After weeks of speculation, Ally Financial has formally announced that it has filed Chapter 11 bankruptcy for its Residential Capital LLC (ResCap) mortgage lending unit. Shortly after this was announced, Nationstar Mortgage Holdings Inc. issued a statement saying that it has signed a definitive agreement to acquire certain residential mortgage servicing assets and other assets from ResCap.
According to the Chapter 11 petition filed in U.S. Bankruptcy Court, ResCap listed more than $1 billion each in assets and debt. Ally Financial's announcement of the Chapter 11 filing was framed as a strategic move that ‘strengthens Ally's financial position going forward and accelerates the ability to repay the U.S. Treasury.’ The Detroit-based Ally Financial was the financial arm of General Motors Co. until 2008, when the company was taken over by the federal government, which still owns 74% of the company.
‘The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,’ says Ally CEO Michael A. Carpenter. ‘This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100 percent of its energies on further strengthening its already leading U.S. auto finance and direct banking franchises.’Â
As part of the Chapter 11 filing, Ally has agreed to take the following steps to support the stability of ResCap and its leading mortgage servicing platform during the Chapter 11 cases:
- Make a cash contribution of $750 million to the ResCap Chapter 11 estate upon confirmation of the plan;
- Make a stalking horse bid for up to $1.6 billion of ResCap-owned mortgages currently marked at 45% of unpaid principal balance;
- Provide ResCap with a $150 million debtor in possession financing facility;
- Support ResCap's consumer lending originations during the process; and
- Make other undefined ‘arrangements to support ResCap's Chapter 11 plan.’
Lewisville, Texas-based Nationstar Mortgage Holdings says that it expects the acquired mortgage servicing assets to total approximately $374 billion, including $201 billion in primary residential mortgage servicing rights and $173 billion in subservicing contracts – as measured by unpaid principal balances as of Feb. 29, 2012 – approximately $1.8 billion of related servicing advance receivables and certain other complementary assets.
‘We believe this transaction will cement Nationstar's position as the nation's pre-eminent non-bank mortgage servicer, and it reflects a record of servicing performance that has made us a partner of choice in a transforming industry,’ says Nationstar CEO Jay Bray.