Ally Financial announced on Monday that its ResCap mortgage unit filed for prepackaged bankruptcy protection Monday to bring it steps closer to repaying the U.S. Treasury. As a result of the subprime mortgage unit going bankrupt, homeowners who have financed through the company will be serviced by a new lender.
Ally Financial Pushes to Repay Treasury
Ally Financial, formerly GMAC, has made attempts to repay the Treasury since it was given a $15.8 billion bailout in 2009 to help rescue the troubled auto industry and housing market.
The bank’s ResCap mortgage unit, which still operates under the GMAC Mortgage brand, was among its businesses that struggled the most during the housing crisis, largely due to the high number of subprime mortgages it held that defaulted.
Since that time, the company has taken a number of steps to repay its debt. While it has paid about $5.5 billion of the bailout back, the Treasury still owns about 74 percent of its outstanding stock.
Upon the successful completion of the bankruptcy, along with the disposal of its international business, Ally says it will have paid back about two-thirds of the government bailout.
Subprime Mortgage Loans to Be Auctioned Off
In order to complete the bankruptcy process, Ally Financial says it plans to auction off the portfolio of subprime mortgage loans it currently holds, which is now valued at less than half of its original value.
GMAC said it plans to make a so-called “stalking horse” bid of $1.6 billion for those loans; however, they are expected to draw a higher bid from investors, which means borrowers who have financed their homes through ResCap will eventually have a new company managing their mortgage loans.
In the meantime, the company said GMAC will continue to make and service mortgage loans until the bankruptcy process is completed. Once Ally Financial auctions off the loans, it says it will finally be able to put its subprime mortgage issues behind them.