Ally Bank 2012 Annual Report Download - page 209

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Regulatory Matters
We continue to respond to subpoenas and document requests from the SEC, seeking information covering a wide range of mortgage-
related matters, including, among other things, various aspects surrounding securitizations of residential mortgages. We are also responding to
subpoenas received from the U.S. Department of Justice, which include broad requests for documentation and other information in connection
with its investigation of potential fraud and other potential legal violations related to mortgage backed securities, as well as the origination
and/or underwriting of mortgage loans. In addition, the CFPB has recently advised us that they are investigating certain of our retail financing
practices. It is possible that this could result in actions against us.
Loan Repurchases and Obligations Related to Loan Sales
Representation and Warranty Obligation Reserve Methodology
A significant portion of our representation and warranty obligations were eliminated as a result of the deconsolidation of ResCap.
Representation and warranty reserve was $105 million at December 31, 2012 with respect to Ally Bank's sold and serviced loans. The current
liability for representation and warranty obligations reflects management's best estimate of probable losses with respect to Ally Bank's
mortgage loans sold to Freddie Mac and Fannie Mae. We considered historical and recent demand trends in establishing the reserve. The
methodology used to estimate the reserve considers a variety of assumptions including borrower performance (both actual and estimated
future defaults), repurchase demand behavior, historical loan defect experience, historical mortgage insurance rescission experience, and
historical and estimated future loss experience, which includes projections of future home price changes as well as other qualitative factors
including investor behavior. It is difficult to predict and estimate the level and timing of any potential future demands. In cases where we may
not be able to reasonably estimate losses, a liability is not recognized. Management monitors the adequacy of the overall reserve and makes
adjustments to the level of reserve, as necessary, after consideration of other qualitative factors including ongoing dialogue and experience
with counterparties.
At the time a loan is sold, an estimate of the fair value of the liability is recorded and classified in accrued expenses and other liabilities
on our Consolidated Balance Sheet and recorded as a component of gain (loss) on mortgage and automotive loans, net, in our Consolidated
Statement of Comprehensive Income. We recognize changes in the liability when additional relevant information becomes available. Changes
in the estimate are recorded as other operating expenses in our Consolidated Statement of Comprehensive Income. The repurchase reserve at
December 31, 2012, relates exclusively to GSE exposure.
The following table summarizes the changes in our reserve for representation and warranty obligations.
Year ended December 31, ($ in millions)2012 (a) 2011
Balance at January 1, $ 825 $ 830
Provision for mortgage representation and warranty expenses
Loan sales 16 19
Change in estimate — continuing operations 67 324
Total additions 83 343
Resolved claims (b) (146) (360)
Recoveries 812
Deconsolidation of ResCap (665) —
Balance at December 31, $ 105 $ 825
(a) The remaining balance is at Ally Bank as a result of the deconsolidation of ResCap. Refer to Note 1 for more information regarding the Debtors'
Bankruptcy and the deconsolidation of ResCap.
(b) Includes principal losses and accrued interest on repurchased loans, indemnification payments, and settlements with counterparties.
Other Contingencies
We are subject to potential liability under various other exposures including tax, nonrecourse loans, self-insurance, and other
miscellaneous contingencies. We establish reserves for these contingencies when the loss becomes probable and the amount can be reasonably
estimated. The actual costs of resolving these items may be substantially higher or lower than the amounts reserved for any one item. Based
on information currently available, it is the opinion of management that the eventual outcome of these items will not have a material adverse
impact on our results of operations, financial position, or cash flows.
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K