Ally Bank 2011 Annual Report Download - page 51

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10−K
American retail contracts acquired that included rate subvention from Chrysler decreased as a percentage of total new retail contracts acquired as compared
to 2010 due to a shift towards non−rate incentive programs.
Servicing
We have historically serviced all retail contracts and leases we retained on−balance sheet. We historically sold a portion of the retail contracts we
originated and retained the right to service and earn a servicing fee for our servicing functions. Ally Servicing LLC, a wholly owned subsidiary, performs
most servicing activities for U.S. retail contracts and consumer automobile leases.
Servicing activities consist largely of collecting and processing customer payments, responding to customer inquiries such as requests for payoff
quotes, processing customer requests for account revisions (such as payment extensions and rewrites), maintaining a perfected security interest in the
financed vehicle, monitoring vehicle insurance coverage, and disposing of off−lease vehicles. Servicing activities are generally consistent for our
Automotive Finance operations; however, certain practices may be influenced by local laws and regulations.
Our U.S. customers have the option to receive monthly billing statements to remit payment by mail or through electronic fund transfers, or to establish
online web−based account administration through the Ally Account Center. Customer payments are processed by regional third−party processing centers
that electronically transfer payment data to customers' accounts.
Servicing activities also include initiating contact with customers who fail to comply with the terms of the retail contract or lease. These contacts
typically begin with a reminder notice when the account is 5 to 15 days past due. Telephone contact typically begins when the account is 1 to 15 days past
due. Accounts that become 20 to 30 days past due are transferred to special collection teams that track accounts more closely. The nature and timing of
these activities depend on the repayment risk of the account.
During the collection process, we may offer a payment extension to a customer experiencing temporary financial difficulty. A payment extension
enables the customer to delay monthly payments for 30, 60, or 90 days, thereby deferring the maturity date of the contract by the period of delay. Extensions
granted to a customer typically do not exceed 90 days in the aggregate during any 12−month period or 180 days in aggregate over the life of the contract.
During the deferral period, we continue to accrue and collect interest on the loan as part of the deferral agreement. If the customer's financial difficulty is not
temporary and management believes the customer could continue to make payments at a lower payment amount, we may offer to rewrite the remaining
obligation, extending the term and lowering the monthly payment obligation. In those cases, the principal balance generally remains unchanged while the
interest rate charged to the customer generally increases. Extension and rewrite collection techniques help mitigate financial loss in those cases where
management believes the customer will recover from financial difficulty and resume regularly scheduled payments or can fulfill the obligation with lower
payments over a longer period. Before offering an extension or rewrite, collection personnel evaluate and take into account the capacity of the customer to
meet the revised payment terms. Generally, we do not consider extensions that fall within our policy guidelines to represent more than an insignificant delay
in payment and, therefore, they are not considered Troubled Debt Restructurings. Although the granting of an extension could delay the eventual charge−off
of an account, typically we are able to repossess and sell the related collateral, thereby mitigating the loss. As an indication of the effectiveness of our
consumer credit practices, of the total amount outstanding in the U. S. traditional retail portfolio at December 31, 2008, only 11.0% of the extended or
rewritten balances were subsequently charged off through December 31, 2011. A three−year period was utilized for this analysis as this approximates the
weighted average remaining term of the portfolio. At December 31, 2011, 7.2% of the total amount outstanding in the servicing portfolio had been granted
an extension or was rewritten.
Subject to legal considerations, in the United States we normally begin repossession activity once an account becomes greater than 60−days past due.
Repossession may occur earlier if management determines the customer is unwilling to pay, the vehicle is in danger of being damaged or hidden, or the
customer voluntarily surrenders the vehicle. Approved third−party repossession firms handle repossessions. Normally the customer is given a period of time
to redeem the vehicle by paying off the account or bringing the account current. If the vehicle is not redeemed, it is sold at auction. If the proceeds do not
cover the unpaid balance, including unpaid earned finance charges and allowable expenses, the resulting deficiency is charged off. Asset recovery centers
pursue collections on accounts that have been charged off, including those accounts where the vehicle was repossessed, and skip accounts where the vehicle
cannot be located.
At December 31, 2011 and 2010, our total consumer automotive serviced portfolio was $85.6 billion and $78.8 billion, respectively, compared to our
consumer automotive on−balance sheet portfolio of $73.2 billion and $60.4 billion at December 31, 2011 and 2010, respectively. Refer to Note 12 to the
Consolidated Financial Statements for further information regarding servicing activities.
Remarketing and Sales of Leased Vehicles
When we acquire a consumer lease, we assume ownership of the vehicle from the dealer. Neither the consumer nor the dealer is responsible for the
value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer at scheduled lease termination,
the vehicle is returned to us for remarketing through an auction. We generally bear the risk of loss to the extent the value of a leased vehicle upon
remarketing is below the projected residual value determined at the time the lease contract is signed. Automotive manufacturers may share this risk with us
for certain leased vehicles, as described previously under Manufacturer Marketing Incentives.
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