Ally Financial in Detroit has agreed to pay $52 million to settle probes and claims related to its role as the underwriter for subprime residential mortgage-backed securities in 2006 and 2007.
The agreement between the $157 billion-asset Ally and the Justice Department will close all remaining investigations of Residential Capital LLC and its subsidiaries in connection with 10 subprime residential mortgage backed securities, Ally said in a Monday news release. The now-defunct Residential Capital was once a unit of Ally’s predecessor, GMAC.
"Ally acknowledges that the underwriting and diligence process was deficient in connection with the securitization of 40,000 toxic subprime mortgage loans by its subsidiaries — exactly the type of abuse that contributed to the financial crisis," Christy Goldsmith Romero, the special inspector general for the Troubled Asset Relief Program, said in a statement.
The inspector general was involved in the investigation because Ally had received Tarp money. The Federal Housing Finance Agency was also involved in the Ally probe.
Ally had set aside legal reserves in the third quarter to cover the full $52 million civil penalty. As part of the agreement, Ally agreed to withdraw the broker-dealer registration for its Ally Securities unit, formerly known as Residential Funding Securities LLC, which had served as the lead underwriter on the 10 subprime RMBS offerings. The unit will also be closed, the Justice Department said in a Monday news release.