Mortgage Activity Boosted Ally's 3Q Earnings

An increase in mortgage refinancing helped Ally Financial swing to a profit in the third quarter.

The $182 billion-asset former lending arm of General Motors earned $384 million in the quarter, compared with a loss of $210 million a year earlier.

Ally's mortgage operations earned $354 million in the third quarter after losing $409 million a year earlier. Revenue at the mortgage unit rose 244% from a year earlier, to $499 million.

Ally said it expects mortgage loan production to fall after the sale of Residential Capital, a subprime mortgage unit that has operated under bankruptcy protection since earlier this year. In October, Ocwen Financial (OCN) and its partner, Walter Investment Management, successfully bid to buy ResCap's servicing and origination assets for $3 billion. Berkshire Hathaway (BRK) has agreed to buy ResCap's whole-loan portfolio for $1.5 billion.

During the third quarter, Ally's overall financing revenue and other interest income fell 0.4% from a year earlier, to $2.4 million. The net interest margin was unchanged from a year earlier, at 2.1%.

Other revenue rose 69% from a year earlier, to $936 million. Noninterest expense fell 8.2% from a year earlier, to $1.1 billion.

Deposits at Ally Bank unit rose 16% from a year earlier, to $42 billion.

Earnings at Ally's North American automotive financing unit fell 7.4% from a year earlier, to $510 million.

Ally's loan-loss provision more than doubled from a year earlier, to $116 million. Chargeoffs rose 1.6% from a year earlier, to $125 million.

Ally has been shedding its international operations, announcing a deal in October to sell its Canadian auto finance operation to Royal Bank of Canada (RBC) for $4.1 billion. Ally, which agreed to sell its Mexican insurance business to Ace Limited (ACE) for $865 million, said it expects to provide an update this month on plans for its automotive finance units in Europe and Latin America.

Ally, which is 74% owned by the Treasury Department, said recently it would explore a possible sale of its business-lending operations and its servicing rights on agency mortgages.