Ally Bank 2011 Annual Report Download - page 230

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10−K
Monoline Insurers
Historically, the applicable Mortgage Companies securitized loans where the monolines insured all or some of the related bonds and guaranteed the
timely repayment of bond principal and interest when the issuer defaults. Typically, any alleged breach requires the insurer to have both the ability to assert
a claim as well as evidence that a defect has had a material and adverse effect on the interest of the security holders or the insurer. For the period 2004
through 2007, the Mortgage Companies sold $42.7 billion of loans into these monoline−wrapped securitizations. During the year ended December 31, 2011,
the Mortgage Companies received repurchase claims related to $265 million of original unpaid principal balance from the monolines associated with the
2004 through 2007 securitizations. The Mortgage Companies have resolved repurchase demands through indemnification payments related to $20 million of
original unpaid principal balance.
We are currently in litigation with MBIA and FGIC, and additional litigation with other monolines is likely.
Private−label Securitization
In general, representations and warranties provided as part of our securitization activities are less rigorous than those provided to the GSEs and
generally impose higher burdens on parties seeking repurchase. In order to successfully assert a claim, it is our position that a claimant must prove a breach
of the representations and warranties that materially and adversely affects the interest of the investor in the allegedly defective loan. Securitization
documents typically provide the investors with a right to request that the trustee investigate and initiate a repurchase claim. However, a class of investors
generally is required to coordinate with other investors in that class comprising not less than 25%, and in some cases, 50%, of the percentage interest
constituting a class of securities of that class issued by the trust to pursue claims for breach of representations and warranties. In addition, our private−label
securitizations generally require that the servicer or trustee give notice to the other parties whenever it becomes aware of facts or circumstances that reveal a
breach of representation that materially and adversely affects the interest of the certificate holders.
Regarding our securitization activities, certain of our Mortgage Companies have exposure to potential losses primarily through two avenues. First,
investors, through trustees to the extent required by the applicable agreements (or monoline insurers in certain transactions), may request pursuant to
applicable agreements that the applicable Mortgage Company repurchase loans or make the investor whole for losses incurred if it is determined that the
applicable Mortgage Company violated representations and warranties made at the time of the sale, provided that such violations materially and adversely
impacted the interests of the investor. Contractual representations and warranties are different based on the specific deal structure and investor. It is our
position that litigation of these matters must proceed on a loan by loan basis. This issue is being disputed throughout the industry in various pending
litigation matters. Similarly in dispute, as a matter of law, is the degree to which claimants will have to prove that the alleged breaches of representations
and warranties actually caused the losses they claim to have suffered. Ultimate resolution by courts of these and other legal issues will impact litigation and
treatment of non−litigated claims pursuant to similar contractual provisions. Second, investors in securitizations may attempt to achieve rescission of their
investments or damages through litigation by claiming that the applicable offering documents were materially deficient. If an investor properly made and
proved its allegations, the investor might attempt to claim that damages could include loss of market value on the investment even if there were little or no
credit loss in the underlying loans.
Whole−loan Sales
In addition to the settlements with the GSEs noted earlier, certain of our Mortgage Companies have settled with whole−loan investors concerning
alleged breaches of underwriting standards. For the year ended December 31, 2011, certain of our Mortgage Companies have received $84 million of
original unpaid principal balance in repurchase claims of which $83 million are associated with the 2004 through 2008 vintages of loans sold to whole−loan
investors. Certain of our Mortgage Companies resolved claims related to $91 million of original unpaid principal balance, including settlements,
repurchases, indemnification payments, and rescinded claims.
Private Mortgage Insurance
Mortgage insurance is required for certain consumer mortgage loans sold to the GSEs and certain securitization trusts and may have been in place for
consumer mortgage loans sold to whole−loan investors. Mortgage insurance is typically required for first−lien consumer mortgage loans having a
loan−to−value ratio at origination of greater than 80 percent. Mortgage insurers are, in certain circumstances, permitted to rescind existing mortgage
insurance that covers consumer loans if they demonstrate certain loan underwriting requirements have not been met. Upon receipt of a rescission notice, the
applicable Mortgage Companies will assess the notice and, if appropriate, refute the notice, or if the notice cannot be refuted, the applicable Mortgage
Companies attempt to remedy the defect. In the event the mortgage insurance cannot be reinstated, the applicable Mortgage Companies may be obligated to
repurchase the loan or provide an indemnification payment in the event of a loss, subject to contractual limitations. While the applicable Mortgage
Companies make every effort to reinstate the mortgage insurance, they have had limited success and as a result, most of these requests result in rescission of
the mortgage insurance. At December 31, 2011, the applicable Mortgage Companies have approximately $227 million in original unpaid principal balance
of outstanding mortgage insurance rescission notices where we have not received a repurchase demand. However, this unpaid principal amount is not
representative of expected future losses.
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