Mortgage company Residential Capital LLC has filed a Chapter 11 petition today in U.S. Bankruptcy Court in Manhattan, listing at least $1 billion each in liabilities and assets. The company originates and services residential mortgages. Its parent Ally Financial Inc. is attempting to repay a U.S. government bailout.
Companies generally file for bankruptcy under the Chapter 11 of the U.S. Bankruptcy Code in order to maintain operations, reduce debt and exit court protection. Ally Chief Executive Officer Michael A. Carpenter stated that ResCap's action will allow the parent company to have a permanent solution to its "legacy mortgage risks" and to bring these matters behind.
Ally is the former GMAC subsidiary of General Motors that focuses in automobile loans and dealer floorplan financing. The U.S. Treasury owned 74% of Ally after receiving $17.2 billion in government bailout.
In 2010, the Treasury was not able to find a purchaser for ResCap. Carpenter had stated that an initial public offering for Ally would not commence without progress on a resolution for ResCap. The mortgage company's board voted to declare bankruptcy and organize a sale to Nationstar Mortgage Holdings Inc. and Fortress Investment Group LLC for around $2.3 billion, ResCap CEO and Chairman Thomas Marano revealed in an interview.
Fortress owns a majority of Nationstar, which will purchase a portfolio of servicing assets and a mortgage-origination unit. The business operations will proceed without interruption, Marano assured. Mortgage servicers will be responsible for billing, foreclosures and collection. Ally will offer $150 million to aid in the financing of ResCap's operations during bankruptcy, according to a statement. The vehicle lender also consented to buy $1.6 billion of securities if others will not.