Judge Clears $2.1B ResCap Deal, Makes Examiner's Report Public (6/26/13)

Andrew R. Johnson
A judge Wednesday approved a $2.1 billion settlement involving Residential Capital and parent company Ally Financial Inc . and unsealed the contents of a widely anticipated probe that concluded that the mortgage lender could have prevailed on as much as $3 billion in claims against its parent.

At a court hearing, Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan ordered that the independent examiner's 1,900-page report reviewing ResCap's relationship with Ally be made public. The report, filed later in the afternoon, was initially filed under seal last month to encourage parties in the case to reach the settlement that Judge Glenn approved Wednesday.

The examiner, retired U.S. Bankruptcy Judge Arthur J. Gonzalez, concluded that ResCap and its creditors likely wouldn't have prevailed on fraud claims against Ally but nevertheless found that the company could have prevailed on as much as $3 billion in claims against its parent.

The settlement ResCap and its key creditor groups reached with Ally, however, bars them from taking action against Ally on account of the examiner's findings.

The settlement, known as a plan support agreement, is seen as a crucial step to easing ResCap out of Chapter 11 bankruptcy. Progress in the case hit a roadblock earlier this year as the firm's creditors, including mortgage insurers and bondholders, alleged Ally is responsible for billions of dollars of the mortgage subsidiary's liabilities because the parent company controlled the subsidiary prior to its bankruptcy filing.

Ally, which is 74% owned by the U.S. government after receiving a $17.2 billion bailout during the financial crisis, argued it wasn't responsible for such liabilities, contending that it and ResCap operated as separate entities throughout their existence.

At the start of ResCap's Chapter 11 case in May 2012, Ally proposed paying the ResCap bankruptcy estate $750 million to settle the dispute, but the subsidiary's creditors balked at the amount.

In his report, Judge Gonzalez said it was "unlikely" that a court would have approved the prior settlement because the liability releases that deal afforded Ally were worth more than its $750 million price tag.

Last month, Ally agreed to increase its offer to $2.1 billion in exchange for a release from ResCap's legal liabilities. The money will go toward repaying ResCap's creditors, including American International Group Inc ., Paulson & Co ., MBIA Inc . and Allstate Corp .

Some creditors had threatened to sue Ally to hold it responsible for ResCap liabilities.

Gary Lee, a partner with law firm Morrison & Foerster LLP who represents ResCap, said during the hearing that the settlement is a "very significant milestone" in the case because of the "sheer breadth" of parties involved. The various parties "have been at war" with ResCap and Ally for several years.

The settlement had drawn a handful of objections from some investors, bond insurers and other parties who criticized the legal release it grants to Ally.

The U.S. Justice Department voiced concerns over whether the agreement releases Ally from liability for ResCap's activities under a nationwide, $25 billion foreclosure settlement reached with large mortgage servicers last year.

The settlement has the backing of the committee representing ResCap's unsecured creditors, trustees for ResCap's mortgage-backed securities and other stakeholders.

Uncertainty over ResCap's legal issues have cast a shadow over Ally's efforts to repay its bailout. In March, the Federal Reserve rejected a capital plan Ally submitted under the regulator's most recent round of bank "stress tests," deeming the lender's capital levels insufficient to survive a severe economic downturn.

The results factored in Ally's ongoing ties to ResCap.

Ally has said it wants to eliminate $5.9 billion of preferred shares that the U.S. Treasury Department owns in the company this year, but it needs the Fed's approval to do so. The company's long-term goal is to focus exclusively on its U.S. auto-lending and online-banking businesses.

"Ally is highly encouraged by this pivotal court approval, which enables all parties involved to move forward to the final stages of ResCap's Chapter 11 cases and resolve the associated mortgage-related issues," Ally said in a statement Wednesday.

The impending examiner's report helped nudge the parties toward a broad deal that was struck in May through court-sanctioned mediation. The report was slated for release last month, but Judge Glenn agreed to keep the report under seal while they put the finishing touches on the settlement.

Parties in the case feared that release of the report could upend negotiations by fueling creditors' arguments that Ally should be held responsible for ResCap.

-Patrick Fitzgerald and Jacqueline Palank contributed to this article.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com.

http://bankruptcynews.dowjones.com/article?an=%20DJFDBR0020130626e96qkv697&r=wsjblog&ReturnUrl=http%3a%2f%2fbankruptcynews.dowjones.com%2farticle%3fan%3d+DJFDBR0020130626e96qkv697%26r%3dwsjblog

FINRA Bond Detail links:

Residential Capital LLC, 8.50% Notes due 2012

RDCC.GO / CUSIP: 76114EAC6

http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/BondDetail.aspx?ID=NzYxMTRFQUM2

==========================

Residential Capital LLC, 6.50% Variable Notes due 2013

RDCC.GK / CUSIP: 76113BAR0

http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/BondDetail.aspx?ID=NzYxMTNCQVIw

==========================

Residential Capital LLC, 8.875% Notes due 2015

RDCC.GE / CUSIP: 76113BAE9

http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/BondDetail.aspx?ID=NzYxMTNCQUU5

UPDATE 1- Ally reaches deal with ResCap creditors

REUTERS
Published: Tuesday, 14 May 2013 | 12:32 PM ET

* Deal allows Ally to shed links to mortgage lending

* Settlement details likely next week

* Examiner's report remains sealed until May 23

May 14 (Reuters) - Ally Financial Inc on Tuesday agreed to an important deal with creditors of its bankrupt Residential Capital LLC subsidiary that will allow the lender finally to separate itself from its former mortgage business.

The details of the agreement will remain private until a request to approve the deal is filed next week with the U.S. Bankruptcy Court in Manhattan, which is overseeing ResCap's Chapter 11.

"This agreement is a seminal moment for Ally," said Ally Chief Executive Officer Michael A. Carpenter in a statement.

The settlement will allow Ally to put behind it problems tied to mortgage lending so it can focus on its U.S. auto lending business and its online bank.

Ally has raised billions of dollars by selling its international business and wants to use that money to repay the U.S. government, which still owns three-quarters of the company following a bailout.

Ally and the ResCap parties were still working out the details of how to implement the agreement, ResCap Chief Restructuring Officer Lewis Kruger said after a bankruptcy court hearing on Tuesday.

The agreement would shield Ally from all legal claims that could be brought by ResCap or its creditors.

The agreement also heads off the publication of a potentially damaging report by a court-appointed examiner who was charged with investigating claims by ResCap creditors that Ally stripped ResCap of valuable assets before its bankruptcy.

The examiner's report was filed on Monday, but under seal. Kruger said it would remain under seal till May 23.

The Ally deal will likely form the basis of a plan to allow ResCap to exit bankruptcy and repay its creditors, which includes about $3 billion owed to bondholders.

In addition, investors who bought mortgage bonds issued by ResCap entities claim they are owed money because they were misled about the quality of the mortgages backing those bonds. Tuesday's agreement will shield Ally from any further legal claims related to those bonds, according to a statement by Ally.

The U.S. government rescued Ally, formerly known as General Motors Acceptance Corp, in the wake of the 2008 financial crisis with a $17 billion bailout.

http://www.cnbc.com/id/100736049

ResCap Bankruptcy Report Could Remain Sealed Until July 3 (5/13/13)

An independent examiner's report that could sway settlement negotiations in the bankruptcy of mortgage lender Residential Capital LLC may remain under seal until July 3, according to a judge's order on Monday.

The report's release has been highly anticipated by lawyers in the case because it could aid efforts by ResCap's creditors to hold parent Ally Financial Inc. responsible for an estimated $25 billion of liabilities they say it should be on the hook for.

Ally has pushed to sever itself from ResCap and those liabilities, mostly stemming from litigation over soured mortgage securities, so it can repay the $17.2 billion government bailout it received during the financial crisis.

Judge Martin Glenn said Monday he approved ResCap's request made earlier Monday to allow the examiner to file the report under seal. The report focuses on ResCap's relationship with Ally.

But the seal could expire as early as Tuesday if the parties don't reach a deal addressing billions of dollars of ResCap mortgage liabilities. But if they do reach a signed deal by 11 a.m. on Tuesday the report would remain sealed until May 21. By that date, ResCap must seek court approval of a support agreement for its bankruptcy plan, otherwise the report will be unsealed.

Judge Glenn would then keep the report under seal until July 3 or until the day he considers ResCap's approval of a support agreement if that happens earlier, according to his order.

The examiner, former U.S. Bankruptcy Judge Arthur J. Gonzalez, was approved to conduct an investigation last summer after ResCap creditor Berkshire Hathaway Inc. (BRKA, BRKB) requested an examiner to be appointed in the case. Berkshire argued in court filings that Ally may have "harvested assets from ResCap" to "seek a quick and easy divorce" from its troubled subsidiary through bankruptcy.

Mr. Gonzalez had planned to file his report with the court on Friday, but his attorney said that day in a filing that the mediator overseeing negotiations with Ally, ResCap and the creditors asked to delay the report until Monday at 3 p.m., citing progress in the settlement discussions.

Examiners' reports in most recent bankruptcy cases, like Dynegy Inc. (DYN) and Washington Mutual Inc., have been filed publicly, although sometimes with heavy redactions of information deemed confidential.

The ongoing negotiations between ResCap, creditors and Ally on a potential settlement could be upended by the public release of the report. Such a settlement could help ease ResCap out of bankruptcy.

Ally, the former in-house financing arm of General Motors Co. (GM), previously proposed making what Chief Executive Michael Carpenter has called a $750 million "hostage payment" to ResCap's bankruptcy estate in exchange for a release from all liabilities. But ResCap's creditors have argued the amount is a drop in the bucket compared with what they say are Ally's true liabilities.

Gina Proia, a spokeswoman for Ally, declined to comment on the status of mediation discussions.

A spokeswoman for ResCap didn't immediately respond to a request for comment.

The creditors' fiercest charge is that Ally "pierced the corporate veil" in its dealings with ResCap, meaning Ally and ResCap acted as "a single economic entity" where the subsidiary is only used to benefit the parent. Ally has argued that the companies were operated independently with their own boards of directors--and transactions conducted between the two were done at "arm's length."

Mr. Gonzalez's report is expected to weigh in on whether that veil was pierced.

If such a charge is ever held up in court, Ally could be deemed responsible for all the liabilities in ResCap's bankruptcy, the creditors say.

The report is also expected to look at the timing of ResCap's bankruptcy filing and transactions involving Ally Bank, which ResCap once had an ownership stake in. That stake was transferred from ResCap to Ally in a series of transactions completed in 2009, and creditors have argued these moves harmed the mortgage subsidiary.

A committee appointed to represent ResCap's unsecured creditors in its bankruptcy has sought court approval to pursue litigation against Ally if a deal isn't reached. Mr. Carpenter has vowed to fight such litigation.

ResCap filed for Chapter 11 bankruptcy protection last May as litigation over soured mortgage securities mounted and bond payments loomed. The move was intended to help Ally--which is 74% owned by the U.S. government after receiving a $17.2 billion bailout during the financial crisis--sever itself from those issues, which have hindered its ability to repay its bailout.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com and Joseph Checkler at joseph.checkler@dowjones.com

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http://www.foxbusiness.com/news/2013/05/13/rescap-bankruptcy-report-could-remain-sealed-until-july-3/#ixzz2TE7TkhIq

Exclusive Plan Period extended through 4/30/13.

Exclusive Solicitation Period extended through 7/01/13.

Source: KCC [Docket 3102]

ResCap Wins Exclusivity Extension (3/06/13)

A judge on Tuesday gave Residential Capital LLC 60 days from now to file a restructuring plan without having to worry about rival proposals, as the company seeks to settle the complex issues surrounding its bankruptcy case.

Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan approved a negotiated compromise between the official committee of unsecured creditors and ResCap to extend the control by 60 days instead of the 90 days ResCap was originally asking for. Initially, the judge was going to allow only a 14-day extension so an ad-hoc bondholder group's objection to be argued at a hearing later this month. But after a break, ResCap removed a provision that would have barred the company from filing a plan not supported by the creditors committee.
That satisfied the bondholder group. Judge Glenn said it would be a "miracle" if a plan was filed within the 60 days anyway, something not disputed by ResCap or the creditors.

ResCap's case has hit a hitch over settlement negotiations between parent Ally Financial Inc . and creditors. When the case began last spring, Ally had proposed to pay $750 million to ResCap's estate as long as it was released from liabilities. Creditors have balked at that number, throwing the case into perpetual uncertainty.

Morrison & Foerster LLP 's Lorenzo Marinuzzi, a ResCap lawyer, suggested in court Tuesday that a settlement "north of $750 million" could help move the case forward, although it would probably remain "hotly contested" by creditors. He also said that Ally probably couldn't write a check big enough to satisfy everyone in the case.

For his part, Judge Glenn said he's still concerned with the lack of progress on a restructuring plan.

"In some respects, there has been good progress in the case," Judge Glenn said at Tuesday's hearing, referring specifically to the more than $4 billion generated by ResCap in selling its assets, including its mortgage-servicing platform, to Ocwen Financial Corp . and Walter Investment Management Corp ., and a portfolio of loans up for sale to Berkshire Hathaway Inc . The judge added that, "Where there clearly has been less progress has been in the plan process."

To address the concerns over the restructuring negotiations, Judge Glenn on Tuesday approved ResCap's appointment of bankruptcy lawyer Lewis Kruger as its chief restructuring officer, a move cheered by most parties in the case. Mr. Kruger, of Stroock & Stroock & Lavan LLP , is charged with the difficult task of helping facilitate a deal among ResCap, its creditors and government-owned ResCap parent Ally. ResCap said it will come before the judge later with a proposed "success fee" for Mr. Kruger.

Also working to broker a compromise is Judge James Peck, the bankruptcy judge appointed as a mediator in the case whose term Judge Glenn said he would extend.

"I view the appointment of Mr. Kruger as the CRO as a very important step in what I still hope will be the development of a consensual plan," Judge Glenn said.

One of the other main issues ResCap faces is over a settlement the company reached last year to allow an $8.7 billion claim by the owners of 392 mortgage-backed securities trusts. That settlement, related to 1.6 million mortgages, is being fought by bond insurers and other creditors who say the deal is meant to shield Ally from liabilities. A trial on that matter is tentatively scheduled for next month, though it has been pushed back several times.

Yet another wrinkle involves an upcoming report due from independent examiner Arthur J. Gonzalez, the former bankruptcy judge whom Judge Glenn appointed to look into ResCap's relationship and dealings with Ally. A lawyer for ResCap's creditors committee said the major question in the case is whether deals can get done before Judge Gonzalez's report, which is expected out in May.

All these factors and factions have made ResCap's case quite expensive.

"The costs of this case are fairly extraordinary, frankly," Judge Glenn said Tuesday. Through the end of January, ResCap's estate has paid $234.4 million to professionals in the case, according to court filings.

ResCap filed for Chapter 11 bankruptcy last May as bond payments loomed and litigation over soured mortgage securities mounted. The move was intended to help Ally, the former in-house financing arm for General Motors Co ., eliminate its exposure to the mortgage business so it can focus on its core motor-vehicle-lending operations and repaying its government bailout.

Ally, which is not part of the bankruptcy, is nearly three-quarters owned by the U.S. government after receiving $17.2 billion during the financial crisis. The company last year struck several deals to sell international operations that could generate $9.2 billion in proceeds, which it would use to repay its bailout.

Write to Joseph Checkler at joseph.checkler@dowjones.com.

http://blogs.wsj.com/bankruptcy/2013/03/06/the-daily-docket-rescap-wins-exclusivity-extension/?KEYWORDS=residential+capital

ResCap Creditors May Pursue Litigation Against Ally Financial (2/27/13)

By Andrew R. Johnson

Residential Capital LLC won't stand in the way of creditors seeking to litigate claims against the mortgage lender's parent, Ally Financial Inc., for actions they say harmed ResCap, a court filing shows.

The official committee representing unsecured creditors in ResCap's Chapter 11 bankruptcy said in a filing late Tuesday that the lender will consent to a motion the committee may seek to gain court approval to pursue such claims.

In exchange, the committee, which includes Wilmington Trust Corp., MBIA Inc. ( MBI ) and American International Group Inc. ( AIG ), said it would support the extension of a period during which ResCap has the exclusive right to file a bankruptcy plan to April 30, as well as the lender's request to appoint a seasoned bankruptcy attorney as its chief restructuring officer.

The move potentially paves the way for more legal battles for Ally, the government-owned auto lender that is trying to rid itself of mounting mortgage liabilities that had stalled its ability to repay the $17.2 billion bailout it received during the financial crisis.

As part of ResCap's Chapter 11 filing in May, Ally reached a settlement under which it would pay the subsidiary's estate $750 million in return for a release from potential liabilities it could face as the mortgage lender's parent.

Creditors have been pressing ResCap to cancel the settlement, though, arguing the amount is a drop in the bucket compared with they say Ally's true liabilities are. They claim the parent company stripped ResCap of its most valuable asset--an ownership stake in Ally Financial's depository unit, Ally Bank--as part of a transaction completed in 2009.

Ally Chief Executive Michael Carpenter has repeatedly said the company would fight creditors, calling such claims meritless. Earlier this month he said Ally believed its defenses against such accusations were strong, and that it would not be held to a "ransom payment" by creditors.

"Ally remains highly confident in its position against any litigation that might be brought against it by ResCap's creditors," Ally said in a statement late Tuesday.

ResCap will let a so-called plan support agreement with Ally expire at the end of the month and won't fight the official committee if it files a motion to seek standing to "pursue estate causes of action against Ally," the committee said in its filing. ResCap has determined that the committee "is in the best position to pursue the claims" and "agreed to support the committee in a process to prosecute the claims on behalf of the estate."

Ally called ResCap's decision to not support a temporary waiver extending the plan support agreement an "unfortunate step."

However, the committee said it will not file a complaint during ResCap's extended exclusivity period to "leave open the possibility of continued negotiations with Ally." If settlement negotiations don't progress, the committee plans to "commence litigation against Ally in a timely manner after obtaining standing" in the court.

ResCap, Ally and creditors have been in negotiations as part of a court-sanctioned mediation process that was scheduled to run through Feb. 28. The purpose was to try to resolve differences so that ResCap can move forward with filing a consensual plan for how it will distribute proceeds from completed asset sales and other funds to creditors. The Wall Street Journal reported last week that negotiations had broke down in that process, with the chances that Ally would face litigation looking more likely.

"Despite the committee's significant efforts over the past two months, the mediation has stalled," the committee said in its filing. "As a result, the committee is now left with no alternative but to examine alternative plan structures that contemplate the debtors' emergence from bankruptcy without a resolution of the claims against its ultimate parent, Ally."

Ally said it has "participated in good faith consistently" through the process and is "guided by its responsibility to its shareholders, especially the U.S. taxpayer."

ResCap's Chapter 11 filing was spurred by litigation over soured mortgage securities and looming bond payments. The move was intended to help Ally sever itself from those issues so it could focus on its core U.S. auto-lending and online-banking businesses.

Ally, the former in-house financing arm of General Motors Co. ( GM ), is 74% owned by the U.S. government after receiving its bailout. The company last year announced several deals to sell international operations, which are expected to generate $9.2 billion in proceeds that Ally has said it would put toward paying back the government.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com

http://www.nasdaq.com/article/rescap-creditors-say-they-may-pursue-litigation-against-ally-financial-20130226-01764

ResCap Creditors Target Cash From Ally Asset Sales (11/26/12)

By SHARON TERLEP And ANDREW R. JOHNSON

A group of creditors owed billions of dollars by Ally Financial Inc.'s mortgage subsidiary wants cash from a string of asset sales before any goes to the U.S. government, which funded a $17.2 billion bailout of the firm.

The creditors, of mortgage firm Residential Capital LLC, are eyeing more than $9 billion Ally plans to collect from sales of its international operations, including last week's announced $4.2 billion deal with General Motors Co. Ally has agreed to sell those assets with the goal of repaying the Treasury, which owns 74% of Ally.

In a letter sent Monday to Ally's board, the creditors question transfers made in 2009 from Residential Capital to Ally, according to people who have reviewed the letter. Residential Capital, known as ResCap, filed for bankruptcy protection earlier this year.

The creditors said Ally stripped ResCap of most of its value when it transferred Ally Bank, a depository unit valued at $10 billion, to the parent company. They said ResCap creditors should be repaid before others receive proceeds from Ally.

Ally, now primarily an auto lender, has argued that it is insulated from ResCap's liabilities because of the companies' long-distinct ownership structures.

"The letter from creditors is a predictable tactic," Gina Proia, a spokeswoman for Ally, said in a statement on Monday. "We strongly disagree with the allegations in the letter and believe the claims are wholly without merit."

A Treasury spokesman referred to an earlier statement from Timothy Massad, the Treasury's assistant secretary for financial stability, that ResCap "is a separate and distinct company from Ally that has its own board of directors and creditors."

The letter is from a committee representing ResCap unsecured creditors that includes Allstate Corp.,American International Group Inc. and Wilmington Trust Corp. A representative for the creditors' committee didn't respond to a request for comment.

ResCap's bankruptcy was intended to help Ally, which wasn't part of the filing, by severing Ally from ResCap's litigation over soured mortgage securities and other liabilities that had been a drag on Ally's financial results.

ResCap creditors have made this argument questioning transfers before. The Ally Bank transaction and others are being investigated by Arthur J. Gonzalez, a court-appointed examiner.

He was appointed at the request of creditors, including Warren Buffett's Berkshire Hathaway Inc., one of ResCap's largest bondholders, which has argued that past dealings between the two entities should be reviewed to determine whether ResCap was paid fair value.

Mr. Gonzalez expects to deliver his findings in early April, according to a filing made by his attorneys in U.S. Bankruptcy Court on Monday.

Ally, formerly called General Motors Acceptance Corp., is the former finance arm of General Motors. The auto maker sold control of the lending company in 2006 to shield it from the auto maker's declining fortunes. Shortly after, the housing crisis drove ResCap, once a bright spot for the lender, deep into the red. The government bailed out Ally in part to ensure it could continue to provide auto loans amid the Obama administration's rescue of the U.S. auto industry.

Ally Chief Executive Officer Michael Carpenter has said the company plans to focus its efforts on its core U.S. auto-lending and online-banking businesses. As part of its plan to slim down, Ally has also announced plans to sell international operations, including an agreement reached last week to sell to GM assets in Europe and Latin America as well as its 40% stake in a Chinese joint venture.

Ally aims to put those proceeds toward repaying the U.S. government. The company has repaid about $5.8 billion.

http://professional.wsj.com/article/SB10001424127887324784404578143632498805110.html?mg=reno64-wsj

Judge Poised to Approve ResCap Loan Sale to Berkshire (11/19/12)

A judge on Monday said he plans to approve Residential Capital LLC's sale of a loan portfolio to Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB), the undercard in ResCap's two-pronged transaction that should fetch $4.5 billion for the mortgage servicer's creditors.

The main event, a $3 billion sale of ResCap's mortgage-servicing platform to Ocwen Financial Corp. (OCN) and Walter Investment Management Corp. (WAC), has been attacked by a divergent collection of parties, from the U.S. government to a grass-roots group representing individual mortgage holders to ResCap's government-controlled parent, Ally Financial Inc. Many are concerned that Ocwen's purchase doesn't force the company to honor ResCap's obligations to protect homeowners with mortgage problems. ResCap settled or pushed back to later dates some of the objections.

Members of the Neighborhood Assistance Corp. of America, which provides housing assistance and counseling to financially troubled borrowers, protested outside the Manhattan courthouse, holding signs and wearing yellow shirts with the words "stop loan sharks" on the fronts and "sharks beware" on the back. Many of them filled two extra courtrooms broadcasting audio and video of the hearing. Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan told a lawyer for NACA that he wasn't sure that his organization even had standing to object to the sale because its contract with ResCap wasn't being transferred to Ocwen. NACA has also argued that because many of Ocwen's mortgage-servicing employees are based overseas, the ResCap deal would cost American jobs.

But before the arguments over the Ocwen deal began bogging the afternoon down, Judge Glenn said he planned to approve Berkshire's $1.5 billion purchase of "legacy" mortgage loans that ResCap is holding to sell. The judge said before he officially approves the deal, ResCap must work out issues related to the "backup" bid that's in place in case the Berkshire Hathaway bid falls through, and also give him the final documents so he can review recent changes.

"Your honor, we've managed to address $1.5 billion of the $4.5 billion in less than 20 minutes," said Morrison & Foerster LLP's Gary Lee, a ResCap lawyer, on Monday morning. Mr. Lee pointed out that the winning bids for the two portfolios generated about $1 billion more than the opening bids before last month's auction.

"This far exceeds everybody's expectations on the debtor's side," Mr. Lee said.

The debate over the mortgage-servicing platform began soon after and was far more plodding, as was expected considering the business includes 2.4 million mortgages with total unpaid balances of more than $370 billion. Mr. Lee said he would use an afternoon break as an opportunity to set up a meeting between NACA and Ocwen over the organization's concerns for the borrowers it represents.

ResCap filed for Chapter 11 protection May 14 as bond-related payments loomed and litigation over soured mortgage- backed securities mounted. The move is intended to help Ally, which isn't part of the bankruptcy, sever itself from an estimated $400 million to $1.25 billion in liabilities related to ResCap's troubles.

The backbone of ResCap's bankruptcy exit strategy is the sale of the loans and mortgage platform that were the subject of Monday's hearing.

Much of the concern about Ocwen is related to whether the company will comply with the historic national mortgage settlement that ResCap and other servicers signed onto along with the federal government and 49 state attorneys general.

The settlement called for an overhaul of mortgage servicing practices after widespread allegations of fraud. Ocwen has said it would use its "best efforts" to "address" the nationwide settlement as part of its ResCap purchase.

Monday's hearing appeared poised to spill into Tuesday.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

-Jacqueline Palank in Washington contributed to this article.

http://www.foxbusiness.com/news/2012/11/19/judge-poised-to-approve-rescap-loan-sale-to-berkshire/

ResCap Wins Court Approval of Ocwen Servicing Unit Sale (11/19/12)

By Steven Church - Nov 19, 2012 4:20 PM CT

Residential Capital LLC won court approval to sell its mortgage servicing unit to Ocwen Financial Corp. (OCN) for $3 billion after putting off a fight with loan investors and resolving other objections.

U.S. Bankruptcy Judge Martin Glenn in Manhattan said he will sign an order as early as tomorrow approving the sale after the company works out the final wording with creditors.

“The sale of these very significant assets is important to the successful outcome” of the bankruptcy, Glenn said today in court.

The ruling comes after ResCap resolved the main objections from the servicing unit’s biggest customers, including mortgage- owners Fannie Mae and Freddie Mac. ResCap will continue negotiating with Fannie Mae and other mortgage holders over their demands for so-called cure payments, cash payments that compensate creditors for actual and potential losses caused by a bankruptcy filing.

Should ResCap and the mortgage owners fail to reach an agreement on the size of the payments, they would return to court in January, company attorney Gary Lee said today in court.

Ocwen financial won an Oct. 24 auction for the loan servicing unit with a bid of $3 billion. The next day, Berkshire Hathaway Inc. (BRK/A) won an auction for a portfolio of ResCap’s loans with a $1.5 billion offer. Glenn also approved the portfolio sale.

New York-based ResCap filed bankruptcy in May to with plans to sell its major assets and resolve legal claims related to mortgage loans. The company is owned by Ally Financial Inc. (ALLY), a Detroit-based auto lender majority owned by U.S. taxpayers.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

http://www.bloomberg.com/news/2012-11-19/rescap-wins-court-approval-of-ocwen-servicing-unit-sale.html

Ally Financial Repays $2.9B of Debt Issued Under FDIC Program (10/31/12)

By Andrew R. Johnson

Ally Financial Inc., which is 74% owned by the U.S. government, said Wednesday it repaid $2.9 billion of debt it issued under a financial crisis-era guarantee program by the Federal Deposit Insurance Corp.

The Detroit-based auto lender's move leaves $4.5 billion of debt outstanding that it issued under the FDIC's Temporary Liquidity Guarantee Program, which was intended to spur bank lending during the crisis. It plans to repay that amount in December.

The program "was a key contributor in Ally being able to continue offering financing options for thousands of auto dealers across the U.S. and millions of their customers during the financial crisis," Jeffrey Brown , senior executive vice president of finance and corporate planning for Ally, said in a statement.

The FDIC declined to comment on Wednesday.

The TLGP program is set to expire at the end of the year.

The repayment is Ally's latest move to shore up its business as it tries to focus on shedding non-core assets and exit government ownership. A major part of that effort has been stemming its exposure to the housing market.

In May, its mortgage subsidiary, Residential Capital, filed for Chapter 11 bankruptcy in a move intended to allow Ally to sever itself from billions of dollars of litigation over soured mortgage securities. ResCap last week announced asset sales as part of bankruptcy auctions that stand to generate about $4.5 billion for the subprime lender's estate.

Separately, Ally also said it may sell a $122 billion portfolio of mortgage-servicing rights not included in ResCap's bankruptcy. It also is selling international auto-lending, insurance and deposit businesses, which could help accelerate its repayment of a government bailout that topped $17 billion under the Troubled Asset Relief Program.

Ally will have repaid $5.8 billion when including a planned dividend payment to the U.S. Treasury Department in November.

Earlier this month, Ally announced deals to sell Canadian operations to Royal Bank of Canada (RY, RY.T) for $4.1 billion and its Mexican insurance business, ABA Seguros, to Swiss insurer Ace Ltd. (ACE) for $865 million. It is expected to sell operations in Europe and Latin America by the end of the year. General Motors Co. (GM), Ally's former parent, has bid on those assets, according to people familiar with the matter.

The sale of its remaining international operations and its mortgage-servicing portfolio could generate at least $4 billion more for Ally, Moody's Investors Service said in a report this week.

Ally was bailed out as part of the government's broader rescue of the auto industry. The company's primary business is providing financing to dealers and customers of GM, Chrysler Group LLC and other manufacturers and operating an online bank that offers deposit products to consumers.

-Alan Zibel contributed to this story.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com

http://professional.wsj.com/article/TPDJ00000020121031e8av000jx.html

Junior Bondholders Pull Support for Residential Capital's Plan (9/27/12)

By Andrew R. Johnson

Junior bondholders of Residential Capital LLC, the bankrupt mortgage lender of government-owned Ally Financial Inc., have withdrawn their support for ResCap's reorganization plan.

Ally spokeswoman Gina Proia wrote in an email Thursday that the bondholders terminated an agreement that Ally had announced in May under which the third-lien bondholders would support ResCap's plan.

"The bondholders' action enables the bondholders to trade their bonds without waiving the right to accrued and unpaid interest during this process and also frees Ally from subordinating its recovery by $350 million," Proia wrote. "This action does not change Ally's view of the bankruptcy process and the process continues to move forward."

Furthermore, Ally said its agreement with ResCap, under which the parent would receive legal releases from mortgage litigation in exchange for a payment to ResCap, is not affected by the bondholders' action, she said. It also does not affect a separate agreement ResCap has with investors in its mortgage-backed securities.

Bloomberg News first reported the bondholders' action Wednesday night.

Residential Capital filed for Chapter 11 bankruptcy in May as bond-related payments loomed and litigation over soured mortgage securities mounted. Ally, which is not part of the bankruptcy, hopes to sever itself from those issues so it can work toward repaying a government bailout that stands at about $12 billion.

At the time of the filing, Ally said ResCap had obtained support for its prearranged restructuring from an ad hock steering committee representing ResCap's junior secured notes and some other noteholders.

Ally, the former in-house financing arm for General Motors Co. (GM), remains 74% owned by the U.S. government after receiving a rescue package that topped $17 billion during the financial crisis.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com

http://professional.wsj.com/article/TPDJON000020120927e89r00047.html

Berkshire Wins ResCap Loan Auction With $1.5 Billion Bid (10/25/12)

By David McLaughlin, Dakin Campbell and Noah Buhayar on October 25, 2012

Warren Buffett’s Berkshire Hathaway Inc. (A) won an auction for a portfolio of Residential Capital LLC’s loans with a $1.5 billion bid, adding to the billionaire’s bet on a housing market recovery.

The competing bidder was a group that included a unit of Credit Suisse Group AG (CSGN), according to two people familiar with the matter, who declined to be identified because they weren’t authorized to speak publicly. ResCap auctioned its mortgage- servicing business to Ocwen Financial Corp. (OCN) yesterday for $3 billion. Ocwen beat Nationstar Mortgage Holdings Inc. (NSM) in an auction that would create at least the fifth-largest U.S. mortgage servicer.

“This is part of their optimism on the overall home market,” Meyer Shields, an analyst at Stifel Nicolaus & Co., said of the auction results in a phone interview today.

Ally Financial Inc. (ALLY), a Detroit-based auto lender majority owned by U.S. taxpayers, allowed its New York-based ResCap unit to file for bankruptcy in May to distance itself from the mortgage lender’s losses and help repay its 2008 bailout following the U.S. housing crash and subsequent credit crisis. Ally was previously owned by General Motors Corp.

ResCap’s board approved Berkshire’s offer for the portfolio of about 47,000 whole loans as the “highest and best bid,” according to a statement. The agreement must now be approved by the bankruptcy court. A hearing is set for Nov. 19. The two auctions were expected to generate about $4 billion, ResCap said in a May 14 statement announcing its bankruptcy.

Warren Buffett

Buffett, Berkshire’s chief executive officer, didn’t immediately respond to a request for comment sent to an assistant. Ted Weschler, 51, who joined Berkshire this year to help pick stocks, has handled negotiations for Buffett’s firm in its discussions with ResCap as his role expanded at the company, according to court filings. Jack Grone, a spokesman at Credit Suisse, declined to comment.

ResCap, coupled with Ally’s much smaller business, was the fifth-largest mortgage servicer in the U.S. in the second quarter, handling the billing and collections on about $329 billion of mortgages, according to Inside Mortgage Finance, a trade journal. ResCap, once among the largest originators, reduced its assets to $15.7 billion in the first quarter from more than $130 billion in 2006.

Faulty Mortgages

Mortgage liabilities at ResCap from faulty home loans made before the housing bubble burst helped derail Ally’s initial public offering. A successful sale of the unit would allow Ally Chief Executive Officer Michael Carpenter to separate the auto lender from its money-losing unit.

Berkshire has been betting on a housing rally by buying a brickmaker and expanding a real-estate brokerage as Buffett bets the creation of new households will boost demand for property. Berkshire also owns Clayton Homes, the producer of manufactured homes, and also has units selling paint, flooring, furniture and insulation.

Buffett told Bloomberg Television’s Betty Liu in July, a month after he sought to be the lead bidder for ResCap’s loan portfolio, that the housing market was beginning to rebound, helping Berkshire’s units that make building supplies.

“If that’s true, then not only will they sell more bricks and more carpet and more paint, but the value that he can extract out of these loan portfolios should also work in his favor,” Shields said today.

Loan Portfolio

In 2008, Omaha, Nebraska-based Berkshire paid $300 million for a portfolio of loans backing factory-built homes from CIT Group Inc., another lender that went into bankruptcy. The next year, Buffett invested in commercial real estate as Berkshire and Leucadia National Corp. (LUK) established Berkadia Commercial Mortgage LLC, which was formed from a loan-servicing and mortgage business purchased out of bankruptcy and once owned by ResCap’s parent.

Berkshire had about $2.7 billion in mortgage-backed securities as of June 30 in a fixed-maturity portfolio valued at more than $31 billion. Buffett is also the largest stockholder in Wells Fargo & Co. (WFC), the top mortgage lender in the U.S., and invested $5 billion last year in Bank of America (BAC) Corp. The company had $40.7 billion in cash at the end of June, according to Bloomberg data.

Morrison & Foerster LLP is ResCap’s law firm handling the bankruptcy case. Centerview Partners LLC and FTI Consulting Inc. (FCN) are the company’s financial advisers.

Berkshire’s class A shares climbed 0.1 percent to $130,582 in New York trading. The stock is up 14 percent this year.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

http://www.businessweek.com/news/2012-10-25/berkshire-said-to-win-rescap-loan-auction

Berkshire Wins Auction for ResCap Loans (10/25/12)

By ANDREW R. JOHNSON
Warren Buffett's Berkshire Hathaway Inc. was the winning bidder in a bankruptcy auction for a portfolio of loans from Residential Capital LLC, the subprime mortgage unit of government-owned Ally Financial Inc.

ResCap's board approved the winning bid of $1.5 billion by Berkshire. The bid beat a consortium of investors, said a person familiar with the auction.

On Wednesday, ResCap said it reached an agreement to sell separate mortgage servicing and origination assets to Ocwen Financial Corp. for $3 billion in another bankruptcy auction.

ResCap filed for Chapter 11 bankruptcy in May as bond payments loomed and mortgage securities lawsuits mounted.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com

http://professional.wsj.com/article/SB10001424052970204530504578078933076161940.html?mod=googlenews_wsj&_nocache=1351217898533&user=welcome&mg=id-wsj&mg=reno-wsj

Nationstar Loses in Auction for ResCap Assets (10/24/12)

By Andrew R. Johnson

Nationstar Mortgage Holdings Inc. (NSM) said Wednesday it did not top Ocwen Financial Corp. (OCN) in a bidding war for the mortgage-servicing assets of lender Residential Capital, which is in bankruptcy proceedings.

The assets went to auction Tuesday as part of the bankruptcy proceedings for ResCap, a subsidiary of government-owned auto lender Ally Financial Inc. ResCap filed for Chapter 11 bankruptcy in May as billions of dollars of bond payments loomed and litigation over soured mortgage securities mounted.

Nationstar's shares were down 15% at $29.65 in recent trading.

Nationstar and Ocwen were the only two bidders competing for ResCap's mortgage-servicing and -origination platform, which includes the rights to service 2.4 million mortgages that account for $374 billion in unpaid balances. The companies have been scooping up in recent months the mortgage-servicing assets of large banks that are exiting the business because of new regulations and capital requirements.

Bidding on the assets extended into Wednesday, as both companies sought to top each other's offers.

"Price matters," said Nationstar Chief Executive Jay Bray in a statement. "Obviously we are disappointed in the outcome of the auction, but in the end our judgment was that the price of the assets would not represent a compelling investment opportunity for us."

Nationstar did not disclose what its final bid was and the companies didn't disclose the size of the winning bid.

The Wall Street Journal--citing people attending the auction--reported late Tuesday that Nationstar had submitted a $2.67 billion, bid which topped a bid of $2.65 billion by Ocwen.

Nationstar, majority-owned by private-equity firm Fortress Investment Group LLC (FIG), was designated as the stalking horse bidder for ResCap's assets earlier this year by the U.S. Bankruptcy Court. The designation entitles the company to a breakup fee.

ResCap would have doubled the assets of Nationstar, putting it on equal footing with Ocwen. For Ocwen, already the biggest player, a win would make the company more than three times as big as Nationstar.

Ally, which isn't part of the bankruptcy proceedings, hopes to sever itself from ResCap's bond and litigation matters so it can focus on repaying a U.S. government bailout that topped $17 billion.

-Christian Berthelsen and Melodie Warner contributed to this article.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com

http://online.wsj.com/article/BT-CO-20121024-712407.html

Nationstar Fights Ocwen for Servicer Supremacy: Mortgages (10/23/12)

By David McLaughlin, Dakin Campbell and Kathleen M. Howley - Oct 23, 2012 10:44 PM CT

Nationstar Mortgage Holdings Inc. (NSM) and Ocwen Financial Corp. (OCN), which have seen their share prices more than double this year, are battling to become the largest non-bank home-loan servicers in a consolidating industry.

They’ll resume bidding today in a bankruptcy auction in a midtown Manhattan hotel for Residential Capital LLC’s loan- servicing unit after trading competing offers in a session that lasted into the evening. Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) didn’t participate after losing the lead bidder role to Nationstar, whose stalking horse bid was about $2.3 billion.

The winner will become the fifth-largest U.S. mortgage servicer, a business that becomes more profitable with greater scale, according to Wilbur Ross, who sold his Homeward Residential Holdings Inc. to Ocwen this month for $750 million in cash and convertible preferred stock that gives him a continuing stake in the firm.

“In terms of scale, it will be a huge win,” said Bose George, an analyst at Keefe Bruyette & Woods in New York. “There’s a barrier to entry in this industry, because it is so specialized and there are so many compliance issues -- you need scale to make it work.”

The two bidders are betting they can profit as banks retreat from the $9.6 trillion mortgage servicing industry. Many servicers earn monthly fees equal to 25 cents per $100 in unpaid loan balances to handle the billing and collections for home loans, and also work on foreclosures and loan modifications. New federal regulations are creating a web of compliance issues and the hand-holding of delinquent borrowers has driven up costs.

ResCap Bankruptcy

Ally Financial Inc. (ALLY), a Detroit-based auto lender majority owned by U.S. taxpayers, allowed ResCap to file for bankruptcy in May to distance itself from the mortgage lenders’ losses and help repay its 2008 bailout following the U.S. housing crash and subsequent credit crisis. Ally was previously owned by General Motors Corp.

ResCap, coupled with Ally’s much smaller business, was the fifth-largest mortgage servicer in the U.S. in the second quarter, handling the billing and collections on about $329 billion of mortgages, according to Inside Mortgage Finance, a trade journal. ResCap, once among the largest originators, reduced its assets to $15.7 billion in the first quarter from more than $130 billion in 2006.

Mortgage liabilities at ResCap from faulty home loans made before the housing bubble burst helped derail Ally’s initial public offering. A successful sale of the unit would allow Ally Chief Executive Officer Michael Carpenter to separate the auto lender from its money-losing unit.

Nationstar Acquires

If Nationstar, majority owned by Fortress Investment Group LLC (FIG), wins, it will be the largest non-bank residential loan servicer by the end of 2012, CEO Jay Bray has said. It added servicing on $93.3 billion in loans in the second quarter, including acquisitions from Bank of America Corp. and Aurora Bank FSB, a unit of defunct Lehman Brothers Holdings Inc., which accounted for more than $60 billion. The company’s servicing portfolio stood at $193 billion at the end of June, Nationstar said in an Aug. 14 statement.

Since it sold shares in an initial public offering on March 7 they’ve gained 149 percent, making it the best-performing U.S. IPO this year.

Ocwen has also bolstered its business, including the purchase of WL Ross & Co.’s Homeward, which services about 422,000 mortgages with an unpaid principal balance exceeding $77 billion, according to a statement from Ocwen.

Its shares have gained 25 percent since the announcement of the Homeward acquisition, extending this year’s gain to 150 percent as of yesterday.

Homeward Purchase

The purchase of Homeward gives Ocwen a much more robust origination business, making home loans to consumers, that will provide for a “sustainable source of future growth,” the company’s CEO William Erbey said in the statement announcing the deal. Homeward has been originating loans at a rate of about $10 billion a year, he said.

“Market reaction to the Ocwen deal has been strongly favorable, just as we had hoped, because it repositioned Ocwen” and will immediately add to earnings, Ross said.

Ocwen has teamed up for the ResCap bid with Walter Investment Management Corp. (WAC), according to a person familiar with the matter, who declined to be identified because negotiations are private.

‘Moneymaker Industry’

Ocwen is currently the largest independent servicer with $5.4 billion in assets. Nationstar, based in Lewisville, Texas, has $4.9 billion. Revenue at Ocwen rose to $211 million in the second quarter, about double the year earlier, as it bought servicing rights from JPMorgan Chase & Co. and sub-contracted with other institutions to handle their most troubled loans.

“It’s a moneymaker industry, but what’s really gotten people excited is growth,” said Paul Miller, managing director at FBR Capital Markets Corp. in Arlington, Virginia. “These companies could double and triple in size in the next year.”

Winning the business gives more than just servicing rights. Servicing also provides a pool of potential borrowers for whom it may then “capture the financing needs” when they decide to refinance, Ross said.

“You don’t have to be a servicer to become an originator nor do you have to be an originator to become a servicer,” Ross said. “Origination is the most efficient way to create servicing but buying in bulk is the quickest way to achieve major scale.”

Overcome Objections

Before completing the purchase, the winning bidder must overcome objections from ResCap customers, including its two biggest, Fannie Mae and Freddie Mac. The government-controlled companies have demanded in court filings that the winner take on the legal liability that ResCap currently faces for loans it originated.

Nationstar’s $2.3 billion stalking horse bid for the right to service mortgages owned by Fannie Mae, Freddie Mac and others, was based on not accepting any potential legal liabilities for the loans, according to court documents.

Once the auction is over, New York-based ResCap and the winner will have until Nov. 19 to resolve the dispute with the mortgage owners, which are demanding at least $394 million in payments in addition to the liability guarantees. Should they fail, the fight would be decided by U.S. Bankruptcy Judge Martin Glenn in Manhattan, who is overseeing ResCap’s case.

Buffett Seeks

Berkshire wasn’t represented at yesterday’s auction.

Buffett didn’t respond to a request for comment sent to an assistant. Susan Fitzpatrick, ResCap’s director of communications, declined to comment. Nationstar’s head of investor relations Marshall Murphy and Ronald Faris, CEO of Ocwen, didn’t return calls.

Buffett said in July, a month after his company sought to be the lead bidder for ResCap’s servicing business, that the U.S. housing market was rebounding, even as the overall economy stalled. The billionaire has increased Berkshire’s bet on the real-estate market by investing $5 billion in Bank of America Corp. (BAC) last year and boosting his company’s stake in Wells Fargo & Co. (WFC) Wells Fargo is the largest U.S. mortgage servicer, followed by Bank of America.

Berkshire also owns a real-estate brokerage, a maker of manufactured homes and units that construct roofs and sell bricks and carpet.

The housing market has improved “noticeably in the last few months,” Buffett told Bloomberg Television’s Betty Liu in a July 13 interview. “It was just a question of getting households in balance with housing units.”

Shunned Participating

The competition for ResCap’s servicing assets may have increased the price beyond what the billionaire’s firm was willing to pay, said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett.”

Buffett has shunned participating in auctions when making acquisitions and warns potential sellers against the practice in Berkshire’s annual report.

“Buffett always says if you want to make a killing, be the only buyer,” Matthews said in a phone interview. “If he doesn’t get the right deal, he’s not interested.”

Berkshire Hathaway is the stalking horse bidder for a separate auction of ResCap’s mortgage portfolio, which will follow the servicing auction.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net

http://www.bloomberg.com/news/2012-10-24/nationstar-fights-ocwen-for-servicer-supremacy-mortgages.html

Nationstar Leads Bidding for ResCap Mortgage Assets (10/23/12)

By ANDREW R. JOHNSON
Nationstar Mortgage Holdings Inc. submitted a $2.67 billion bid at a bankruptcy auction for the mortgage assets of Residential Capital on Tuesday afternoon, topping a bid by Ocwen Financial Corp., people attending the auction said.

Nationstar's bid tops a bid of $2.65 billion by Ocwen, whose offer also includes a $24 million break-up fee it would pay to Nationstar as part of the bankruptcy auction. Nationstar had earlier bid $2.64 billion, according to a person familiar with the matter.

The auction started Tuesday morning at the Sheraton New York Hotel and could last multiple days. The figures were from a recent round of bidding in the auction and could be subject to change.

Nationstar, majority-owned by private-equity firm Fortress Investment Group LLC, was designated as the "stalking horse" bidder for ResCap's assets earlier this year by the U.S. Bankruptcy Court.

The companies are competing for ResCap's mortgage-servicing and -origination platform, which includes the rights to service 2.4 million mortgages that account for $374 billion in unpaid balances.

They are the only two bidders competing for the assets, these people said.

ResCap, the mortgage subsidiary of Ally Financial Inc., filed for Chapter 11 bankruptcy protection in May as bond payments loomed and mortgage-securities litigation mounted. Ally, which isn't part of the bankruptcy, hopes to sever itself from those matters so it can focus on repaying a U.S. government bailout that topped $17 billion.

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BANKRUPTCY WEEK AHEAD: ResCap Assets Head to Auction (10/19/12)

By JACQUELINE PALANK

Residential Capital LLC will put its loan-portfolio and mortgage-servicing assets on the block for a bankruptcy court-supervised auction in the upcoming week.

The mortgage servicer has leading bids lined up from Warren Buffett 's Berkshire Hathaway Inc. (BRKA, BRKB) and Nationstar Mortgage Holdings Inc. (NSM) for the assets, which will be sold separately.

Nationstar bid $2.5 billion for the mortgage-servicing platform, slated for a Tuesday auction, while Berkshire on Wednesday will start off the bidding for ResCap's legacy loan portfolio at $1.7 billion.

However, ResCap's attorney recently told a bankruptcy judge there is a chance that the auctions may carry over to Thursday. The winning bids would be subject to court approval at a later hearing, which is scheduled for November.

At stake in the auctions isn't only creditors' ability to be paid but also a $7 million bonus plan for 17 of ResCap's top executives and managers. A bankruptcy judge had denied the original plan out of concern it represented an illegal insider-retention plan rather than a legal incentive plan with tough and meaningful benchmarks.

To pass the judge's muster, ResCap made sure the incentives are payable only in the event the recipients hit clear performance targets.

Certain top executives aren't eligible for bonuses, including Chief Executive Thomas Marano , who faces restrictions under the Troubled Asset Relief Program, the U.S. government's bank-rescue plan launched during the financial crisis. ResCap's parent company, the government-controlled Ally Financial Inc., received more than $17 billion in rescue aid during the financial crisis; it has paid the government $5.7 billion since then.

Speaking of bonuses, a bankruptcy judge on Tuesday is scheduled to review LightSquared's bonus plan for four company insiders.

The plan, which would set aside nearly $6 million in cash bonuses for such insiders as the company's interim chief executive, has so far drawn the ire of LightSquared's lenders and a federal bankruptcy watchdog. These critics have said the plan is an illegal retention plan that tries to mask easily met goals as hard-to-reach benchmarks.

In its request, LightSquared acknowledged using the bonuses to motivate its "irreplaceable employees" to stick with it but also said the payments are tied to cash-preservation goals as well as a resolution of the regulatory issues that have so far thwarted the company's bid to create a wireless broadband network.

LightSquared, which is controlled by hedge-fund manager Philip Falcone , sought Chapter 11 protection in May after federal regulators blocked it from deploying its network. The company recently said it found a way to address regulators' concerns that its network interfered with global positioning systems.

Failed solar company Solyndra LLC will return to court Monday in the continuation of a battle over its creditor-payment plan.

On Wednesday, Solyndra and the U.S. Department of Energy squared off over the latter's objections to the plan and its treatment of the department's $528 million claim.

Solyndra's Chapter 11 plan, if approved by the Wilmington, Del., bankruptcy court, would divide the cash raised by the sale of Solyndra's assets among the company's creditors. But there isn't enough to pay everyone, including the Energy Department.

Still, Solyndra said a recent $1.5 billion antitrust suit it filed could go a long way to boosting creditors' recoveries, including the department's.

Solyndra insists its plan is the only viable option. Its chief restructuring officer, R. Todd Neilson, warned the court Wednesday that failure to win confirmation would deprive the defunct company of the cash it needs to pay its creditors and shelve a settlement that would give $3.5 million to some 800 fired workers.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com.)

--Joseph Checkler and Peg Brickley contributed to this article.

Write to Jacqueline Palank at jacqueline.palank@dowjones.com

http://professional.wsj.com/article/TPDJ00000020121019e8aj0009g.html

ResCap Seeks Change to Ensure Quicker 'Legacy' Loan Sale (10/11/12)

Residential Capital LLC said in court papers it is changing the terms of its $1.45 billion bankruptcy loan to allow it to sell its "legacy" loan portfolio before unloading its mortgage-servicing portfolio, a move that would allow Berkshire Hathaway Inc. (BRKA, BRKB) or a competing bidder to close on a deal for the legacy loans more quickly.

The filing, made Wednesday with U.S. Bankruptcy Court in Manhattan, comes just two weeks before scheduled auctions on the loan portfolios, the proceeds of which will serve as the linchpin to ResCap's exit from bankruptcy. Berkshire is the lead bidder for the legacy loans, which are mortgages that ResCap is holding for sale. Fortress Investment Group (FIG) subsidiary Nationstar Mortgage Holdings Inc. (NSM) is the lead bidder for the mortgages.

ResCap needs court approval for the changes quickly and asked for an expedited hearing on the matter. As part of the request, ResCap said it will pay $2.1 million more in fees to the bankruptcy lender group led by Barclays PLC (BCS, BARC.LN).

The approvals and licenses needed to close the deal on the mortgage portfolio take much longer than the process required to close on the legacy loans, ResCap said. Being able to close the legacy sale will allow it to pay down both the Barclays bankruptcy loan and a separate loan made by government-controlled parent Ally Financial Inc.

ResCap filed for Chapter 11 protection May 14 as bond-related payments loomed and litigation over soured mortgage-backed securities mounted. The move is intended to help Ally, which isn't part of the bankruptcy, sever itself from an estimated $400 million to $1.25 billion in liabilities related to ResCap's troubles.

ResCap earlier this year agreed to sales of its two main loan portfolios with Berkshire and Nationstar as the lead bidders, after initially agreeing to sales of the portfolios to Nationstar and Ally. The sales, which are subject to higher bids, could generate more than $4 billion for ResCap's estate: Berkshire's bid for the legacy loans is $1.7 billion, while Nationstar's bid for the existing mortgage platform is $2.5 billion.

Other bidders have already begun to emerge. Last week, the general counsel of Ocwen Financial Corp. (OCN) told Dow Jones that his company is interested in buying assets from ResCap.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at joseph.checkler@dowjones.com. Follow him on Twitter at @JoeCheckler.

ResCap Creditors Seek Bondholder Collateral Claim Probe (9/25/12)

By Steven Church - Sep 25, 2012 2:35 PM CT

Creditors of bankrupt Residential Capital LLC asked a judge to let them probe, and possibly sue, bondholder trustees Wells Fargo & Co. (WFC) and U.S. Bank NA, a move the creditors say could net “hundreds of millions” of dollars.

When the mortgage company filed bankruptcy in May, it boosted the declared amount of collateral backing bondholder claims by $1.1 billion, to assets worth about $2.4 billion, the official committee of unsecured creditors said yesterday in court papers. ResCap, as the company is known, thus waived its right to challenge the bondholders’ claims to the collateral, creditors said.

“This is a classic situation in which a creditors’ committee is the only independent fiduciary that can properly act for the estates,” the panel said in court papers.

The collateral in dispute includes “restricted cash accounts” containing $39 million, the creditors’ committee said in its 785-page filing.

ResCap, based in New York, filed for bankruptcy with plans to sell most of its assets and to resolve legal claims related to mortgage-backed securities.

Unsecured Creditors
Reducing the amount of collateral backing the bonds might free up money that could go to unsecured creditors.

Nicole Garrison-Sprenger, a spokeswoman for U.S. Bank, didn’t immediately respond to an e-mail requesting comment on the filing. Lisa Westermann, a spokeswoman for Wells Fargo, declined to comment immediately.

ResCap’s 9 5/8 percent bonds due in 2015 rose more than 2 percent to 103.3 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The bankruptcy case is In re Residential Capital LLC, 12- 12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

http://www.bloomberg.com/news/2012-09-25/rescap-creditors-seek-bondholder-collateral-claim-probe.html

Ex-Enron, Chrysler Bankruptcy Judge Named ResCap Examiner (7/03/12)

By David McLaughlin - Jul 3, 2012 4:26 PM CT

Arthur Gonzalez, the former judge who oversaw the bankruptcies of Enron Corp. and Chrysler LLC, was appointed to investigate Residential Capital LLC’s proposal to settle legal claims against parent Ally Financial Inc. (ALLY)

Gonzalez was appointed examiner in ResCap’s bankruptcy case by the U.S. Trustee, a part of the Justice Department that monitors bankruptcy proceedings, according to a court filing today.

U.S. Bankruptcy Judge Martin Glenn in June granted a request from Berkshire Hathaway Inc., the holding company run by billionaire Warren Buffett, for an investigation of ResCap’s proposal to accept $750 million from Ally to settle potential legal liability tied to mortgage-related securities.

ResCap, based in New York, filed for bankruptcy in May with plans to sell most of its assets to Fortress Investment Group LLC. (FIG)

Gonzalez, who retired as a bankruptcy judge on March 1, is a senior fellow at New York University School of Law, where he teaches bankruptcy law, according to a court filing. He said he will charge $750 an hour.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

http://www.bloomberg.com/news/2012-07-03/ex-enron-chrysler-bankruptcy-judge-named-rescap-examiner.html

Fortress to Be First Bidder at ResCap Mortgage-Unit Sale (6/19/12)

Fortress Investment Group LLC (FIG) (FIG) was named lead bidder for the mortgage business of bankrupt Residential Capital LLC, beating out Berkshire Hathaway Inc. (BRK/A) (A), the holding company run by billionaire Warren Buffett.

Fortress last night increased its original offer of $2.4 billion by $125 million, topping Berkshire Hathaway’s bid, ResCap attorney Larren M. Nashelsky told U.S. Bankruptcy Judge Martin Glenn today in Manhattan. Glenn approved New York-based Fortress’ Nationstar Mortgage Holdings Inc. (NSM) (NSM) as the so-called stalking-horse for the auction of ResCap’s most valuable asset, its loan origination and servicing business.

“You had very robust bidding that raised the stalking- horse bidding considerably,” Glenn said.

ResCap, based in New York, filed for bankruptcy May 14 with plans to name Fortress as lead bidder at a court-supervised auction. Omaha, Nebraska-based Berkshire Hathaway challenged Fortress for the right to be the stalking-horse.

Berkshire Hathaway was named stalking-horse for another ResCap auction, involving a portfolio of loans. That auction will begin with Berkshire Hathaway’s offer of $1.45 billion and includes a $10 million breakup fee should the company lose the auction. Berkshire Hathaway can also bid for the mortgage unit.

October Auctions

The auctions may take place in October, said Marshall Murphy, head of investor relations for Nationstar. Under terms of the bankruptcy financing agreement, the sales must close by April 15, Kenneth H. Eckstein, an attorney for the main committee of ResCap’s unsecured creditors, said in court.

ResCap is owned by Ally Financial Inc. (ALLY) (ALLY), a Detroit-based auto lender majority-owned by U.S. taxpayers. Ally supported the decision by ResCap’s board to file bankruptcy because it may help Ally distance itself from the mortgage lender’s losses and help repay a 2008 bailout following the U.S. housing crash and credit crisis.

Ally offered to be the lead bidder for the loan portfolio for $1.4 billion to raise as much money as possible for ResCap, Gina Proia, a spokeswoman for Ally, said in an e-mail today.

Ally ‘Optimistic’

“We continue to be optimistic about the ultimate value ResCap will achieve in the auction process,” Proia said.

Days before ResCap filed for bankruptcy, Berkshire Hathaway offered to buy the company from Ally for $1 and an assumption of all its debts, R. Ted Weschler, a Berkshire Hathaway investment manager, said yesterday in court.

Berkshire Hathaway also offered to split any legal liability Ally might face from lawsuits related to flawed mortgage loans ResCap originated, with Ally paying the first $1 billion, Weschler said.

Berkshire Hathaway has been preparing for a turnaround in the housing market by buying a brick maker, expanding its real estate brokerage and wagering on commercial property through a company jointly owned with Leucadia National Corp. (LUK) (LUK) The venture, called Berkadia Commercial Mortgage LLC, was formed from a loan- servicing and mortgage business purchased out of bankruptcy in 2009 and once owned by ResCap’s parent.

Stalking Horse Advantages

The stalking-horse bidder in a bankruptcy auction has advantages over other bidders that include being entitled to a breakup fee and expense reimbursement should another party win the auction.

The court can require subsequent offers to exceed the stalking-horse bid by a specific amount, often high enough to ward off other potential buyers. The agreements also require the stalking-horse to buy the property in the absence of other offers.

ResCap, Berkshire Hathaway and Fortress were in court yesterday arguing about who should make the first offer for the mortgage business at the auction of the mortgage business.

Berkshire Hathaway was also competing with Ally to be the stalking-horse for the loan portfolio.

Before it filed for bankruptcy, ResCap signed a stalking- horse agreement with Fortress that would have given the company a $72 million breakup fee in the event it lost the auction and reimbursed as much as $10 million in expenses.

Counter-Offer

Berkshire Hathaway countered on June 11 with the same purchase price, a $24 million breakup fee and no expense reimbursement.

When yesterday’s hearing broke for lunch, Fortress raised its offer by $50 million. After lunch, Weschler, the Berkshire Hathaway investment manager, testified that his company would top the Fortress offer by $10 million and cut the breakup fee to $12 million.

When Fortress tried to counter, Glenn declined to hear the offer. Instead he asked the companies to file their final offers with ResCap last night. This morning, ResCap announced that Berkshire Hathaway had increased its offer to $100 million more than its original offer, or about $2.5 billion, and Fortress had boosted its original bid by $125 million.

Glenn agreed with ResCap’s directors that Fortress should be the stalking horse. Fortress was granted a $24 million breakup fee should it lose the auction.

After today’s ruling, ResCap’s 6.5 percent bonds that mature next year rose 4.4 percent to 24 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

http://www.businessweek.com/news/2012-06-19/fortress-to-be-first-bidder-at-rescap-mortgage-unit-sale

Buffett's company to lead bidding for ResCap loans (6/19/12)

OMAHA, Neb. - Warren Buffett's company scored a split decision Tuesday when it was named the lead bidder for Residential Capital's loan portfolio in a bankruptcy court auction. But Berkshire Hathaway Inc. lost to another bidder that will take that role for ResCap's mortgage division.

A New York bankruptcy court judge picked Berkshire's $1.44 billion bid as the lead, or stalking horse, bid for ResCap's loan portfolio.

Nationstar Mortgage, owned by Fortress Investment Group LLC, was named the lead bidder for ResCap's mortgage unit with its $2.45 billion bid.

A stalking-horse bid allows a company selling assets under bankruptcy protect to avoid low-ball bids. Others can later place competing bids, so serving as the stalking horse doesn't guarantee that Berkshire and Nationstar will ultimately acquire the assets.

The judge also approved Berkshire's request to have an outside expert review Residential Capital's dealings with its parent company, Ally Financial, before it filed for bankruptcy protection in May. Berkshire, which owned a significant portion of ResCap's unsecured bonds, requested the review because it alleges billions of dollars of ResCap's assets were transferred to Ally shortly before ResCap sought Chapter 11 bankruptcy protection.

ResCap spokeswoman Susan Fitzpatrick said the company is encouraged by the interest in bidding while it reorganizes.

"We anticipate the appointment of an independent examiner and hope that the work can be undertaken and completed promptly," she said.

Berkshire officials did not immediately respond to a message on Tuesday.

ResCap has been a drag on Ally's finances for years because it has struggled to make payments on its debt ever since the U.S. housing market collapsed in 2007.

Ally, which is 74 percent owned by the U.S. government, makes loans to General Motors Co. and Chrysler customers, and finances dealer inventories. The government first bailed out the company, then known as GMAC Inc., in late 2008 as part of the Bush administration's aid to the auto industry. The Obama administration provided additional funding in 2009.

Fortress came into this week's hearings as ResCap's preferred choice because its executives met with government officials and negotiated with ResCap before it filed for bankruptcy protection. And Fortress' Nationstar Mortgage business has an established servicing unit.

Fortress increased its bid on the mortgage business this week and lowered its breakup fee to secure the favored lead-bidder status.

Nationstar Mortgage officials did not immediately respond to a message on Tuesday.

Berkshire replaced Ally as the lead bidder for ResCap's loan portfolio, but Ally had said it had been a reluctant bidder.

Berkshire could add ResCap's loans to its existing collection of roughly $2.8 billion in mortgage-backed securities that it bought for about $2.5 billion. Berkshire hasn't explained why it wants ResCap's assets, but investors who follow the company believe Buffett is probably just looking to buy assets that are selling for less than they are worth.

Ally spokeswoman Gina Proia said the company had hoped its initial bid for ResCap's loan portfolio would help the company raise a significant amount of money for its reorganization, so Ally was pleased with Berkshire's bid.

"We continue to be optimistic about the ultimate value ResCap will achieve in the auction process," Proia said.

http://www.cnbc.com/id/47881895?__source=RSS*tag*&par=RSS

In Win for Buffett, Judge Approves Examiner in ResCap Bankruptcy

"Morrison & Foerster LLP's Gary S. Lee, a ResCap lawyer, said an investigation already being conducted by ResCap's official committee of unsecured creditors should be sufficient and that an examiner would amount to "two identical investigations into exactly the same issues."

But Judge Glenn agreed with a Berkshire lawyer and the Justice Department's bankruptcy watchdog that the Bankruptcy Code is very clear that an examiner should almost always be appointed when requested.

"I don't think I have unbounded discretion to turn down an examiner motion," Judge Glenn said.

Mr. Lee pointed out that some of the investors represented by ResCap's very own creditors committee are the ones who bought some of the unsecured bonds Berkshire sold in the days after it asked for the examiner."

http://online.wsj.com/article/SB10001424052702303703004577474802295412424.html

Verified Statement of White & Case LLP Pursuant to Federal Rule of Bankruptcy Procedure 2019 (6/14/12)

White & Case represents the Ad Hoc Group, which currently holds approximately $918,781,000.00 million in aggregate face amount of 9.625% Junior Secured Guaranteed Notes due 2015.

http://www.kccllc.net/documents/1212020/1212020120614000000000034.pdf

Simple: The commercial business is working, so why not expand into residential?

I have not yet read anything linking LUK as a potential partner in any ResCap deal. BRK and LUK also teamed up in the FINOVA Group Inc. reorg years ago.

Ranch Capital is also an investor in the Berkadia Commercial Mortgage LLC.

ResCap wins court OK on operations; bidders emerge (6/12/12)

Tue Jun 12, 2012 4:17pm EDT

* Bankruptcy court judge approves payments to employees

* Judge says expects sale procedures at June 18 hearing

* Berkshire Hathaway, Lone Star signal interest in assets

By Caroline Humer

NEW YORK, June 12 (Reuters) - Residential Capital LLC received another round of court approvals on Tuesday that will enable it to operate in bankruptcy, while competing bidders stepped in for its mortgage loan and servicing businesses.

At a hearing in U.S. Bankruptcy Court in Manhattan, Judge Martin Glenn gave final approval to ResCap to allow it to continue paying employees and using its cash to pay other bills.

Glenn also said he still expects to be presented with ResCap's proposed procedures for the asset sales at a June 18 hearing unless the company decides to delay the request.

"I know it's a moving target because additional offers are coming in," Glenn said.

ResCap filed for bankruptcy last month with a plan in place for Nationstar Mortgage Holdings, owned by Fortress Investment Group, to make a $2.4 billion minimum offer for the mortgage servicing assets. Ally Financial, the parent company of ResCap, also agreed to buy a group of ResCap mortgage loans for $1.4 billion. Ally is not in bankruptcy.

Late on Monday, billionaire investor Warren Buffett's Berkshire Hathaway Inc and Lone Star, an investment fund, said in court papers that they would be interested in buying one or both of the businesses. Berkshire is a major creditor of ResCap.

ResCap spokeswoman Susan Fitzpatrick declined to comment on the potential new bidders, as did representatives for Ally and Nationstar. Last week, ResCap CEO Tom Marano told Reuters that other bidders were likely to emerge in the coming weeks.

During the hearing, a lawyer for ResCap's official unsecured creditors committee, Kenneth Eckstein of Kramer Levin Naftalis, described the sales situation as "extremely fluid" and said the committee would need time to consider the new offers. The committee's support is needed for the sales to move forward.

Under its current plan, ResCap has agreed to pay a $72 million breakup fee and a $10 million expense reimbursement to Nationstar if its deal does not close.

It also set a $25 million minimum bid increment for a higher bid. U.S. Trustee Tracy Hope Davis, who represents the U.S. Justice Department, objected to the bid procedures on Monday, saying they would discourage bidders.

Berkshire offered to replace Nationstar as the minimum or "stalking horse" bidder, saying it would cut the breakup fee in half and eliminate the expense reimbursement. It also said it would top Ally's offer for the mortgage loan business by $50 million.

Lone Star said it would be willing to be the stalking horse for the assets now due to go to Ally and would want a breakup fee of $10 million to $20 million.

The case is in re: Residential Capital LLC, U.S. Bankruptcy Court, Southern District of New York, No. 12-12020.

http://www.reuters.com/article/2012/06/12/rescap-bankruptcy-idUSL1E8HC93L20120612

In ResCap Bid, a Savvy Move by Berkshire (6/14/12)

By STEPHEN J. LUBBEN

Breakup fees and bidding procedures in many Chapter 11 cases often have a certain amount of charade to them.

This can be particularly true of so-called 363 sales – when distressed companies sell their assets before a reorganization plan. In such cases, if a bankrupt company isn’t expecting more than one bid, it can offer a big breakup fee to the initial bidder because it does not expect to pay it. A similar reality applies in regard to bidding procedures, a point that was often lost on critics of the General Motors and Chrysler sales, particularly those in academia.

But every now and then, there actually is competitive bidding, like with the proceedings involving Residential Capital, the bankrupt mortgage unit of Ally Financial. The United States bankruptcy trustee already objected to the bidding procedures before the conglomerate Berkshire Hathaway came along to make a bid this week.

The Berkshire bid would trump the current plan to split ResCap into mortgage origination – which the Fortress Investment Group had bid on — and legacy assets, which would go to its parent company, Ally. As part of the deal, Fortress had negotiated a $82 million breakup fee.

Berkshire says it’s willing to take both and get a breakup fee of just $24 million. Berkshire then plans to allow others to make offers, but it has now set the floor for other bidders.

Note that Berkshire wins both ways with this new approach. According to press reports, Berkshire holds some $900 million of ResCap debt. If it can get a good auction going for the ResCap assets, it would increase how much it can recover on that debt. And if it can pick up a $24 million breakup fee in the process, its return is even better.

A cynic might suggest that Berkshire’s pending motion to appoint an examiner to look into ResCap’s transactions with its parent company might also increase the return on Berkshire’s holdings.

If nothing else, the Berkshire bid is a shot across Ally’s bow.

Stephen J. Lubben holds the Harvey Washington Wiley chair in corporate governance and business ethics at the Seton Hall University School of Law and is an expert on bankruptcy.

http://dealbook.nytimes.com/2012/06/14/in-rescap-bid-a-savvy-move-by-berkshire/

Berkshire Hathaway as bidder? No surprise to me!

In March 2006, an investor group led by affiliates of Kohlberg, Kravis Roberts & Co. (KKR), Five Mile Capital Partners, LLC and Goldman Sachs Capital Partners completed the acquisition of a majority interest in GMAC Commercial Holding Corp. The company then changed its name to Capmark Financial Group Inc. (Capmark) and established a new executive team.

In December 2009, Berkshire Hathaway and Leucadia National Corporation (LUK) formed Berkadia Commercial Mortgage in order to acquire Capmark’s North American loan origination and servicing business, creating the company we operate today.

http://www.berkadia.com/default.aspx

ResCap Junior Notes Projected to Get 105 Cents on the Dollar (6/11/12)

By Dakin Campbell - May 15, 2012 11:41 AM CT

Residential Capital LLC, the bankrupt mortgage unit of Ally Financial Inc. (ALLY), could pay 105 cents on the dollar to junior secured guaranteed note holders under in the company’s bankruptcy plan announced yesterday.

The 9.625 percent notes due 2015 are projected to pay out par plus accrued, including 93 cents on the dollar of secured recovery and another 12 cents in unsecured funds, according to a document prepared for bondholders by Houlihan Lokey and obtained by Bloomberg News. The figures used estimated market values as of Dec. 31, 2012, according to the document.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

Declaration of R. Ted Weschler in Support of the Objection of Berkshire Hathaway Inc. to Debtors' Motion Pursuant to 11 U.S.C. §§ 105, 363(b), (f), and (m), 365 and 1123, and Fed. R. Bankr. P. 2002, 6004, 6006, and 9014 for Orders: (A)(I) Authorizing and Approving Sale Procedures, Including Break-Up Fee and Expense Reimbursement; (II) Scheduling Bid Deadline and Sale Hearing; (III) Approving Form and Manner of Notice Thereof; and (IV) Granting Related Relief and (B)(I) Authorizing the Sale of Certain Assets Free and Clear of Liens, Claims, Encumbrances, and Other Interests; (II) Authorizing and Approving Asset Purchase Agreements Thereto; (III) Approving the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases Related Thereto; and (IV) Granting Related Relief (6/11/12)

http://www.kccllc.net/documents/1212020/1212020120611000000000019.pdf

Berkshire Offers to Buy ResCap Assets (6/11/12)

By MICHAEL J. DE LA MERCED

Berkshire Hathaway offered on Monday to buy most of Residential Capital, the bankrupt mortgage unit of Ally Financial, trying again to acquire the business.

In a filing in Manhattan bankruptcy court, Berkshire essentially offered to step in as the preliminary bidder for the mortgage origination and servicing business and a portfolio of loans that are both being put up for auction. That would allow the conglomerate to set the floor for other bids and give it more latitude to match other proposals.

R. Ted Weschler, a top lieutenant to the Berkshire chief Warren E. Buffett, said in the filing that the company would be willing to provide sweeter terms for both assets than the current stalking-horse bidders.

Berkshire would best the current bid by the Fortress Investment Group by reducing a break-up fee by about two-thirds, to $24 million, and forgoing any expense reimbursements. And it would pay about $50 million more for the loan portfolio than Ally itself is offering.

A ResCap spokeswoman declined to comment.

The emergence of other potential buyers was always expected by ResCap. While the initial bids by Fortress and Ally would reap about $4 billion for creditors, the mortgage unit’s management had been counting on other suitors to bid up the price.

ResCap’s Chapter 11 filing last month was a long-awaited step aimed at helping the parent company shed one of the most enduring weights around its neck. While Ally — once known as GMAC, the onetime financing arm of General Motors — has made some progress in rebuilding itself from the collapse of the housing market, its mortgage unit contributed to the lender’s failing of government stress tests this year.

By shedding ResCap, Ally is hoping to clear the path to an eventual initial public offering or sale to repay its taxpayer bailout. The Treasury Department, which has injected about $17 billion into the firm, owns a 74 percent stake and is still owed about $12 billion.

Executives at both Ally and ResCap had expected the Chapter 11 process to face challenges. But one of the most surprisingly vocal opponents has been Berkshire, which at one point owned some ResCap bonds.

Last week, Mr. Weschler moved to have the judge overseeing the case install an independent examiner.

http://dealbook.nytimes.com/2012/06/11/berkshire-offers-to-buy-rescap-assets/

Objection of Berkshire Hathaway Inc. to Debtors' Motion Pursuant to 11 U.S.C. §§ 105, 363(b), (f), and (m), 365 and 1123, and Fed. R. Bankr. P. 2002, 6004, 6006, and 9014 for Orders: (A)(I) Authorizing and Approving Sale Procedures, Including Break-Up Fee and Expense Reimbursement; (II) Scheduling Bid Deadline and Sale Hearing; (III) Approving Form and Manner of Notice Thereof; and (IV) Granting Related Relief and (B)(I) Authorizing the Sale of Certain Assets Free and Clear of Liens, Claims, Encumbrances, and Other Interests; (II) Authorizing and Approving Asset Purchase Agreements Thereto; (III) Approving the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases Related Thereto; and (IV) Granting Related Relief (6/11/12)

http://www.kccllc.net/documents/1212020/1212020120611000000000017.pdf

Berkshire seeking to buy ResCap mortgage unit (6/11/12)

By Joseph Ax

Reuters) - Billionaire investor Warren Buffett's Berkshire Hathaway Inc has offered to buy Residential Capital LLC's mortgage unit, according to court papers filed Monday.

In throwing its hat in the ring, Berkshire Hathaway Inc, Buffett's holding company, is seeking to replace Nationstar Mortgage Holdings, owned by Fortress Investment Group , as the initial bidder for the bankrupt company's mortgage servicing unit.

ResCap, the mortgage unit of Ally Financial, filed for bankruptcy in May with a plan to sell the unit to Nationstar for about $2.4 billion. Ally is the former in-house financing arm for General Motors Co, previously known as GMAC, and is not in bankruptcy.

Berkshire, a major ResCap creditor, also offered to serve as the stalking-horse bidder for a portfolio of loans that ResCap had planned to sell to Ally for approximately $1.4 billion. The stalking-horse, or initial bidder, sets the minimum price, requiring other bidders at the auction to make higher counteroffers.

Bankruptcy Judge Martin Glenn is scheduled to consider the sale procedures on June 18. The auction is set for September, and ResCap CEO Tom Marano told Reuters last week that other bidders are likely to emerge in the coming weeks.

In both cases, Berkshire said it would offer more attractive terms in papers filed in federal bankruptcy court in Manhattan.

Under a proposed deal with ResCap, Fortress would be entitled to a $72 million break-up fee and up to $10 million in expense reimbursement if it failed to win the auction. Berkshire offered to cut the break-up fee to $24 million and to eliminate the expense reimbursement.

Earlier Monday, the U.S. Trustee overseeing the case, Hope Davis, criticized the size of the break-up fee, saying in court papers that it could discourage other bidders from participating. The U.S. Trustee monitors bankruptcy cases to ensure compliance with bankruptcy laws.

Berkshire also topped the proposed bid from Ally, offering $1.45 billion, or $50 million more.

Before the bankruptcy filing, Berkshire made a last-minute offer to buy ResCap assets for $1 in return for taking on its liabilities, according to a source familiar with the situation, who was not authorized to speak publicly about the talks. Ally turned down the offer, the source said.

Spokeswomen for both Ally and ResCap declined to comment on the Berkshire filing. A spokesman for Fortress did not immediately return a request for comment after business hours Monday.

Losses at ResCap, once a major subprime lender, have wounded Ally in recent years. The bankruptcy and sale are intended to give Ally a way to shed its mortgage liabilities as part of an effort to repay U.S. taxpayers for a series of bailouts during the financial crisis.

http://www.reuters.com/article/2012/06/11/rescap-bankruptcy-berkshire-idUSL1E8HBEQV20120611

BRK/A Sells ResCap Bonds Days After Seeking Probe (6/08/12)

By Steven Church on June 08, 2012

Berkshire Hathaway Inc. (BRK/A) (A), the holding company run by the billionaire Warren Buffett, sold its unsecured Residential Capital LLC bonds, two days after calling for a probe of the mortgage lender’s pre-bankruptcy deals.

Ted Weschler, a Berkshire investment manager, disclosed the sale yesterday in a court filing. Berkshire on June 4, asked the judge overseeing ResCap’s bankruptcy in Manhattan to approve an examiner to investigate deals made before the company sought court protection, including transactions with its parent, Ally Financial Inc. (ALLY) (ALLY)

Berkshire, based in Omaha, Nebraska, held more than $500 million of ResCap’s unsecured bonds before the sale. The company sold them on June 5 and June 6, Weschler said, without disclosing prices. Berkshire still holds more than $900 million of ResCap’s junior secured bonds, according to the filing.

Buffett didn’t immediately respond to e-mailed questions sent to an assistant.

An investigation of ResCap’s deals “must be conducted by an impartial examiner appointed by the court,” Berkshire said in court papers.

ResCap, a real estate financing firm based in Minneapolis, filed bankruptcy May 14 with plans to sell most of its assets to Fortress Investment Group LLC. (FIG) (FIG)

Legal Claims

Ally, a Detroit-based bank that specializes in car loans, supported the bankruptcy filing as a way to resolve legal claims related to mortgage-backed securities. Ally is 74 percent-owned by the U.S. Treasury after receiving a bailout.

Prices for three of ResCap’s unsecured bonds rose on June 5 after Berkshire asked for an investigation, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Yesterday and today, those same bonds fell. The 6.5 percent bonds that matured on June 1 dropped more than 7 percent. The 6.5 percent bonds maturing next year fell 16 percent. And the 6.875 percent bonds fell almost 12 percent. All were selling for 17.6 cents on the dollar, according to Trace.

U.S. Bankruptcy Judge Martin Glenn in Manhattan hasn’t ruled on Berkshire’s request. Glenn gave unsecured creditors permission to investigate deals that the bankrupt mortgage company made to help Ally avoid billions of dollars of potential legal liability.

Approval’s Effect

His approval gives company lawyers permission to interview witnesses under oath and subpoena documents.

The committee’s request to look into the deals is routine in large corporate bankruptcies. Berkshire’s is rarer. Results of such investigations are usually given more weight by judges because they are considered independent.

ResCap filed for bankruptcy May 14 with plans to sell most of its assets to Fortress Investment Group LLC. Ally, supported the bankruptcy filing as a way to resolve legal claims related to mortgage-backed securities. Ally is 74 percent owned by the U.S. Treasury after receiving a bailout.

ResCap has proposed dispensing with potential lawsuits against Ally as part of the sale of mortgage loans and other financial assets to its parent company.

Ally agreed to pay ResCap $750 million to settle any claims against the parent, buy as much as $1.6 billion of securities if others don’t, and provide $150 million to help finance ResCap’s operations during bankruptcy, according to a company statement.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

FINRA Reported Trades of Unsecured Bonds from 6/05/12-6/06/12:

Issue: RDCC.GO
Coupon Rate: 8.500
Maturity Date: 06/01/2012

http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/BondTradeActivitySearchResult.aspx?StartDate=06/05/2012&EndDate=06/06/2012&SelectionOption=2&TradeSize=&SortBy=0&ID=NzYxMTRFQUM2

Issue: RDCC.GK
Coupon Rate: 8.500
Maturity Date: 04/17/2013

http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/BondTradeActivitySearchResult.aspx?StartDate=06/05/2012&EndDate=06/06/2012&SelectionOption=2&TradeSize=&SortBy=0&ID=NzYxMTNCQVIw

Issue: RDCC.GE
Coupon Rate: 8.875
Maturity Date: 06/30/2015

http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/BondTradeActivitySearchResult.aspx?StartDate=06/05/2012&EndDate=06/06/2012&SelectionOption=2&TradeSize=&SortBy=0&ID=NzYxMTNCQUU5

The vast majority of the trades detailed in the links above were $1MM+. I am highly confident some hedge funds now have a little more to work with going forward.

Berkshire sold its unsecured bonds.

"... on June 5 and 6, 2012, Berkshire executed trades and sold its holdings of unsecured bonds issued by Residential Capital, LLC ("ResCap")."

http://www.kccllc.net/documents/1212020/1212020120607000000000013.pdf

ResCap Chief Expects Competing Bids for Mortgage Assets (6/07/12)

Nationstar Mortgage Holdings Inc. (NSM) will likely face competition in its pursuit of Residential Capital LLC's mortgage assets, the bankrupt lender's chief executive said Thursday.

Also, ResCap isn't concerned that creditor demands for an independent examiner to review transactions between the lender and its parent, Ally Financial Inc., would yield any "surprises," Thomas Marano, chairman and chief executive officer of ResCap, said in an interview.

ResCap, once one of the country's largest subprime mortgage lenders, proposed selling servicing rights to $374 billion of mortgages and other assets to Nationstar last month in a $2.4 billion deal. The plan was included as part of ResCap's Chapter 11 bankruptcy filing May 14.

Nationstar's "stalking horse" bid is subject to other offers, which could come from competing mortgage servicer Ocwen Financial Corp. (OCN) and several private-equity firms, Mr. Marano said.

Mr. Marano said he had heard Ocwen plans to file a competing bid, and "some of the private-equity funds are looking to come in as well."

"My gut is you're going to see some of the typical" names, Mr. Marano said, declining to name specific private-equity firms that he expects to make bids.

Apollo Global Management LLC (APO), BlackRock Inc. (BLK), Blackstone Group LP (BX) and TPG would be logical bidders for ResCap assets, a person familiar with the matter said.

Ocwen is interested in bidding on ResCap's assets, John Britti, chief financial officer of the mortgage servicer, wrote in an email Thursday.

"Based on the pricing we have seen in the bankruptcy filing, we see value," Mr. Britti wrote. "We also believe that creditors and regulators are likely to prefer seeing the portfolio broken into parts."

The assets Nationstar is bidding on include servicing rights to $201 billion of mortgages and subservicing rights to $173 billion of mortgages. Nationstar, which is majority owned by Fortress Investment Group LLC (FIG), and other Fortress affiliates plan to pay a cash price of $700 million for the servicing rights and subservicing contracts.

Nationstar is set to receive up to $82 million in breakup and reimbursement fees if it is not the winning bidder.

Ocwen, like Nationstar, has been bulking up its operations as traditional lenders exit the mortgage-servicing business due to upcoming changes in capital requirements and increased regulatory scrutiny.

Spokesmen for Apollo and Blackstone declined to comment. Representatives for BlackRock and TPG didn't immediately respond to requests for comment.

ResCap is proposing a Sept. 14 deadline for rival bids. If it receives any, an auction would be set for Sept. 25 at the Manhattan office of Morrison & Foerster LLP, ResCap's bankruptcy counsel. ResCap hopes to have a sale hearing by the end of October.

The company will ask a judge to approve its auction procedures at a June 18 hearing.

Despite potential competition, Nationstar is "uniquely qualified to do this deal," Mr. Marano said. "I do feel they are the best counterparty" for the government-sponsored enterprises.

Mr. Marano has led ResCap since 2008 and was previously a managing director for Cerberus Capital Management LP, which owns an 8.67% stake in Ally. He also was a senior managing director and head of mortgage and asset-backed securities at the former Bear Stearns & Co. Inc.

Nationstar, which is majority owned by Fortress Investment Group LLC (FIG), is in the process of integrating a $63 billion servicing portfolio it is acquiring from Aurora Bank, which was part of Lehman Brothers Holdings Inc. On Monday, Nationstar said it was acquiring the servicing rights to $10.4 billion of mortgages from Bank of America Corp. (BAC).

A spokesman for Nationstar declined to comment.

Creditors are seeking to investigate how the proposed deal was structured as well as transactions ResCap and Ally conducted in prior years.

Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB), one of ResCap's largest creditors, Monday filed a motion to appoint an independent examiner to review the companies' relationships before and after the bankruptcy. Among the transactions Berkshire wants examined is Ally's acquisition of ResCap's ownership stake in the holding company for Ally Bank in 2009.

"This and other transactions may give rise to various potential claims that Ally and affiliates have harvested assets from ResCap and seek a quick and easy divorce through bankruptcy," Berkshire said in its motion, which will be heard on June 18 before Judge Martin Glenn.

If the judge approves the appointment of an examiner, "we'll be fine with it," Mr. Marano said.

"I am confident that this company was operated in a separate and distinct manner," Mr. Marano said. "We got fairness opinions on all the meaningful transactions, and I don't think there's going to be anything...problematic."

A spokeswoman for ResCap declined to say whether it plans to oppose Berkshire's motion.

Ally is also seeking a release from third-party claims over soured mortgage investments as part of ResCap's bankruptcy in an effort to sever itself from costly litigation that has prevented it from paying back a government bailout.

Mortgage insurers and investors have filed 27 lawsuits against affiliates of ResCap that are not part of the bankruptcy, including Ally Financial, Ally Bank and Ally Securities, ResCap said in a court filing last month. ResCap is seeking to delay suits against those parties, which it said would preserve the value of its estate.

Ally, the former in-house financing arm for General Motors Co. (GM), still owes $12 billion from a bailout it received during the financial crisis that topped $17 billion. It remains 74%-owned by the U.S. government.

Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com

Copyright © 2012 Dow Jones Newswires

Berkshire Seeks Court Examiner to Probe ResCap Deals (6/05/12)

By Steven Church - Jun 5, 2012 1:15 PM CT

Berkshire Hathaway Inc. (BRK/A), the holding company run by billionaire Warren Buffett, asked a judge to appoint an examiner to investigate deals Residential Capital LLC made before it filed bankruptcy.

Berkshire said yesterday in a court filing that it agrees with the official committee of unsecured creditors, which last week asked for permission to investigate ResCap’s transactions with its parent, Ally Financial Inc. (ALLY) U.S. Bankruptcy Judge Martin Glenn approved the committee’s request today. Berkshire went one step further by seeking an independent probe.

“That investigation must be conducted by an impartial examiner appointed by the court,” Berkshire said in court papers. “Investigating potentially improper prepetition transactions between a debtor and its affiliates, and evaluating potential claims arising from those transactions, are quintessential duties of a bankruptcy examiner.”

Berkshire holds more than $500 million of ResCap’s unsecured bonds and more than $900 million of its junior secured bonds, according to the filing. Berkshire, which owns the bonds directly and through affiliates, bought the debt more than two years ago, Ted Weschler, a company investment manager, said in court papers.

Bonds Gain

Three of ResCap’s unsecured bonds rose following the news. The company’s 6.5 percent bonds that matured on June 1 climbed 23 percent to 19 cents on the dollar, the 6.5 percent bonds maturing next year rose 11 percent to 21 cents on the dollar, and the 6.875 percent bonds gained 8.1 percent to 20 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

On June 1, unsecured creditors asked Glenn for permission to investigate deals that the bankrupt mortgage company made to help Ally avoid billions of dollars of potential legal liability. His approval in Manhattan gives the committee’s lawyers permission to interview witnesses under oath and subpoena documents.

The committee’s request to look into the deals is routine in large corporate bankruptcies. Berkshire’s is rarer. Results of such investigations are usually given more weight by judges because they are considered independent.

ResCap filed for bankruptcy May 14 with plans to sell most of its assets to Fortress Investment Group LLC. (FIG) Ally, a Detroit- based bank that specializes in car loans, supported the bankruptcy filing as a way to resolve legal claims related to mortgage-backed securities. Ally is 74 percent-owned by the U.S. Treasury after receiving a bailout.

Ally Purchase

ResCap has proposed dispensing with potential lawsuits against Ally as part of the sale of mortgage loans and other financial assets to its parent company. Ally agreed to pay $750 million to ResCap to settle any claims against the parent, purchase as much as $1.6 billion of securities if others don’t, and provide $150 million to help finance ResCap’s operations during bankruptcy, according to a company statement.

Thirty-two of the company’s 33 biggest unsecured claims were related to active or potential mortgage-securities litigation, according to court papers. ResCap didn’t give a value for the claims and said it disputes all of them.

Susan Fitzpatrick, a spokeswoman for ResCap, and Gina Proia, a spokeswoman for Ally, declined to comment on the filing.

Berkshire Pursuit

Berkshire sought to buy ResCap from Ally before the government-owned company put the home lender in bankruptcy, three people familiar with the matter said last month.

Berkshire would have paid almost nothing up front for the assets, while taking on potential liabilities such as mounting litigation costs and other claims, the people said. Buffett sought to avoid a ResCap bankruptcy filing because Berkshire had unsecured debt in the mortgage unit, according to the people. Ally turned down the Berkshire proposal after deciding that a bankruptcy filing and sale better protected the company from future liabilities, the people said.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

http://www.bloomberg.com/news/2012-06-05/berkshire-seeks-court-examiner-to-probe-rescap-deals.html

Fortress Seeks Servicing Rights From $4 Trillion Sale: Mortgages (5/23/12)

By John Gittelsohn - May 23, 2012 9:34 AM CT

Fortress Investment Group (FIG), whose funds own 77 percent of mortgage servicer Nationstar Mortgage Holdings Inc., is leading the race for $4 trillion in home loan collection rights as banks exit the business.

Nationstar is positioned to become the largest non-bank residential loan servicer by the end of this year with rights of $550 billion, according to Chief Executive Officer Jay Bray. Over the next five years, lenders are expected to sell $4 trillion in servicing rights on the $10 trillion U.S. mortgage market as they seek to avoid new regulations and reduce damage to their reputations, according to a presentation from New York- based Fortress obtained by Bloomberg News.

“The major servicers created a disaster and these guys are fixing it,” Henry Coffey Jr., an analyst with Sterne Agee & Leach Inc. who rates Nationstar (NSM) a buy, said in a telephone interview. “They’re buying from people who want out.”

Nationstar, based in Lewisville, Texas, added $36.3 billion to its servicing portfolio in the first quarter from a year earlier, exceeding the $33.2 billion gain for market leader Wells Fargo & Co., according to trade publication Inside Mortgage Finance. That took the portfolio to $103.3 billion.

The company has also agreed to acquire $437 billion in new servicing rights deals: $63 billion coming on its books this month from Aurora Bank FSB, a unit of defunct Lehman Brothers Holdings Inc., and $374 billion from Residential Capital LLC, a division of Ally Financial Inc. (ALLY), expected to close by yearend.

Monthly Fees
Mortgage servicers earn monthly fees ranging from about 25 to 35 basis points, or 25 cents to 35 cents per $100 in unpaid balance of the loans, according to the confidential Fortress presentation. They handle billing and collections for mortgages, as well as work related to troubled loans, such as foreclosures and loan modifications. Investors can expect unlevered gross returns of 15 to 20 percent before management fees, the presentation said.

Nationstar, Fortress and the New York-based private-equity firm’s Newcastle Investment Corp. (NCT) offered $2.3 billion for the ResCap rights, ResCap Chairman and Chief Executive Officer Thomas Marano said in an interview this month. While other companies can still bid for the ResCap portfolio, they would have to pay Nationstar a $72 million breakup fee on top of a higher price for the rights under the terms of the offer, called a stalking horse bid.

“Our confidence factor that this deal goes to Nationstar is 75 to 85 percent,” Coffey said in an interview from his office in Nashville, Tennessee.

Outmaneuvered Rivals
Fortress’s acquisitions of Aurora and ResCap outmaneuvered rival non-bank mortgage servicers vying for mortgage pools that decline in revenue like a “melting ice cube” as borrowers refinance or sell their homes, Coffey said.

Billionaire Warren Buffett sought to buy ResCap before the company, which is majority-owned by the U.S. government, filed for bankruptcy, three people with knowledge of the matter said last week. Ocwen Financial Corp. (OCN), which had $95 billion in servicing rights at the end of the first quarter, was outbid for the Aurora portfolio by Nationstar.

“I really can’t comment specifically on what Nationstar was thinking in their bid there,” Ocwen Chief Executive William Erbey said about Nationstar’s Aurora deal during a May 3 earnings conference. “But it did very much surprise us.”

The unpaid balance of mortgages in the U.S. peaked in the first quarter of 2008 at $11.24 trillion and declined to $10.29 trillion at the end of last year as home values declined and borrowers paid down debt, according to data compiled by the Federal Reserve.

Wells Increases Lead
The largest mortgage lenders -- Wells Fargo & Co. (WFC), Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) -- controlled 50.3 percent of the servicing market at the end of the first quarter, down from 54.2 percent a year earlier, according to Inside Mortgage Finance. Servicing rights at Bank of America, JPMorgan and Citigroup fell a combined $545 billion, or 14 percent, in the past 12 months.

Wells Fargo, the largest originator of mortgages, increased its market share lead, as the biggest banks eschewed new business that brings servicing rights with it.

Banks are reducing their loan-servicing portfolios to meet capital requirements proposed under the Basel III accord. The new regulation forces banks to hold more capital against mortgage servicing rights that exceed 10 percent of tier 1 capital, a measure of high-quality, loss-absorbing reserves that banks must hold against risky assets.

House Prices
With U.S. housing prices down 35 percent from their July 2006 peak, the largest U.S. banks have booked more than $72 billion in losses tied to faulty home loans and foreclosures, including more than $40 billion by Bank of America alone.

Banks are also cutting servicing portfolios because their reputations have suffered from complaints about their management of delinquent borrowers, Ocwen Chief Financial Officer John Britti said.

In February, the five largest servicers agreed to pay $25 billion to settle allegations they used faulty or forged paperwork to seize homes from delinquent borrowers. Under the agreement, servicers must foot more of the cost of homeowner loan modifications and refinancing and compensate people who lost property in wrongful foreclosures.

“To the extent that they can’t do as good a job as they’d like, it harms their reputation,” Britti said in a telephone interview. “So they’d prefer to get a subservicer or sell the servicing to somebody who can do a better job.”

Ocwen Acquires
Ocwen, an Atlanta-based specialist in servicing distressed commercial and residential loans, is purchasing $10.7 billion of servicing rights from Bank of America, according to a May 22 regulatory filing. The contracts are tied to 53,100 mortgage loans owned by a government-sponsored agency with the transfer expected in June.

It also acquired rights in April to service $30.3 billion in loans from JPMorgan and Saxon Mortgage Services Inc., a former unit of Morgan Stanley. (MS) Last year, it paid Goldman Sachs Group Inc. (GS) $263.7 million for rights to Litton Loan Servicing LP’s $51.2 billion mortgage portfolio.

Foreclosure filings, including notices of default and bank repossessions, plunged in April to their lowest level since July 2007, RealtyTrac Inc. reported May 17, as a housing recovery started to take hold and as servicers delayed filings while trying to comply with the nationwide settlement. A decline in foreclosure filings won’t threaten business for Ocwen or other loan servicers that earn higher fees for handling distressed mortgages, Britti said.

“Unfortunately for this country, there’s plenty of bad loans to go around,” he said.

Earnings Fluctuate
While mortgage-servicing fees provide a steady revenue stream, the firms’ earnings fluctuate depending on the cost of acquiring and administering portfolios, according to Bray. Nationstar reported first quarter net income of $50.2 million, or 67 cents, a share on May 15. Earnings are expected to fall to 35 cents in the quarter ending June 30, the median estimate of six analysts surveyed by Bloomberg.

Nationstar fell 2.6 percent to $16.40 as of 10:29 a.m. in New York trading. It’s risen more than 17 percent since pricing shares at $14 in a March 7 initial public offering.

Fortress shares dropped 0.7 percent to $3.02 and have declined 8.1 percent this year including reinvested dividends. They’re down more than 80 percent since its February 2007 initial public offering, when the company sold stock at $18.50 a share to become the first U.S.-listed buyout and hedge-fund manager.

Mortgage Economics
One potential challenge is how servicing-fee reductions under review by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, will affect the value of mortgage-servicing rights, according to a report by Bose George, an analyst with Keefe, Bruyette & Woods Inc.

“While we do not believe that lower servicing fees would directly impact the economics of the mortgage business, it could still change the structure of the industry in very meaningful ways,” George wrote in the April 17 report. “There could be increased earnings volatility as servicing earnings would fall sharply.”

PHH Corp. (PHH), the largest non-bank servicer with $149.7 billion in unpaid principal balance at the end of the first quarter, reported a $26 million first quarter loss on its mortgage-servicing unit, driven by requests from Fannie Mae and Freddie Mac to repurchase loans that defaulted because of alleged misrepresentations.

“We expect repurchase requests and foreclosure costs to remain high during 2012 and potentially into 2013,” Mount Laurel, New Jersey-based PHH said in a May earnings statement.

PHH Expansion
PHH continues to expand into mortgage servicing, which accounted for about one-fourth of the company’s revenue in fiscal 2011, increasing its portfolio 4.9 percent from a year earlier. On May 7, it acquired subservicing rights to $52 billion of loans from HSBC Bank USA. A subservicer handles work for a servicer on a contract basis, without being directly responsible to the ultimate investor or bank.

This “allows us to generate additional revenue through our servicing platform, without the capital intensity or repurchase risk,” Dico Akseraylian, a PHH spokesman, said in an e-mail.

The number of companies vying for the servicing business is limited because it requires ability to manage interactions with large numbers of borrowers, Coffey said.

“You can’t board a $100 billion servicing portfolio if you’re some yahoo,” he said. “We see growth and momentum with special servicers acquiring by the shipload.”

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net; Rob Urban in New York at robprag@bloomberg.net

http://www.bloomberg.com/news/2012-05-23/fortress-seeks-servicing-rights-from-4-trillion-sale-mortgages.html

ResCap's Chapter 11 Filing:

http://www.scribd.com/doc/93471850/ResCap-s-Chapter-11-Filing

Ally’s Mortgage Unit, ResCap, Files for Bankruptcy (5/14/12)

By MICHAEL J. DE LA MERCED

The mortgage unit of Ally Financial filed for bankruptcy on Monday morning, a move aimed at removing the lender’s biggest obstacle to its turnaround efforts.

The division, Residential Capital, sought Chapter 11 protection in federal court in Manhattan. In a news release, ResCap emphasized it would continue its daily operations without interruption, including servicing home loans.

ResCap has cast a long shadow over its parent company. The unit was considered a primary reason Ally failed the Federal Reserve’s stress test of banks earlier this year.

The mortgage division’s long-awaited filing could lift the biggest weight from Ally, which has sought to focus on its profitable bank and auto finance operations. ResCap’s filing is meant to end years of payouts, totaling billions of dollars, aimed at keeping the business afloat.

It could also allow the lender to reconsider going public, helping the federal government to shed some of its 74 percent stake. The Treasury Department injected about $17 billion into the company, previously known as GMAC, through three rounds of investments. It is still owed about $12 billion.

Timothy G. Massad, the Treasury Department’s assistant secretary for financial stability, said in a statement: “While it is unfortunate that a Chapter 11 filing became necessary for ResCap, we believe that this action puts taxpayers in a stronger position to continue recovering their investment in Ally Financial.”

The division will be kept afloat during its bankruptcy case by a $1.45 billion loan arranged by Barclays and a $150 million credit line from Ally.

“Since we are owned by the government, and our shareholders are American taxpayers, putting billions of dollars into a marginal business didn’t make a lot of sense,” Michael A. Carpenter, Ally’s chief executive, told DealBook in an interview by phone.

As part of the transaction, the Fortress Investment Group will bid more than $2.4 billion for most of ResCap’s assets, while Ally will bid for a $1.6 billion portfolio of mortgages. The two offers will essentially kick off a court-supervised auction of the mortgage division’s assets, which could ultimately raise more than the expected $4 billion in proceeds.

In an unusual move, Ally and ResCap said they had reached a global settlement of claims between the two. Under the terms of the agreement, Ally will provide its subsidiary with $750 million in cash to help the unit pay for potential legal claims.

The pact is aimed at cutting off any argument that Ally should cover legal claims at the subsidiary. The lender is expected to contend that ResCap has long operated as an independent unit, with its own board, and that the settlement should shield it from any additional payouts.

To help smooth out the bankruptcy proceedings, ResCap has reached agreements with a group of bondholders that currently owns about $781 million of the unit’s debt, as well as plaintiffs suing the business over 290 mortgage-backed securities put together by ResCap.

Ally has long identified ResCap as one of its biggest problems. The mortgage unit, formally created in 2005, became one of the biggest subprime mortgage lenders in the country and was hit especially hard by the financial crisis.

Under Mr. Carpenter, a former senior executive at Citigroup, Ally has largely rebounded by focusing on its popular online lending arm and remaining a major lender to car dealers. Last month, it reported that first-quarter net income had more than doubled, to $310 million.

Ally added on Monday that, with ResCap now in Chapter 11, it would pursue a potential sale or spinoff of its international operations, which include businesses in Canada, Europe and South America.

It is meant to generate proceeds to help pay down the firm’s obligations to the federal government. Freed from obligations tied to ResCap, Ally may be free to pursue an initial public offering, a sale to a private equity firm or some other kind of transaction.

“We are committed to repaying the U.S. taxpayer,” Mr. Carpenter said. He later added, “The company that remains will be a powerhouse.”

http://dealbook.nytimes.com/2012/05/14/allys-mortgage-unit-rescap-files-for-bankruptcy/