Ally Bank 2011 Annual Report Download - page 58

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10−K
Mortgage
Our Mortgage operations include the ResCap legal entity and the mortgage operations of Ally Bank. Results from continuing operations for our
Mortgage operations are presented by reportable segment, which includes our Origination and Servicing operations and our Legacy Portfolio and Other
operations.
Origination and Servicing Operations
Results of Operations
The following table summarizes the operating results for our Origination and Servicing operations for the periods shown. Our Origination and
Servicing operations principal activities include originating, purchasing, selling, and securitizing conforming and government−insured residential mortgage
loans in the United States; servicing residential mortgage loans for ourselves and others; and providing collateralized lines of credit to other mortgage
originators, which we refer to as warehouse lending. We also originate high−quality prime jumbo mortgage loans in the United States. We finance our
mortgage loan originations primarily in Ally Bank.
Year ended December 31, ($ in millions) 2011 2010 2009
Favorable/
(unfavorable)
2011−2010
% change
Favorable/
(unfavorable)
2010−2009
% change
Net financing (loss) revenue
Total financing revenue and other interest income $ 414 $ 448 $ 387 (8) 16
Interest expense 439 413 369 (6) (12)
Net financing (loss) revenue (25) 35 18 (171) 94
Servicing fees 1,203 1,270 1,240 (5) 2
Servicing asset valuation and hedge activities, net (789) (394) (1,113) (100) 65
Total servicing income, net 414 876 127 (53) n/m
Gain on mortgage loans, net 297 607 695 (51) (13)
Other income, net of losses 247 255 136 (3) 88
Total other revenue 958 1,738 958 (45) 81
Total net revenue 933 1,773 976 (47) 82
Provision for loan losses 1 (29) 41 (103) 171
Noninterest expense
Compensation and benefits expense 273 249 265 (10) 6
Representation and warranty expense — (22) 32 (100) 169
Other operating expenses 1,006 655 595 (54) (10)
Total noninterest expense 1,279 882 892 (45) 1
(Loss) income before income tax expense $ (347) $ 920 $ 43 (138) n/m
Total assets $ 23,016 $ 23,681 $ 17,914 (3) 32
n/m = not meaningful
2011 Compared to 2010
Our Origination and Servicing operations incurred a loss before income tax expense of $347 million for the year ended December 31, 2011, compared
to income before income tax expense of $920 million for the year ended December 31, 2010. The decrease was primarily driven by unfavorable servicing
asset valuation, net of hedge, lower net gains on the sale of mortgage loans, and a $230 million expense related to penalties imposed by certain regulators
and other governmental agencies in connection with mortgage foreclosure−related matters.
Net financing loss was $25 million for the year ended December 31, 2011, compared to net financing revenue of $35 million in 2010. The loss was
primarily due to higher funding costs and slightly unfavorable net financing revenue on Ginnie Mae repurchases.
Total servicing income, net was $414 million for the year ended December 31, 2011, compared to $876 million in 2010. The decrease was primarily
due to a drop in interest rates and increased market volatility compared to favorable valuation adjustments in 2010. Additionally, 2011 includes a valuation
adjustment that estimates the impact of higher servicing costs related to enhanced foreclosure procedures, establishment of single point of contact, and other
processes to comply with the Consent Order.
The net gain on mortgage loans was $297 million for the year ended December 31, 2011, compared to $607 million in 2010. The decrease during 2011
was primarily due to lower margins and production.
Total noninterest expense increased 45% for the year ended December 31, 2011, compared to 2010. The increase was primarily due to a $230 million
expense related to penalties imposed by certain regulators and other governmental agencies in connection with mortgage
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