Ally, ResCap ink pact to settle potential claims
NEW YORK (AP) — Ally Financial Inc. said Tuesday that it agreed to back a settlement plan to resolve potential financial claims stemming from its bankrupt mortgage division, Residential Capital LLC.
Financial terms of the plan were being kept under wraps until at least next week, when ResCap is expected to file a motion asking the bankruptcy court hearing its case to approve the plan.
But the pact calls for Ally to make a payment that the company noted is not subject to further negotiation.
The proposed agreement, reached as part of mediation with ResCap and its creditors, releases Ally from any claims that could be brought by ResCap, including representation and warranty claims, and all claims held by third parties related to ResCap.
The only exception: securities claims by the Federal Housing Finance Agency and the Federal Deposit Insurance Corp. in its role as receiver for certain failed banks.
Among the creditors who agreed to the proposed settlement with Ally: AIG Asset Management (U.S.) LLC, Allstate Insurance Company, Financial Guaranty Insurance Co., Massachusetts Mutual Life Insurance Co. and MBIA Insurance Co.
Ally CEO Michael A. Carpenter said that the proposed settlement agreement enables the company to move past its mortgage industry issues.
ResCap filed for bankruptcy protection in May 2012 under the weight of toxic mortgages. ResCap has been a drain on Ally's finances because it has struggled to make payments on its debt ever since the U.S. housing market collapsed in 2007.
In February, ResCap completed the sale of a portfolio of mortgage loans to Berkshire Hathaway Inc. Warren Buffett's company won the bankruptcy auction for ResCap's loan portfolio with a $1.5 billion bid last year. ResCap has also sold some assets to Ocwen Loan Servicing LLC and Walter Management Investment Corp. The company said that proceeds from the asset sales totaled more than $4 billion.
Ally Financial — formerly known as GMAC Inc. — is an automotive financial services company that is 74 percent owned by the U.S. government as a result of bailouts.