Ally Bank 2012 Annual Report Download - page 144

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and commercial automobile loans, operating leases, and other commercial loans through private-label securitizations. We securitize consumer
mortgage loans through transactions involving the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac). We previously securitized consumer mortgage loans through private-label mortgage securitizations and
through transactions involving the Government National Mortgage Association (Ginnie Mae). We refer to Fannie Mae, Freddie Mac, and
Ginnie Mae collectively as the Government-Sponsored Enterprises or GSEs. During 2012 and 2011, our consumer mortgage loans were
primarily securitized through the GSEs.
In executing a securitization transaction, we typically sell pools of financial assets to a wholly owned, bankruptcy-remote SPE, which
then transfers the financial assets to a separate, transaction-specific securitization entity for cash, servicing rights, and in some transactions,
other retained interests. The securitization entity is funded through the issuance of beneficial interests in the securitized financial assets. The
beneficial interests take the form of either notes or trust certificates which are sold to investors and/or retained by us. These beneficial
interests are collateralized by the transferred loans and entitle the investors to specified cash flows generated from the securitized loans. In
addition to providing a source of liquidity and cost-efficient funding, securitizing these financial assets also reduces our credit exposure to the
borrowers beyond any economic interest we may retain.
Each securitization is governed by various legal documents that limit and specify the activities of the securitization entity. The
securitization entity is generally allowed to acquire the loans, to issue beneficial interests to investors to fund the acquisition of the loans, and
to enter into derivatives or other yield maintenance contracts to hedge or mitigate certain risks related to the financial assets or beneficial
interests of the entity. A servicer, who is generally us, is appointed pursuant to the underlying legal documents to service the assets the
securitization entity holds and the beneficial interests it issues. Servicing functions include, but are not limited to, making certain payments of
property taxes and insurance premiums, default and property maintenance payments, as well as advancing principal and interest payments
before collecting them from individual borrowers. Our servicing responsibilities, which constitute continued involvement in the transferred
financial assets, consist of primary servicing (i.e., servicing the underlying transferred financial assets) and previously master servicing
(i.e., servicing the beneficial interests that result from the securitization transactions). Certain securitization entities also require the servicer to
advance scheduled principal and interest payments due on the beneficial interests issued by the entity regardless of whether cash payments are
received on the underlying transferred financial assets. Accordingly, we are required to provide these servicing advances when applicable.
Refer to Note 11 for additional information regarding our servicing rights.
The GSEs provide a guarantee of the payment of principal and interest on the beneficial interests issued in securitizations. In private-
label securitizations, cash flows from the assets initially transferred into the securitization entity represent the sole source for payment of
distributions on the beneficial interests issued by the securitization entity and for payments to the parties that perform services for the
securitization entity, such as the servicer or the trustee. In certain private-label securitization transactions, a liquidity facility may exist to
provide temporary liquidity to the entity. The liquidity provider generally is reimbursed prior to other parties in subsequent distribution
periods. In previous certain private-label securitizations, monoline insurance may have existed to cover certain shortfalls to certain investors
in the beneficial interests issued by the securitization entity. As noted above, in certain private-label securitizations, the servicer is required to
advance scheduled principal and interest payments due on the beneficial interests regardless of whether cash payments are received on the
underlying transferred financial assets. The servicer is allowed to reimburse itself for these servicing advances. Additionally, certain private-
label securitization transactions may have previously allowed for the acquisition of additional loans subsequent to the initial loan transfer.
Principal collections on other loans and/or the issuance of new beneficial interests, such as variable funding notes, generally funded those
loans; we were often contractually required to invest in these new interests.
We may have retained beneficial interests in our private-label securitizations, which may have represented a form of significant
continuing economic interest. These retained interests included, but are not limited to, senior or subordinate asset-backed securities and
residuals, and previously included senior or subordinate mortgage-backed securities, interest-only strips, and principal-only strips. Certain of
these retained interests provided credit enhancement to the trust as they may have absorbed credit losses or other cash shortfalls. Additionally,
the securitization agreements may have required cash flows to be directed away from certain of our retained interests due to specific over-
collateralization requirements, which may or may not have been performance-driven.
We generally hold certain conditional repurchase options specific to private label securitizations that allow us to repurchase assets from
the securitization entity. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the
remaining transferred financial assets or outstanding beneficial interests at our discretion once the asset pool reaches a predefined level, which
represents the point where servicing becomes burdensome (a clean-up call option). The repurchase price is typically the par amount of the
loans plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to repurchase a transferred financial
asset if certain events outside our control are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives
us the option to purchase the loan or contract if it exceeds a certain prespecified delinquency level. We generally have complete discretion
regarding when or if we will exercise these options, but we would do so only when it is in our best interest.
Other than our customary representation and warranty provisions, these securitizations are nonrecourse to us, thereby transferring the
risk of future credit losses to the extent the beneficial interests in the securitization entities are held by third parties. Representation and
warranty provisions generally require us to repurchase loans or indemnify the investor or other party for incurred losses to the extent it is
determined that the loans were ineligible or were otherwise defective at the time of sale. Refer to Note 29 for detail on representation and
warranty provisions. We did not provide any noncontractual financial support to any of these entities during 2012 or 2011.
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K