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Servicing

Nationstar deal to buy ResCap comes with AG settlement strings

Nationstar Mortgage Holdings (NSM) agreed to assist Ally Financial in the robo-signing consent order and settlement if its bid to purchase Residential Capital goes through, according to a financial filing Wednesday.

Ally placed its independent mortgage subsidiary ResCap into bankruptcy this week, costing the parent bank roughly $1.3 billion in the second quarter. As part of the restructuring plan, Nationstar, with some investment from Newcastle Investment Corp., made a stalking-horse bid to acquire $374 billion in mortgage servicing rights. If the deal does not close by December, Nationstar can withdraw the bid.

In March, a judge approved a settlement between Ally, federal prosecutors and 49 state attorneys general over alleged foreclosure abuses and mishandled documentation. (Oklahoma didn't sign the deal.)

Ally, which is still owned in large part by the federal government, agreed to pay $110 million in fines to state and federal governments. It must also provide $200 million in consumer relief, which includes principal reduction, refinancings and other workouts.

Ally also entered into a consent order with the Federal Reserve over the same violations in April 2011. As part of that consent order, Ally began reviewing foreclosures completed in 2010 and 2011 to provide remediation to borrowers victimized by the robo-signing scandal.

"(Nationstar) also agrees to use its commercially reasonable efforts to cooperate with and assist (Ally, ResCap) and their counsel and other advisers with foreclosure review obligations under the consent order and the reporting and oversight program with respect thereto as such obligations are finally approved by the (Federal Reserve) and other obligations under the (Justice Department/AG) settlement regarding the compliance with the soft dollar menu options relating to providing borrower assistance," Nationstar said in a filing Wednesday.

As part of the deal, Ally would pay any costs, including remediation or monitoring payments, Nationstar said.

According to a spokesman for Iowa Attorney General Tom Miller, each of the top five mortgage servicers already paid their settlement penalties into a trust fund.

AG backstop

To some, how each firm will handle duties under the settlement and consent order remains muddied. ResCap Chief Financial Officer James Whitlinger attempted to clear up the issue in a bankruptcy affidavit filed this week.

"(Ally) is committed to maintain servicing functions under recent settlements with the U.S. government and various state officials," Whitlinger said. "I believe that maintaining the (Ally's) servicing functions in accordance with these government mandates will help assuage borrower concerns regarding the status of their mortgage obligations, assure current and future loan applicants that their mortgage loans will be properly administered, and assure investors that their investments (and related collateral) will be properly managed."

Servicers receive more credit for relief provided in the first year of the settlement, which would account for most of the time the ResCap bankruptcy process would last. Whitlinger said Ally began soliciting eligible borrowers already, but no modifications had been provided as of March 31.

Miller and the other AGs built language into the consent judgments in anticipation of a ResCap sale or bankruptcy. In fact, as part of the settlement, Ally agreed not to sell ResCap unless it could ensure the obligations of the agreement could be fulfilled.

"The ResCap parties will ensure the continued performance of their obligations under the consent judgment, including requiring any successor or purchaser of substantially all the assets ... of a ResCap party to honor and perform the obligations (in the case of a purchase or other acquisition of assets, to honor and perform the obligations with respect to those assets) under the consent judgment," according to the settlement approved in March.

Also, the purchaser -- in the likely case Nationstar -- cannot "be obligated to pay any of the amounts owed by the ResCap parties or (Ally) under the consent judgment."

Future plans

Nationstar agreed to pay roughly $2.4 billion for the ResCap servicing rights and origination platform. It expects to enter into a $1.6 billion financing facility to handle the servicing advances on the loans to investors going forward.

Fannie Mae, Freddie Mac or Ginnie Mae guarantees 68% of the loans in the portfolio. All three would have to approve the sale.

Ally said it would maintain some mortgage lending and servicing capabilities at Ally Bank, but it intends to use ResCap as a subservicer during the bankruptcy process.

Ally executives said they would sell $1.3 billion in Ally Bank mortgage servicing rights as part of its wind down after the process is complete.

"Between Nationstar and ResCap you have 7,300 U.S.-based jobs focused on mortgage modifications and mortgage refinancing, and I think both companies demonstrate a commitment to high quality customer service," said ResCap CEO Tom Marano in an interview with HousingWire.  "What makes the Nationstar bid attractive is it is a U.S.-based workforce, and the sale could be the beginning of the return of private capital into the market."

Still, Ally CEO Michael Carpenter told investors in a conference call Tuesday that there are still some companies who could make bids on the ResCap servicing rights.

The bankruptcy plan and sale are still pending, and Miller's spokesman said it was difficult to predict where specific obligations would land, because the fate of the Ally mortgage business remained so murky.

"It's easier to address the present, and at this stage there is no impact," the Iowa AG spokesman said. "I will note that during our final negotiations we anticipated a bankruptcy filing and tailored the GMAC consent judgment to reflect the company's then-present legal situation and then-anticipated contingencies."

jprior@housingwire.com

@JonAPrior

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