Risk & Compliance

Ally Financial Fined $52M Over MBS Marketing

U.S. authorities say an Ally subsidiary marketed mortgage bonds even though it knew a "significant percentage" of the underlying subprime loans was...
Matthew HellerNovember 22, 2016
Ally Financial Fined $52M Over MBS Marketing

Ally Financial has agreed to pay $52 million to resolve a federal investigation that found a subsidiary marketed residential mortgage-backed securities despite knowing the underlying loans were toxic.

The misconduct involved 10 subprime RMBS offerings in the RASC-EMX series between 2006 and 2007 for which Ally Securities LLC served as the lead underwriter responsible for ensuring samples of the underlying loans complied with disclosure to investors.

According to the U.S. Department of Justice, Ally marketed the securities even though it knew a “significant percentage” of the pooled mortgages were underwritten to risky guidelines likely to result in the loans becoming delinquent.

Investors lost millions of dollars after loans backing the RASC-EMX bonds fell delinquent. Ally, best-known as an auto lender, received more than $17.2 billion in federal bailout funds under the TARP program.

As part of a settlement announced Monday, Ally Financial will pay a civil penalty of $52 million and immediately discontinue the operations of Ally Securities.

“With this agreement, Ally acknowledges that the underwriting and diligence process was deficient in connection with the securitization of 40,000 toxic subprime mortgage loans by its subsidiaries — exactly the type of abuse that contributed to the financial crisis,” Christy Goldsmith Romero, the Special Inspector General for TARP, said in a news release.

The DoJ said Ally Securities recognized in 2006 and 2007 that there was a “consistent trend of deterioration” in the quality of the pooled mortgages underlying the RASC-EMX Securities that stemmed, at least in part, from deficiencies in the underwriting guidelines and diligence applied to the collateral prior to securitization.

“These securities were marketed to investors with the knowledge that a significant percentage of the pooled subprime mortgages were toxic,” said Eileen Decker, the U.S. Attorney for the Southern District of California.

“Nevertheless, Ally Securities continued to market the RMBS, and investors lost millions of dollars as the value of the securities plummeted,” she added.