10-29-13 8:02 PM EDT | Email Article

--Ally reaches deals with FHFA and FDIC

--Regulators had sued company over sale of mortgage-backed securities

--Company will take a $170 million charge for the third quarter


(Adds details on Ally's settlements in the fifth through seventh paragraphs.)

   By Andrew R. Johnson 

Ally Financial Inc. is settling lawsuits brought by federal regulators over mortgage-backed securities sold during the financial crisis as the government-owned auto lender takes another step toward putting litigation woes behind it.

The Detroit-based company said Tuesday it will take a $170 million charge in the third quarter in connection with the settlements with the Federal Deposit Insurance Corp. and Federal Housing Finance Agency, the regulator for government-backed mortgage-finance firms Freddie Mac (FMCC) and Fannie Mae (FNMA).

The settlement is the latest in a string of agreements for the FHFA, which sued Ally and 17 other banks in 2011 alleging they sold shoddy mortgage securities to Freddie Mac and Fannie Mae leading up to the financial crisis. Losses on those securities contributed to the near collapse of the mortgage firms, which were ultimately taken over by the government in 2008.

The FDIC had also sued Ally and other banks for allegedly selling defective mortgage securities to other banks that ultimately failed and were taken over by the agency.

Ally's settlement with the FDIC is $55.3 million, a spokesman for the regulator said.

Ally and the FHFA declined to disclose the amount of their settlement but a spokeswoman for that agency said final terms will be finalized by the end of the year, and details of the agreement will be released then.

Including the $170 million charge announced today, Ally has reserved $520 million for the two agencies' suits, said Gina Proia, a spokeswoman for the company.

The regulators' cases were excluded from a release Ally received under a settlement it reached this summer with its subprime mortgage subsidiary, Residential Capital LLC. That deal, which also included ResCap's creditors, granted Ally a release from litigation in exchange for a $2.1 billion payment to ResCap's bankruptcy estate.

ResCap, once one of the country's largest subprime mortgage lenders, filed for Chapter 11 bankruptcy in May 2012 as litigation over soured mortgage securities mounted and bond payments loomed. Such issues had been a drag on the financial health of Ally, stalling the auto lender's efforts to pay back a $17.2 billion bailout it received from the U.S. government during the financial crisis.

"These settlements are key steps in Ally addressing its remaining legacy mortgage risks," said Michael Carpenter, chief executive officer of Ally, in a statement.

The FHFA had objected to how ResCap's bankruptcy plan handled its fraud lawsuit against Ally. Freddie Mac bought $6 billion worth of mortgage-backed securities from ResCap between 2005 and 2007.

The FHFA and Freddie Mac will retain some claims against Ally's banking subsidiary, Ally Bank, as a former mortgage seller and servicer.

ResCap filed its plan to reorganize--and eventually to liquidate--in July. Judge Martin Glenn is set consider approval of the Chapter 11 plan at a Nov. 19 hearing in U.S. Bankruptcy Court in New York.

Ally's settlement is the latest in a string of agreements the FHFA has reached with the banks it sued.

The regulator on Friday announced a $5.1 billion agreement with J.P. Morgan Chase & Co. (JPM), which is trying to put several mortgage probes behind it. That agreement included $4 billion to settle the suit over mortgage securities Freddie and Fannie bought and $1.1 billion to settle separate demands from the government-backed firms that J.P. Morgan repurchase loans it sold them that violated their underwriting standards.

The FHFA has also reached an $885 million settlement with UBS AG (UBS) in July and settled for undisclosed amounts with Citigroup Inc. (C) and General Electric Co. (GE) this year. The three companies didn't admit any wrongdoing.


-Patrick Fitzgerald contributed to this article

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com


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(END) Dow Jones Newswires

October 29, 2013 20:02 ET (00:02 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.
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Morningstar - 2013/10/29 - Ally Strikes Deals With Regulators Over Mortgage Suits -- 2nd Update
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