Ally Bank 2012 Annual Report Download - page 49

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Other income, net of losses, was $504 million for the year ended December 31, 2012, compared to $157 million in 2011. The increase
was primarily due to higher fee income and net origination revenue related to increased consumer mortgage-lending production associated
with government-sponsored refinancing programs and a decrease in fair value option election valuation losses resulting from the
deconsolidation of ResCap.
The provision for loan losses was $86 million for the year ended December 31, 2012, compared to $150 million in 2011. The decrease
for the year ended December 31, 2012, was primarily due to lower net charge-offs in 2012 due to the continued runoff of legacy mortgage
assets and improvements in home prices.
Total noninterest expense decreased 40% for the year ended December 31, 2012, compared to 2011. The decrease was primarily driven
by lower representation and warranty expense and compensation and benefits expense resulting from the deconsolidation of ResCap. The
decrease was partially offset by a $90 million expense related to penalties imposed by certain regulators and other governmental agencies in
connection with mortgage foreclosure-related matters during the second quarter of 2012.
2011 Compared to 2010
Our Mortgage operations incurred a loss before income tax expense of $622 million for the year ended December 31, 2011, compared to
income before income tax expense of $772 million for the year ended December 31, 2010. The decrease was primarily driven by lower net
gains on the sale of mortgage loans, unfavorable servicing asset valuation, net of hedge, lower financing revenue related to a decrease in asset
levels, and a $230 million expense related to penalties imposed by certain regulators and other governmental agencies in connection with
mortgage foreclosure-related matters. The decrease was partially offset by lower representation and warranty expense.
Net financing revenue was $210 million for the year ended December 31, 2011, compared to $589 million in 2010. The decrease was
driven by lower financing revenue and other interest income due primarily to a decline in average asset levels related to loan sales, the
deconsolidation of previously on-balance sheet securitizations, and portfolio runoff. The decrease was partially offset by lower interest
expense related to a reduction in average borrowings commensurate with a smaller asset base.
Total servicing income, net was $409 million for the year ended December 31, 2011, compared to $867 million in 2010. The decrease
was primarily due to a drop in interest rates and increased market volatility compared to favorable valuation adjustments in 2010.
Additionally, 2011 includes a valuation adjustment that estimates the impact of higher servicing costs related to enhanced foreclosure
procedures, establishment of single point of contact, and other processes to comply with the Consent Order.
The net gain on mortgage loans was $395 million for the year ended December 31, 2011, compared to $990 million in 2010. The
decrease during 2011 was primarily due to lower margins and production, lower whole-loan sales, lower gains on mortgage loan resolutions,
and the absence of the 2010 gain on the deconsolidation of an on-balance sheet securitization. Refer to Note 10 to the Consolidated Financial
Statements for information on the deconsolidation.
Total noninterest expense decreased 2% for the year ended December 31, 2011, compared to 2010. The decrease was primarily driven by
lower representation and warranty expense in 2011 as 2010 included a significant increase in expense to cover anticipated repurchase requests
and settlements with key counterparties. The decrease was partially offset by a $230 million expense related to penalties imposed by certain
regulators and other governmental agencies in connection with mortgage foreclosure-related matters, higher loan processing and underwriting
fees, and an increase in compensation and benefits expense due to an increase in headcount related to expansion activities in our broker, retail,
and servicing operations.
Loan Production
U.S. Mortgage Loan Production Channels
Ally Bank continues to perform certain mortgage activities as a result of the ResCap bankruptcy process. 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. We expect the level of loan production to continue to decline.
We have three primary channels for residential mortgage loan production: the purchase of loans in the secondary market (primarily from
Ally Bank correspondent lenders), the origination of loans through our direct-lending network, and the origination of loans through our
mortgage brokerage network.
• Correspondent lender and secondary market purchases — Loans purchased from correspondent lenders are originated or
purchased by the correspondent lenders and subsequently sold to us. All of the purchases from correspondent lenders are conducted
through Ally Bank. We qualify and approve any correspondent lenders who participate in the loan purchase programs. 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.
• Direct-lending network — Our direct-lending network consists of internet and telephone-based call center operations as well as our
retail network. Virtually all of the residential mortgage loans of this channel are brokered to Ally Bank.
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K