Residential Capital struck one deal with a large group of its mortgage-backed securities investors and is attracting agreement from others.
The parent company Ally Financial placed ResCap into bankruptcy Monday after a meeting among top executives, creditors and attorneys the night before.
"We really at that point concluded that anything we looked at in the past, meaning a sale of the business or a sale of the assets would have been unproductive given the amount of debt we had on the horizon and the number of litigation claims that were beginning to pile up," said Tom Marano, CEO of mortgage operations at Ally, in an interview.
ResCap settled with 17 mortgage bond investors represented by Kathy Patrick, an attorney with the Houston firm Gibbs & Bruns. The deal grants $8.7 billion in claims tied to 392 MBS trusts issued between 2004 and 2008.
The deal settles claims of representation and warranty contract breaches, and the investors agreed to support the ResCap reorganization.
"Our clients are pleased that another financial institution has acknowledged the importance of resolving mortgage repurchase liabilities," Patrick said in a statement. "A resolution of these claims is in the best interests of the RMBS Trusts and all of their certificate holders."
Ally said investors holding more than 25% of at least one class in 290 of the 392 ResCap securitizations support the reorganization. Other private-label investors could be striking settlements soon.
"We suspect Talcott Franklin will be on board," Marano said.
The Dallas-based attorney Franklin runs an investor clearing house, representing half of the outstanding principal balance of private-label MBS. A subset of roughly 30 investor clients signed nondisclosure agreements Sunday night to negotiate in a settlement over ResCap bonds.
Franklin issued a statement Monday saying an overwhelming majority of the subset agreed to a settlement. His firm recommended other clients enter as well.
"For investors in ResCap-sponsored RMBS, the alternatives to the settlement agreement are unattractive," said Paul Snyder, the mortgage-backed securities trial lawyer who led the ResCap initiative for Talcott Franklin. "The plan seeks to preserve the continuity of cash flow distribution to the RMBS investors. We intend to support the plan and will now work to instruct the Trustees on our participating clients' trusts to support the plan."
Marano said ResCap is working with Fannie Mae, Freddie Mac and Ginnie Mae to settle past mortgage repurchase claims as well. Ally had a total of $943 million in unresolved repurchase claims, according to its latest financial filing. It received $128 million in new claims directly from Fannie and Freddie during the first quarter alone.
The company set up a $130 million mortgage repurchase reserve to buy back defaulted loans from investors as part of the reorganization plan.
"We've been working very closely with Fannie, Freddie and Ginnie on all of our obligations and they'll flow through the normal bankruptcy process," Marano said. "We suspect the (private-label securitization) situation is wrapped up and behind us."