Ally Bank 2011 Annual Report Download - page 77

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10−K
In circumstances when a loan has features such that it falls into multiple categories, it is classified to a category only once based on the following
hierarchy: (1) high original loan−to−value mortgage loans, (2) payment−option adjustable−rate mortgage loans, (3) interest−only mortgage loans, and
(4) below−market rate (teaser) mortgages. Given the continued stress within the housing market, we believe this hierarchy provides the most relevant risk
assessment of our nontraditional products.
• High loan−to−value mortgages — Defined as first−lien loans with original loan−to−value ratios equal to or in excess of 100% or second−lien
loans that when combined with the underlying first−lien mortgage loan result in an original loan−to−value ratio equal to or in excess of 100%.
We ceased originating these loans with the intent to retain during 2009.
• Payment−option adjustable−rate mortgages — Permit a variety of repayment options. The repayment options include minimum, interest−only,
fully amortizing 30−year, and fully amortizing 15−year payments. The minimum payment option generally sets the monthly payment at the
initial interest rate for the first year of the loan. The interest rate resets after the first year, but the borrower can continue to make the minimum
payment. The interest−only option sets the monthly payment at the amount of interest due on the loan. If the interest−only option payment would
be less than the minimum payment, the interest−only option is not available to the borrower. Under the fully amortizing 30− and 15−year
payment options, the borrower's monthly payment is set based on the interest rate, loan balance, and remaining loan term. We ceased originating
these loans during 2008.
• Interest−only mortgages — Allow interest−only payments for a fixed time. At the end of the interest−only period, the loan payment includes
principal payments and can increase significantly. The borrower's new payment, once the loan becomes amortizing (i.e., includes principal
payments), will be greater than if the borrower had been making principal payments since the origination of the loan. We ceased originating these
loans with the intent to retain during 2010.
• Below−market rate (teaser) mortgages — Contain contractual features that limit the initial interest rate to a below−market interest rate for a
specified time period with an increase to a market interest rate in a future period. The increase to the market interest rate could result in a
significant increase in the borrower's monthly payment amount. We ceased originating these loans during 2008.
The following table summarizes the higher−risk mortgage loan originations unpaid principal balance for the periods shown. These higher−risk
mortgage loans are classified as finance receivables and loans and are recorded at historical cost.
Year ended December 31, ($ in millions) 2011 2010
Interest−only mortgage loans $ — $ 209
Below−market rate (teaser) mortgages — —
Total $ — $ 209
The following table summarizes mortgage finance receivables and loans by higher−risk type. These finance receivables and loans are recorded at
historical cost and reported at carrying value before allowance for loan losses.
2011 2010
December 31, ($ in millions) Outstanding Nonperforming
Accruing
past due
90 days
or more Outstanding Nonperforming
Accruing
past due
90 days
or more
Interest−only mortgage loans (a) $ 2,947 $ 147 $ — $ 3,681 $ 207 $ —
Below−market rate (teaser) mortgages 248 6 — 284 4 —
Total $ 3,195 $ 153 $ — $ 3,965 $ 211 $ —
(a) The majority of the interest−only mortgage loans are expected to start principal amortization in 2015 or beyond.
Allowance for loan losses was $167 million or 5.2% of total higher−risk mortgage finance receivables and loans recorded at historical cost based on
carrying value outstanding before allowance for loan losses at December 31, 2011.
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