Ally Financial Inc. (ALLY:US), the auto finance firm majority-owned by U.S. taxpayers, said third-quarter profit fell 76 percent as the company settled U.S. claims for soured mortgages and stopped making new home loans.

Net income declined to $91 million from $384 million a year earlier, the Detroit-based bank said today in a statement. Results included a charge for last month's accord over faulty home loans sold to U.S.-backed firms in the run-up to the 2008 financial crisis. Core pretax income slid to $269 million, or $271 million excluding certain one-time expenses, compared with $373 million a year earlier, Ally said.

Chief Executive Officer Michael Carpenter has sought to cap Ally's costs from soured mortgages that led to a $17.2 billion government bailout and left the U.S. Treasury Department with a 74 percent stake. He's resolving claims tied to the bankruptcy of the Residential Capital mortgage unit and refocusing Ally on its auto loans and online bank.

"Ally's overall financial profile (ALLY:US) continues to improve as our strategic transformation nears completion," Carpenter, 66, said in the statement. Priorities include improving profitability and paying back the U.S., he said. Ally said its pipeline of pending home loans now stands at zero, and Jeff Brown, senior executive vice president for finance, said the U.S. accord represents the last significant mortgage expense.

U.S. Stake

The firm, which doesn't have publicly traded shares, originally filed for an initial stock offering and then put off the sale until ResCap's status and Ally's liability were resolved. Carpenter said today during a conference call that the market for public offerings is strong, and it might be possible for private investors to buy out the Treasury's stake.

Disputes with the government also involved automotive loans, with the Consumer Financial Protection Bureau probing retail financing, Ally said at midyear. In a securities filing today, Ally said the investigation covers lending bias tied to its dealer customers, and the lender may face settlements, fines, penalties, adverse regulatory actions and changes in business practices.

The agency's staff told Ally the firm failed to prevent independent dealers from using practices that violate anti-discrimination provisions of the Equal Credit Opportunity Act, according to the filing. Ally said discussions with CFPB are underway, and that it couldn't estimate the potential impact.

Industry Probe

Finance arms of Toyota Motor Corp. and Honda Motor Co. have acknowledged similar inquiries and said the Department of Justice is involved. As many as five other auto lenders affiliated with manufacturers have received similar requests for data that may be related to the borrowers' racial background, people briefed on the matter said in September.

Sam Gilford, a CFPB spokesman, said in an e-mail that he can't confirm or deny enforcement matters.

Income from continuing operations in the automotive finance segment (ALLY:US) was $339 million, little changed from a year earlier. Insurance income rose to $83 million from $13 million and the mortgage segment swung to a loss of $5 million from last year’s $331 million profit.

The auto industry's U.S. sales ran at a 15.3 million annual pace in September, according to seasonally adjusted data from researcher Autodata Corp., up from 14.8 million a year earlier.

Ally provided $9.6 billion in U.S. consumer auto financing in the third quarter, "despite intense competition" and a drop in loans subsidized by automakers, according to the statement.

The accord with the Federal Housing Finance Agency and Federal Deposit Insurance Corp. cost the firm $170 million, equal to $107 million after taxes. The agreement ends all pending litigation and guarantees the agencies won't object to the reorganization plan for ResCap, once among the nation's largest subprime home lenders.

Ally said in August it was raising $1 billion in a private placement as part of a plan to pay $5.9 billion to buy back preferred shares held by the U.S. The private-placement must be completed by Nov. 30.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.