and, separately, to conduct a review of certain past residential mortgage foreclosure actions. We cannot estimate the ultimate impact of
any deficiencies that have been or may be identified in our historical foreclosure procedures. There are potential risks related to these matters that extend
beyond potential liability on individual foreclosure actions. Specific risks could include, for example, claims and litigation related to foreclosure
remediation and resubmission; claims from investors that hold securities that become adversely impacted by continued delays in the foreclosure process; the
reduction in foreclosure proceeds due to delay, or by challenges to completed foreclosure sales to the extent, if any, not covered by title insurance obtained
in connection with such sales; actions by courts, state attorneys general, or regulators to delay further the foreclosure process after submission of corrected
affidavits, or to facilitate claims by borrowers alleging that they were harmed by our foreclosure practices (by, for example, foreclosing without offering an
appropriate range of alternative home preservation options); additional regulatory fines, sanctions, and other additional costs; and reputational risks. To date
we have borne all out−of−pocket costs associated with the remediation rather than passing any such costs through to investors for whom we service the
related mortgages, and we expect that we will continue to do so.
Loan Repurchases and Obligations Related to Loan Sales
Overview
Certain mortgage companies (Mortgage Companies) within our Mortgage operations sell loans that take the form of securitizations guaranteed by the
GSEs, securitizations to private investors, and to whole−loan investors. In connection with a portion of our Mortgage Companies' private−label
securitizations, the monolines insured all or some of the related bonds and guaranteed timely repayment of bond principal and interest when the issuer
defaults. In connection with securitizations and loan sales, the trustee for the benefit of the related security holders and, if applicable, the related monoline
insurer, are provided various representations and warranties related to the loans sold. The specific representations and warranties vary among different
transactions and investors but typically relate to, among other things, the ownership of the loan, the validity of the lien securing the loan, the loan's
compliance with the criteria for inclusion in the transaction, including compliance with underwriting standards or loan criteria established by the buyer, the
ability to deliver required documentation and compliance with applicable laws. In general, the representations and warranties described above may be
enforced against the applicable Mortgage Companies at any time unless a sunset provision is in place. Upon discovery of a breach of a representation or
warranty, the breach is corrected in a manner conforming to the provisions of the sale agreement. This may require the applicable Mortgage Companies to
repurchase the loan, indemnify the investor for incurred losses, or otherwise make the investor whole. We have entered into settlement agreements with both
Fannie Mae and Freddie Mac that, subject to certain exclusions, limit our remaining exposure with the GSEs. See Government−sponsored Enterprises
below. ResCap assumes all of the customary mortgage representation and warranty obligations for loans purchased from Ally Bank and subsequently sold
into the secondary market, generally through securitizations guaranteed by the GSEs. In the event ResCap fails to meet these obligations, Ally Financial Inc.
has provided Ally Bank a guaranteed coverage of certain of these liabilities.
Originations
The total exposure of the applicable Mortgage Companies to mortgage representation and warranty claims is most significant for loans originated and
sold between 2004 through 2008, specifically the 2006 and 2007 vintages that were originated and sold prior to enhanced underwriting standards and
risk−mitigation actions implemented in 2008 and forward. Since 2009, we have focused primarily on originating domestic prime conforming and
government−insured mortgages. In addition, we ceased offering interest−only jumbo mortgages in 2010. Representation and warranty risk−mitigation
strategies include, but are not limited to, pursuing settlements with investors where economically beneficial in order to resolve a pipeline of demands in lieu
of loan−by−loan assessments that could result in repurchasing loans, aggressively contesting claims we do not consider valid (rescinding claims), or seeking
recourse against correspondent lenders from whom we purchased loans wherever appropriate.
Repurchase Process
After receiving a claim under representation and warranty obligations, the applicable Mortgage Companies will review the claim to determine the
appropriate response (e.g. appeal and provide or request additional information) and take appropriate action (rescind, repurchase the loan, or remit
indemnification payment). Historically, repurchase demands were generally related to loans that became delinquent within the first few years following
origination. As a result of market developments over the past several years, investor repurchase demand behavior has changed significantly. GSEs and
investors are more likely to submit claims for loans at any point in their life cycle, including requests for loans that become delinquent or loans that incur a
loss. Investors are more likely to submit claims for loans that become delinquent at any time while a loan is outstanding or when a loan incurs a loss.
Representation and warranty claims are generally reviewed on a loan−by−loan basis to validate if there has been a breach requiring a potential repurchase or
indemnification payment. The applicable Mortgage Companies actively contest claims to the extent they are not considered valid. The applicable Mortgage
Companies are not required to repurchase a loan or provide an indemnification payment where claims are not valid.
The risk of repurchase or indemnification and the associated credit exposure is managed through underwriting and quality assurance practices and by
servicing mortgage loans to meet investor standards. We believe that, in general, the longer a loan performs prior to default the less likely it is that an
alleged breach of representation and warranty will be found to have a material and adverse impact on the loan's performance. When loans are repurchased,
the applicable Mortgage Companies bear the related credit loss on the loans. Repurchased loans are classified as held−for−sale and initially recorded at fair
value.
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