Ally Financial Inc. ALLY is set to re-enter the mortgage business, after it exited the mortgage origination and servicing business in the second quarter of 2013. At the Goldman Sachs U.S. Financial Services Conference held on Dec 8, 2015, in New York, the Detroit-based major auto lender revealed its plans to “introduce limited direct originations in 2016” as part of its strategy to expand bank products.
Ally Financial, previously known as General Motors Acceptance Corporation (GMAC) and a former subsidiary of General Motors Company GM, was hit hard during the downturn in the automobiles market in the 2008-2009 credit crunch. Also, owing to the bursting of the housing bubble, the company suffered huge losses in its mortgage operations, which were carried out primarily through its subsidiary – Residential Capital (ResCap). Notably, ResCap was the nation’s sixth-largest mortgage originator and fifth-largest mortgage servicer in 2008.
However, burdened under the yoke of losses, ResCap filed for Chapter 11 bankruptcy in May 2012, which was finally confirmed by the bankruptcy court in December 2013. As of Dec 31, 2013, Ally Financial’s mortgage operations had $8.2 billion of assets and generated total net revenue of $76 million in 2013.
Notably, during the 2008-2009 crisis, when Ally Financial was on the verge of a collapse, it received nearly $17.2 billion as bailout money in several transactions, as part of its participation in the government’s $700 billion Troubled Asset Relief Program (TARP). Since then the company adopted several initiatives to strengthen its financials including offloading of international holdings apart from exiting mortgage business. In December 2014, Ally Financial exited the TARP as the U.S. Department of the Treasury sold its residual 54.9 million shares of Ally common stock.
Referring to the recent conference, a Bloomberg report quoted Ally Financial’s Chief Executive Officer Jeffrey Brown saying, “Don’t think of this as Ally going down the road of the old GMAC.” Citing a company spokesperson, the report also mentioned that the bank has no intentions to securitize its originations, and it would not keep any servicing rights or set up a servicing operation.
The latest decision reflects that the Ally Financial has come a long way improving its balance sheet and fundamentals. Also, it seems that the company intends to take advantage as the mortgage industry is heading towards recovery.
Ally Financial currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the finance space include Credit Acceptance Corp. CACC and Beneficial Bancorp, Inc. BNCL, each sporting a Zacks Rank #1 (Strong Buy).
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