Ally Financial to pay $52 million to settle mortgage-bond probe

by Ryan Smith23 Nov 2016
Ally Financial has agreed to pay $52 million to settle a government probe alleging that its subsidiaries acted improperly in the packaging, securitization, marketing, sale and issuance of 10 residential mortgage-backed securities in 2006 and 2007.

Ally was accused of violations of the Financial Institutions Reform Recovery and Enforcement Act, according to a release by the US attorney’s office for the central district of California. Under the agreement, Ally will pay a $52 million civil penalty and immediately shutter Ally Securities, the subsidiary that served as lead underwriter for the subprime mortgage bonds at issue in the case.

According to the US attorney’s office, Ally Securities served as the lead underwriter on 10 subprime RMBS offerings issued in the RASC-EMX series between 2006 and 2007. Prosecutors said that Ally Securities recognized then that there was “a consistent trend of deterioration in the quality” of the loans underlying the series.

“Those securities were marketed to investors with the knowledge that a significant percentage of the pooled subprime mortgages were toxic, meaning that they were underwritten to risky guidelines likely to result in the loans falling delinquent,” said U.S. Attorney Eileen M. Decker. “Nevertheless, Ally Securities continued to market the RMBS, and investors lost millions of dollars as the value of the securities plummeted.”

Under the settlement, Ally Financial is required to pay the entirety of the $52 million penalty in the coming weeks. It will also shut down Ally Securities immediately as an acknowledgment of improper conduct. The settlement also preserves the government’s ability to bring criminal charges against the bank, and doesn’t release any individuals from potential civil or criminal liability.


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