Tuesday, December 28, 2010

GMAC/Ally Settlement

Looking at the Ally/GMAC Mortgage settlement last night, my first impression was very negative for the financial guarantors. A $462 million settlement for $280 B of mortgage exposure didn't seem like much, especially when some journalists incorrectly claimed that the 280B number was outstanding repurchase requests. But a little familiarity with the MBIA and Bank of America situation helps us understand that such a thing could not be the case. Actually, Ally cited in a November 17th presentation
(Ally Financial Inc., 2010 Citi North American Credit Conference, November 17, 2010) that their outstanding repurchase requests were less than their reserves. Bottom line this is bad for B of A, good for financial guarantors... but not as good as it might become. Here's a key slide from Ally's presentation: 

Update on 12/31: it is important to note that the settlement was for more than the reserves. At the end of Q3 Ally had only $218M in outstanding claims from GSE repurchases vs. $632M from Monolines. As a % of UPB (Unpaid Principal Balance) the numbers are not as flattering. For a good report on the (seemingly consensus) viewpoint that this settlement is good for BoA et al. see seeking alpha blog here: http://seekingalpha.com/article/243930-ally-s-fannie-mae-settlement-scales-back-potential-bofa-jpmorgan-putback-costs. However UPB doesn't take into account the quality of the loans sold while reserves are at least supposed to. There is also much greater variability of loan quality and misrepresentation on the private label side. Based off the above slide and the settlement we can surmise that Ally has about $800M in reserves after settling with Fannie and Freddie (in March).

Also, I accidentally deleted the original post in editing it. Still learning. Cheerio.

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