The struggling mortgage unit of Detroit-based Ally Financial Inc. has filed for bankruptcy. The Board of Directors voted to file for Chapter 11 protection along with fifty (50) of its subsidiaries.
ResCap’s mortgage origination, servicing and other business activities, conducted through its subsidiaries, including GMAC Mortgage, will continue to operate as the Chapter 11 proceeds.
“The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,” said Ally Chief Executive Officer Michael A. Carpenter.
“This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100 percent of its energies on further strengthening its already leading U.S. auto finance and direct banking franchises.”
The bankruptcy could pave the way for Ally to revive plans for an initial public offering, which were halted last year as mortgage woes weighed on the company, delaying efforts to pay back a government bailout of more than $17 billion.
General Motors sold a majority interest in Ally, once its financing arm, in 2006. By the time of the auto bailouts, Ally was seen as a crucial part of the Obama administration’s rescue of G.M. and Chrysler, given its role as a key source of buyer and dealer financing.
Ally Financial was founded in 1919 as the General Motors Acceptance Corp. (GMAC), a provider of financing to automotive customers. Over the years, GMAC expanded into insurance, direct banking, mortgage operations and commercial finance. A 51% stake was spun off to Cerberus Capital Management in 2006. It changed its name to Ally in 2010.