While auto finance will still be its core business, Ally Financial is getting back into the mortgage origination business in 2016.
That’s a significant development considering subprime mortgages nearly bankrupted the company when that bubble burst, leading up to the Great Recession.
Ally Chief Executive Jeffrey Brown was quick to reassure analysts and investors at the Goldman Sachs Financial Services Conference in New York today. “Don’t think of this as Ally going down the road of the old GMAC or old ResCap,” Brown said.
He said Ally’s re-entry into mortgages would be “thoughtful and deliberate.” Brown also said auto finance will continue to be the “heart” of the franchise. Besides mortgage originations, he said Ally would also introduce affinity credit cards in 2016.
“Think of them [mortgages and credit cards] as planting seeds in 2016, rather than massive capital or massive growth,” he said.
Ally is the former GMAC, the old captive finance company for General Motors. GMAC’s ResCap mortgage subsidiary was heavily invested in subprime mortgages, which nearly dragged the whole company into bankruptcy.
Eventually, ResCap filed separately for bankruptcy protection in 2012. Ally was freed of its legacy obligations to ResCap when the ResCap bankruptcy plan was approved in U.S. Bankruptcy Court in December 2013.
Brown said today Ally has been buying mortgages in bulk this year which were originated by other lenders. In 2016, he said Ally would start originating some of its own mortgages, to be serviced by a third party.