This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Ally Gears Up for Friday Foreclosure Settlement Deadline (Update 1)

Updated with news of Ally Financial's foreclosure related charge.

NEW YORK ( TheStreet) -- Ally Financial said it will take a $270 million charge related to foreclosure matters in the fourth quarter of 2011, which is anticipated to result in a loss.

The charge is for "penalties expected to be imposed by certain of our regulators and other governmental agencies in connection with foreclosure related matters," the company said.

The charge will result in ResCap's tangible net worth falling below $250 million, the minimum amount required at the end of each month according to certain credit facilities. However, Ally will be pumping in $196.5 million into the subsidiary towards capital contribution to remedy the situation. Still, because of the covenant breach, ResCap is seeking waivers from applicable lenders, which it says it expects to receive.

Ally is set to report fourth-quarter results on Thursday. Significantly, the announcement of the charge comes amid reports that states have until Feb.3 to join a nationwide settlement with banks over allegedly deceptive foreclosure practices.

The 50 state attorneys general have been in year- long negotiations with the nation's biggest mortgage servicers including Bank of America (BAC - Get Report), JPMorgan Chase (JPM - Get Report), Wells Fargo (WFC - Get Report), Citigroup (C - Get Report) and Ally Financial- to reach a settlement that would hold banks accountable for improper foreclosure practices including robo-signing and to push them towards offering more relief to borrowers by way of principal reductions.

Banks have in turn been seeking a release from future claims from banks. Recent reports suggest that states will only agree not to pursue further claims related to foreclosure documentation and that banks will not be released from criminal liabilities.

A settlement with all 50 states is expected to be positive for bank stocks because it will help put atleast some of the mortgage liabilities to rest.

The talks have frequently collapsed over the past year, upsetting expectations, with states including California, Nevada, Delaware and Massachusetts threatening to pull out of the talks arguing that the settlement was inadequate. The office of California AG Kamala Harris as recently as last week said it would not sign the deal as drafted. Many analysts believe a deal without California, which has been among the worst affected by the housing bust, would be negative for banks.

The Obama administration has been urging the states to reach an agreement, as the deadlock has weighing on the housing market. But some states have felt that the settlement will hinder their ability to pursue investigations independently.

Last week, President Obama announced a new mortgage fraud unit to be led by New York Attorney General Eric Schniderman. The announcement is expected to help states reach an agreement sooner, although JPMorgan Chase CEO Jamie Dimon said it would likely derail settlement talks.

At stake is the ability for a potential 1 million borrowers to lower the principal on the mortgage that they owe. The Obama administration and officials at the Fed are pushing for greater principal reductions as it has the effect of both providing relief and wiping out negative home equity which limits the ability of troubled borrowers to refinance their homes or sell to pay off their debt.

Separately, the Treasury announced revised guidelines for its mortgage modification program, tripling the incentives it pays to servicers to reduce the principal on mortgages.

--Written by Shanthi Bharatwaj in New York



>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $16.01 1.10%
C $53.54 -0.25%
JPM $61.99 -0.23%
WFC $54.83 0.02%
AAPL $126.74 -1.40%

Markets

DOW 18,120.66 +23.76 0.13%
S&P 500 2,101.15 +2.62 0.12%
NASDAQ 4,981.7590 +14.6180 0.29%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs