Ally Financial Inc. announced this week that it will immediately begin reducing its focus on the correspondent mortgage channel, which was responsible for roughly 84% of the bank's originations year-to-date. The strategy was outlined in Ally's Nov. 2 report on preliminary third-quarter results, which showed the bank experienced a net loss of $210 million in the quarter.
Ally's core pre-tax income for the quarter fell to $102 million from $466 million in the second quarter. The decline was largely driven by a $471 million pre-tax loss related to the negative impact of the mortgage servicing rights (MSRs) valuation resulting from a decline in interest rates and market volatility.
Ally says it will maintain correspondent relationships with its key customers and will continue to participate in the higher-margin businesses of consumer and broker lending. Ally says that as a result, the company's exposure to MSR asset volatility will decrease over time, and the company will be better positioned to comply with Basel III requirements.
‘The combination of MSR volatility in the quarter, reduced margins due to regulatory costs and the impending impact of Basel III has caused us to begin significantly scaling back originations in the mortgage correspondent segment," says Ally CEO Michael A. Carpenter. "As the mortgage industry changes, the model for mortgage businesses will also change, and we believe a fee-based structure would enable less risk and a greater ability to serve customers.’