Residential Capital (ResCap) is the holding company for most of the residential mortgage operations of Ally Financial, the lending arm of auto maker General Motors (GM). The company originates, services, and securitizes mortgage loans in the US and abroad. It also issues mortgage- and asset-backed securities and provides lines of credit to other residential mortgage writers. ResCap's Business Capital group provides financing to residential land developers and homebuilders, as well as to resort developers. The company originates loans through its direct network under the GMAC Mortgage and ditech brands. Rescap filed for Chapter 11 bankruptcy protection in May 2012.
The proposed restructuring plan calls for the company to split itself into a servicing unit and a legacy portfolio, which will each be sold off to outside investors. Parent Ally was originally slated to buy the legacy loan portfolio but has been replaced as the lead bidder by Warren Buffett's Berkshire Hathaway. Fortress Investment Group unit Nationstar Mortgage Holdings has agreed to buy the servicing operations, which will make it the largest nonbank residential mortgage servicer in the country.
ResCap's bankruptcy filing followed years of financial troubles for the lender in the wake of the housing crash and recession. Prior to the filing, ResCap had exited its subprime lending activities, cut its workforce by more than half, and closed all 200 GMAC Mortgage retail offices. ResCap also shut down its wholesale channel and sold its home services unit to raise fund. Its parent company (then known as GMAC) converted to a bank holding company in order to gain access to TARP funds; in exchange for the bailout money, the US government owns more than half or Ally's common stock. The fixes seemed to help and ResCap began showing signs of recovery, hiring about 1,000 employees to handle an influx of jumbo loans. And in 2011, Ally had rebounded enough to begin the process of taking itself public.
However, Ally's ultimate goal is to focus on auto financing and reduce or exit its money-losing home lending business. It also hopes to minimize its exposure to ResCap's lawsuits over faulty loans, which could prove terribly costly. Ally continues to reduce its exposure to risk: It recently sold European mortgage assets and operations to Fortress Investment Group and its Canadian mortgage business to MCAP Group.
As did other mortgage companies, ResCap suspended evictions and foreclosures in more than 20 states in late 2010 after questions arose about mistakes in paperwork. – less