Ally Bank 2012 Annual Report Download - page 30

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Mortgage
The principal ongoing Mortgage operations are conducted through Ally Bank. We intend to continue to originate a modest level of jumbo
and conventional conforming residential mortgages for our own portfolio through a select group of correspondent lenders. Our Mortgage
operations also consist of noncore business activities including portfolios in run-off.
On October 26, 2012, we announced that Ally Bank had begun to explore strategic alternatives for its agency mortgage servicing rights
portfolio and its business lending operations. On February 28, 2013, we sold our business lending operations to Walter Investment
Management Corp. The majority of Ally Bank’s serviced mortgage assets are subserviced by GMAC Mortgage, LLC (GMACM), a subsidiary
of ResCap, pursuant to a servicing agreement. Additionally, in July 2012, we announced our intention to shut down our U.S. Warehouse
Lending business and, as of December 31, 2012, we successfully managed receivables down to $0 with no commitments outstanding. Our
intent is to significantly reduce or eliminate our mortgage-related activities with respect to the origination of conforming mortgage loans with
the intent to sell into securitizations sponsored by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage
Corporation (Freddie Mac), or Government National Mortgage Association (Ginnie Mae) (collectively, the Government-sponsored
Enterprises, or GSEs), the retention of mortgage servicing rights, and the extension of credit to third-party mortgage originators (warehouse
lending).
Residential Capital, LLC (ResCap) and certain of its wholly-owned subsidiaries (collectively, the Debtors), filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York on May 14,
2012. Refer to Note 1 to the Consolidated Financial Statements for further information regarding the Debtors' Bankruptcy and the
deconsolidation of ResCap.
Subsequent to the bankruptcy filing, ResCap announced the sale of certain assets to third parties. Upon the closing of those sales, we do
not expect ResCap to continue to broker loans to us. This will primarily impact the production of loans within the Direct Lending channel,
which are currently sourced exclusively from ResCap.
As the actions discussed continue to progress, we expect the level of loan production and mortgage-related assets (with the exception of
mortgage loans held for investment), as well as the income before income tax expense from Mortgage operations, to decline.
Change in Reportable Segments
On May 14, 2012, the Debtors filed for relief under Chapter 11 of the Bankruptcy Code in the United States. As a result of the
bankruptcy filing, ResCap was deconsolidated from our financial statements; and beginning in the second quarter of 2012, we began
presenting our mortgage business activities under one reportable operating segment, Mortgage operations. Previously our Mortgage
operations had been presented as two reportable operating segments, Origination and Servicing operations and Legacy Portfolio and Other
operations. The new presentation is consistent with the organizational alignment of the business and management's current view of the
mortgage business.
Corporate and Other
Corporate and Other primarily consists of our centralized corporate treasury activities, such as management of the cash and corporate
investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of
the discount associated with new debt issuances and bond exchanges, most notably from the December 2008 bond exchange, and the residual
impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also
includes our Commercial Finance Group, certain equity investments, reclassifications and eliminations between the reportable operating
segments, and overhead that was previously allocated to operations that have since been sold or classified as discontinued operations. Our
Commercial Finance Group provides senior secured commercial-lending products to primarily U.S.-based middle market companies.
The net financing revenue of our Automotive Finance and Mortgage operations includes the results of an FTP process that insulates these
operations from interest rate volatility by matching assets and liabilities with similar interest rate sensitivity and maturity characteristics. The
FTP process assigns charge rates to the assets and credit rates to the liabilities within our Automotive Finance and Mortgage operations,
respectively, based on anticipated maturity and a benchmark index plus an assumed credit spread. The assumed credit spread represents the
cost of funds for each asset class based on a blend of funding channels available to the enterprise, including unsecured and secured capital
markets, private funding facilities, and deposits. In addition, a risk-based methodology, which incorporates each operations credit, market, and
operational risk components is used to allocate equity to these operations.
Change in Reportable Segments
During the fourth quarter of 2012, we began to allocate expenses associated with certain deposit gathering activities and other additional
costs of holding liquidity to our Automotive Finance and Mortgage operations. These expenses were previously included within our Corporate
and Other activities. Additionally, we began to include overhead that was previously allocated to operations that have since been sold or
moved into discontinued operations within our Corporate and Other activities.
Ally Bank
Ally Bank, our direct banking platform, provides us with a stable and diversified low-cost funding source. Our focus is on building a
stable deposit base driven by our compelling brand and strong value proposition. Ally Bank raises deposits directly from customers through
direct banking via the internet, telephone, mobile, and mail channels. Ally Bank has established a strong and growing retail banking franchise
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K