Residential Capital LLC, known as ResCap, a subsidiary of Ally Financial Inc. and the fifth largest mortgage originator and servicer in the country, filed for Chapter 11 protection along with 50 of its subsidiaries listing assets of $15.7 billion
Only Bank of America, JPMorgan Chase, Wells Fargo Bank and CitiMortgage service more mortgage loans than ResCap, which services more than 2.4 million mortgage loans with an aggregate unpaid principal balance of $374 billion. About 68% of the mortgage loans serviced by ResCap are owned, insured or guaranteed by the federal government sponsored or owned entities, Fannie Mae, Freddie Mac and Ginnie Mae.
In addition, ResCap and affiliates, including Ally Bank, were collectively the 10th largest originator of residential mortgage loans in the U.S., producing $56.3 billion and $8.6 billion in loan origination volume during the year ended Dec. 31, 2011 and the three months ended March 31, 2012, respectively.
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ResCap's mortgage origination, servicing and other business activities, conducted through its subsidiaries, including GMAC Mortgage, will continue to operate as the Chapter 11 proceeds.
The Chapter 11 filings were expected as part of ResCap's plan to sell substantially all of its assets.
It has agreed to sell its mortgage origination and servicing businesses to Nationstar Mortgage LLC as the stalking horse bidder. And it has agreed to sell its legacy portfolio, consisting mainly of mortgage loans and other residual financial assets, to Ally Financial as stalking horse bidder.
Together, the asset sales are expected to generate approximately $4 billion in proceeds.
Ally Financial has agreed to make a cash contribution of $750 million to the ResCap Chapter 11 estate upon confirmation of the plan and make a stalking horse bid for up to $1.6 billion of ResCap-owned mortgages currently marked at 45% of unpaid principal balance; and provide ResCap a $150 million debtor in possession financing (DIP) facility.
Ally is expected to record an associated charge of approximately $1.3 billion in the second quarter of 2012. The estimated charge is primarily driven by a write-down to zero of Ally's approximate $400 million equity investment in ResCap.
Formerly GMAC, Ally Financial Inc. is a leading automotive financial services with $186 billion in assets.
Nationstar expects the acquired Mortgage Servicing Assets to total $374 billion, including $201 billion in primary residential mortgage servicing rights and $173 billion in subservicing contracts as measured by unpaid principal balances, $1.8 billion of related servicing advance receivables and certain other complimentary assets. The transaction is expected to close in late 2012, subject to the auction process.
The cash purchase price of the mortgage servicing rights and subservicing contracts would be $700 million based on unpaid principal balances. The cash purchase price of the related servicing advance receivables would be $180 million.
Upon closing, the acquisition will make Nationstar the largest non-bank residential mortgage loan servicer and one of the largest residential mortgage loan originators in the United States. With this transaction, Nationstar anticipates adding more than 2.4 million customers to a customer base of over 1 million, and growing its total servicing and sub-servicing book to approximately $550 billion.
ResCap has also secured a $1.45 billion in DIP financing from Barclays Bank PLC to provide it with sufficient liquidity to consummate the contemplated asset sales.
At present, institutional investors holding more than 25% of at least one class in each of 290 securitizations have agreed to support the reorganization. These 290 securitizations have an aggregate original principal balance of $165 billion out of a total of 392 securitizations, with an aggregate original principal balance of $221 billion ResCap holds.
The firm said under the Chapter 11 process it expects to continue to operate as a going concern, originating new mortgage loans, servicing its more than 2.4 million consumer mortgage loans, and offering loan modifications that allow homeowners to stay in their homes. Post-reorganization and under new ownership, the firm expects to continue to play a role in providing financing for home ownership and address legacy litigation and other liabilities.
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