Ally Bank 2011 Annual Report Download - page 61

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10−K
by lower representation and warranty expense in 2011 as 2010 included a significant increase in expense to cover anticipated repurchase requests and
settlements with key counterparties.
2010 Compared to 2009
Our Legacy Portfolio and Other operations incurred a loss from continuing operations before income tax expense of $267 million for the year ended
December 31, 2010, compared to $6.3 billion for the year ended December 31, 2009. The 2010 results from continuing operations were primarily driven by
the stabilization of our loan portfolio resulting in a decrease in provision for loan losses, lower representation and warranty expense, and gains on the sale of
domestic legacy assets.
Net financing revenue was $605 million for the year ended December 31, 2010, compared to $632 million in 2009. The decrease was driven by lower
financing revenue and other interest income due primarily to a decline in average asset levels due to loan sales, on−balance deconsolidations, and portfolio
runoff. The decrease was partially offset by lower interest expense related to a reduction in average borrowings commensurate with a smaller asset base.
The net gain on mortgage loans was $383 million for the year ended December 31, 2010, compared to a loss of $40 million in 2009. The increase was
primarily due to higher gains on loan sales in 2010 compared to 2009, higher gains on loan resolutions in 2010, and the recognition of a gain on the
deconsolidation of an on−balance sheet securitization. Refer to Note 11 to the Consolidated Financial Statements for information on the deconsolidation.
Other income, net of losses, was a loss of $115 million for the year ended December 31, 2010, compared to a loss of $647 million in 2009. The
improvement from 2009 was primarily related to the recognition of gains on the sale of foreclosed real estate in 2010 compared to losses and impairments in
2009 and impairments and higher losses on trading securities in 2009. Additionally, during the year ended December 31, 2009, we recognized significant
impairments on equity investments, lot option projects, and model homes.
The provision for loan losses was $173 million for the year ended December 31, 2010, compared to $4.2 billion in 2009. The provision decreased
$4.1 billion due to the improved asset mix as a result of the strategic actions taken during the fourth quarter of 2009 to write down and reclassify certain
legacy mortgage loans from held−for−investment to held−for−sale. Additionally, the higher provision in 2009 was driven by significant increases in
delinquencies and severity in our domestic mortgage loan portfolio and higher reserves were recognized against our commercial real estate−lending
portfolio.
Total noninterest expense decreased 53% for the year ended December 31, 2010, compared to 2009. The decrease was driven by lower representation
and warranty expense related to an increase in reserve in 2009 related to higher repurchase demands and loss severity. The decrease was also impacted by a
decrease in compensation and benefits expense related to lower headcount and a decrease in professional services expense related to cost reduction efforts.
During 2009, our captive reinsurance portfolio experienced deterioration due to higher delinquencies, which drove higher insurance reserves. The decrease
in 2010 was partially offset by unfavorable foreign−currency movements on hedge positions.
Loan Production
U.S. Mortgage Loan Production Channels
We have three primary channels for residential mortgage loan production: the purchase of loans in the secondary market (primarily from Ally Bank
correspondent lenders), the origination of loans through our direct−lending network, and the origination of loans through our mortgage brokerage network.
• Correspondent lender and secondary market purchases — Loans purchased from correspondent lenders are originated or purchased by the
correspondent lenders and subsequently sold to us. All of the purchases from correspondent lenders are conducted through Ally Bank. We
qualify and approve any correspondent lenders who participate in the loan purchase programs.
• Direct−lending network — Our direct−lending network consists of internet (including through the ditech.com brand) and telephone−based call
center operations as well as our retail network. Virtually all of the residential mortgage loans of this channel are brokered to Ally Bank.
• Mortgage brokerage network — Residential mortgage loans originated through mortgage brokers. We review and underwrite the application
submitted by the mortgage broker, approve or deny the application, set the interest rate and other terms of the loan and, upon acceptance by the
borrower and the satisfaction of all conditions required by us, fund the loan through Ally Bank. We qualify and approve all mortgage brokers
who generate mortgage loans and continually monitor their performance.
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