Ally Bank 2011 Annual Report Download - page 7

Table of Contents
Ally Financial Inc. • Form 10−K
We have further diversified our customer base by establishing agreements to become preferred financing providers with other manufacturers including
Thor Industries (recreational vehicles), Maserati (for the United States and Canada), MG Motor UK Ltd (in the United Kingdom), The Vehicle Production
Group LLC (for the United States), and SsangYoung Motor UK Ltd (in the United Kingdom).
Insurance
Our Insurance operations offer both consumer finance and insurance products sold primarily through the automotive dealer channel and commercial
insurance products sold to dealers. As part of our focus on offering dealers a broad range of consumer finance and insurance products, we provide vehicle
service contracts and maintenance coverage. We also underwrite selected commercial insurance coverages, which primarily insure dealers' wholesale
vehicle inventory in the United States. Additionally, the Insurance operations offer GAP products in the United States and personal automobile insurance
coverage in certain countries outside the United States. Our Insurance operations had $8.0 billion of assets at December 31, 2011, and generated $1.9 billion
of total net revenue in 2011.
Our vehicle service contracts for retail customers offer owners and lessees mechanical repair protection and roadside assistance for new and used
vehicles beyond the manufacturer's new vehicle warranty. These vehicle service contracts are marketed to the public through automotive dealerships and on
a direct response basis in the United States and Canada. The vehicle service contracts cover virtually all vehicle makes and models. We also offer GAP
products, which allow the recovery of a specified economic loss beyond the covered vehicle's value in the event the vehicle is damaged and declared a total
loss. Wholesale vehicle inventory insurance for dealers provides physical damage protection for dealers' floorplan vehicles. Dealers are generally required
to maintain this insurance by their floorplan finance provider. We offer vehicle inventory insurance in the United States to virtually all new car franchised
dealerships. We sell insurance products to approximately 4,000 dealers in the United States. Among U.S. GM dealers to whom we provide wholesale
financing, our wholesale insurance product penetration rate is approximately 78%. Dealers who receive wholesale financing from Ally are eligible for
wholesale insurance incentives, such as automatic eligibility in our preferred insurance programs and increased financial benefits. Our ABA Seguros
subsidiary provides personal automobile insurance and certain commercial insurance in Mexico. We also provide personal automobile insurance in Canada.
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to
satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops
investment guidelines and strategies. The guidelines established by this committee reflect our risk tolerance, liquidity requirements, regulatory requirements,
and rating agency considerations, among other factors.
Mortgage
Our Mortgage operations are now reported as two distinct segments: (1) Origination and Servicing operations and (2) Legacy Portfolio and Other
operations. These operations are conducted through the mortgage operations of Ally Bank and subsidiaries of the Residential Capital, LLC (ResCap) legal
entity in the United States. Our Mortgage operations had $33.9 billion of assets at December 31, 2011, and generated $1.2 billion of total net revenue in
2011.
Origination and Servicing
Our Origination and Servicing operations is one of the leading originators of conforming and government−insured residential mortgage loans in the
United States. We are one of the largest residential mortgage loan servicers in the United States and we provide collateralized lines of credit to other
mortgage originators, which we refer to as warehouse lending. We finance our mortgage loan originations primarily in Ally Bank. During 2011, we
originated or purchased approximately 247,000 mortgage loans totaling $56.3 billion in the United States: $45.3 billion through our network of
correspondents and $10.9 billion through our retail and direct network, which includes our Ditech branded direct−to−consumer channel. On November 2,
2011, we announced that in order to proactively address changes in the mortgage industry as a whole, we will be taking immediate action to reduce the
focus on the correspondent mortgage−lending channel; however, we will maintain correspondent relationships with key customers. This reduction will
allow us to shift our focus and origination capacity to our retail and direct network channel. As a result, we believe our exposure to mortgage servicing
rights (MSR) asset volatility will decrease over time, and we will be better positioned to comply with Basel III requirements. This change is also expected to
result in a decrease in total origination levels in 2012 as compared to 2011. After consideration of our experience to−date and the shift in focus to the higher
margin retail and direct channels, overall profitability is not expected to be significantly impacted if we are able to increase our retail and direct production
volume due to government refinance programs. We will continue to evaluate this business in the future and further reductions in the correspondent channel
could occur. We sell the conforming mortgages we originate or purchase in sales that take the form of securitizations guaranteed by the Federal National
Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), and sell government−insured mortgage loans we
originate or purchase in securitizations guaranteed by the Government National Mortgage Association (Ginnie Mae). Fannie Mae, Freddie Mac, and Ginnie
Mae are collectively known as the Government−sponsored Enterprises or GSEs. We also selectively originate prime jumbo mortgage loans in the United
States. In 2011, we sold $57.9 billion of mortgage loans guaranteed by the GSEs, representing 99.8% of total loans sold by us. At December 31, 2011, we
were the primary servicer of 2.3 million mortgage loans with an unpaid principal balance of $356.4 billion. Our Origination and Servicing operations had
$23.0 billion of assets at December 31, 2011, and generated $933 million of total net revenue during the year ended December 31, 2011.
Legacy Portfolio and Other
Our Legacy Portfolio and Other operations primarily consists of loans originated prior to January 1, 2009, and includes noncore business activities
including discontinued operations, portfolios in runoff, and cash held in the ResCap legal entity. These activities, all of which we
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