Ally to pay $2.1B as part of ResCap settlement

NEW YORK (AP) -- Ally Financial Inc. has agreed to pay $2.1 billion as part of a settlement plan to resolve potential financial claims stemming from its mortgage division, Residential Capital LLC, which is in bankruptcy proceedings. Ally Financial agreed to back the settlement plan last week, but the financial terms were not disclosed at that time. The 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. Last Thursday, Ally disclosed that it will pay $1.95 billion to the ResCap bankruptcy estate and $150 million in insurance proceeds. The agreement also ensures that Ally will be fully repaid $1.13 billion that it says ResCap owes it. "Reaching this comprehensive agreement enables Ally to turn the page on a tumultuous chapter in its history that was severely impacted by the issues in the mortgage industry," Ally CEO Michael Carpenter said in a statement. Ally anticipates taking an approximately $1.55 billion charge in the second quarter related to the plan, which still needs the approval of the bankruptcy court. It also expects to raise its litigation reserves. 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. Ally has paid back $6.1 billion to the Treasury Department to date. 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. Published: Mon, May 27, 2013