Business

Ally story reaches Ch. 11

By
Social Links for Josh Kosman
Published May 14, 2012, 4:00 a.m. ET

Four years after the housing meltdown rocked the economy, the markets are still reeling from the aftershocks.

The nation’s largest home-mortgage servicer, Ally Financial, is delivering another blow to the still-fragile financial system by placing ailing lending arm Residential Capital into bankruptcy. ResCap was set to file for Chapter 11 late last night after the board met during the day to finalize plans.

Fortress Investment Group is expected to make a $2.3 bid to buy most of ResCap’s mortgage business in bankruptcy, while parent Ally plans to buy a portfolio of ResCap loans for $1.6 billion, sources said.

ResCap, formerly known as GMAC Mortgage, will continue to originate and modify loans for its 2.4 million customers while it restructures.

The government owns 74 percent of Ally after extending it a $17 billion lifeline in the depths of the financial crisis. Ally is still on the hook for about $12 billion, and a ResCap bankruptcy could lengthen the time it takes to repay taxpayers.

ResCap is facing demands to buy back soured mortgages it sold to investors during the housing boom, and it needs approval from a majority of its impaired creditors to sell off its mortgage business.

CEO Tom Marano told The Post that ResCap was in discussions with creditors who have the biggest claims against it for underwriting bad mortgages. The talks could result in a settlement that analysts have estimated would be roughly $1.5 billion.

ResCap’s bankruptcy comes just six months after Ally announced plans to take itself public in an failed effort to pay back Uncle Sam. The IPO collapsed over growing worries around ResCap’s mortgage liabilities.

In recent weeks, Ally CEO Michael Carpenter has been drawing distinct lines between Ally’s plain vanilla banking and online lending operations and ResCap’s mortgage-financing business. Ally and ResCap also maintain separate heads and boards of directors.

Although an agreement in principle has been reached between Fortress and Ally, other bidders, including financial-services company Ocwen Financial, could also make a run at ResCap assets, sources said.