Earlier today, Ally Financial’s mortgage unit, Residential Capital LLC, filed for bankruptcy protection. The move is part of a broader plan to boost the company’s financial profile and accelerate repayment of the U.S. Treasury Department’s investment.
Of the $17 billion the lender owes the Treasury, Ally has paid approximately $5.5 billion. During the financial crisis, the Treasury assisted the lender though multiple bailouts and now owns nearly 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,” said Ally CEO Michael Carpenter in a statement.
Ally may also sell its international operations, including auto loan, insurance, and banking operations in Canada, Mexico, Europe, England and South America.
These actions “will allow Ally to focus 100% of its energies on further strengthening its already leading U.S. auto finance and direct banking franchises,” Carpenter said.
According to the company’s statement, Ally has agreed to take certain steps to support the stability of ResCap and its mortgage servicing platform during the Chapter 11 proceedings. A key feature of the prearranged bankruptcy plan calls for ResCap to emerge from Chapter 11 by yearend.
Through its auto finance operation, Ally has provided financing for nine million vehicles sold to more than 6,000 U.S. auto dealers and has assisted American consumers in financing vehicles worth almost $100 billion, the company said.
“Ally was a key part of supporting the recovery of the U.S. auto industry by ensuring that thousands of dealers and millions of consumers had access to financing during the crisis,” Carpenter said. “We took that responsibility very seriously and take equally seriously the mission to repay the remaining U.S. taxpayer investment in full as soon as possible.”
