Substantial doubt still exists about the ability for Residential Capital LLC to continue in business, Ally Financial Inc. said in a public filing. The report also indicated that the government has subpoenaed the company for information on mortgage securities.
Ally said that ResCap could have an adverse effect on its capital and liquidity position. The mortgage unit is still heavily reliant on support from Ally to meet its own capital requirements, and $2.3 billion in debt is maturing between this year and 2013.
The findings were outlined in a Securities and Exchange filing made Wednesday by the Detroit-based financial services firm in advance of a planned initial public offering.
In addition, ResCap has commitments to fund up to $2.3 billion in advances on outstanding home-equity lines-of-credit. But no secondary market exists for HELOCs, so any adverse event could drain the company’s resources.
“There continues to be a risk that ResCap will not be able to meet its debt-service obligations, will default on its financial debt covenants due to insufficient capital or liquidity, and/or be in a negative liquidity position in 2011 or beyond,” the filing stated. “In light of ResCap’s liquidity and capital needs combined with volatile conditions in the marketplace, there is substantial doubt about ResCap’s ability to continue as a going concern.”
A host of risks outlined in the report included potential liability for legal claims tied to the sale of private-label mortgage-backed securities.
The filing indicated that Ally and its subsidiaries were subpoenaed this month by the SEC for documentation related to its mortgage activities. The subpoena includes a broad request for documentation related to certain “bulk settlements” on securitized mortgages involving payments made to Ally by originators and sellers in lieu of repurchases. It also includes a request for materials provided to investors and prospective investors in mortgage securitization transactions.
In addition, the U.S. Department of Justice served Ally and GMAC Mortgage LLC with a subpoena that also includes a broad request for documentation and other information in connection with its investigation of potential fraud related to the origination and underwriting of mortgages.
“These subpoenas, or any other investigation or information-gathering request, may result in material adverse consequences including without limitation, adverse judgments, settlements, fines, penalties, injunctions or other actions,” the filing stated.
First-quarter production was 53,423 loans for $11.8 billion. Most of the business comes from Ally Bank, though ResCap accounts for a small portion. Conforming and government-insured residential mortgages accounted for around 97 percent of first-quarter originations, while jumbo loans made up the rest.
More than 900 mortgage correspondents originate mortgages for the company. Correspondent production totaled 45,543 loans for $10.3 billion during the first three months of this year.
Mortgage broker production was 866 loans for $0.2 billion, while the direct lending unit generated 7,014 loan closings for $1.4 billion.
As of March 31, the company serviced 2.4 million mortgages for $359.7 billion. Balance-sheet mortgages have tumbled from $135.1 billion as of 2006 to just $31.0 billion at the end of March.
Warehouse lines for which the company is committed to stood at $2.9 billion at the end of last year, and $1.5 billion in advances were outstanding.
Global headcount at Ally ended December at 14,400.
The head honcho in charge of mortgage lending at Ally, Thomas Marano, pulled in $4.9 million in compensation during 2010. That included $0.5 million in cash compensation and $4.4 million in deferred stock units.
Murano’s boss, Ally Chief Executive Officer Michael A. Carpenter, earned $8.0 million last year, including less than $0.2 million in cash compensation and $7.8 million in deferred stock.
