06/17/2011

Ally Weighing Options for Jumbo-Loan Book

Ally Financial is shopping $500 million of jumbo mortgages — with an eye toward securitizing the credits if bids don’t come in high enough.

The bank has set a June 20 deadline for offers, and from there will measure whether a whole-loan sale or a securitization would be more appealing from a funding-strategy standpoint. Should it accept a bid, the plan is to close a sale by mid-August. But if a mortgage-bond offering appears to make more financial and strategic sense, Ally would attempt to complete the issuing process by yearend.

Even if the bank doesn’t securitize, its loans could wind up as bond collateral. That’s because the credits already are generating heavy interest among operators of conduits that buy mortgages with securitization as an exit strategy. They include Barclays, BlackRock and Wells Fargo. Pimco also has been looking at the portfolio. The interest ties in with efforts at those shops to have bond offerings at the ready when the now-frozen market for private-label mortgage paper finally thaws.

Ally’s offering encompasses prime-quality credits with adjustable interest rates that reset after three, five or 10 years. The bank wrote the loans in recent months.

The pricing threshold for Ally to pull the trigger on a whole-loan sale isn’t clear — owing in part to the fact that funding costs aren’t its only consideration. Indeed, there already is enough demand from buyers to make a loan sale less costly than a securitization, especially considering rating fees and other expenses involved in a bond issue. But the company also sees securitization as a long-term component of its funding strategy, and thus may be willing to swallow some expenses in order to carve out a presence in the sector.

Ally predecessor GMAC once was among the world’s most prolific issuers of mortgage bonds, routinely placing tens of billions of dollars of securities backed by a range of home loans each year. Among offerings underpinned by prime-quality borrowers in the U.S., its output peaked at $39.8 billion in 2006, according to Asset-Backed Alert’s ABS Database.

The former General Motors unit stopped issuing bonds backed by newly originated prime mortgages the next year, as the global credit market imploded. By then, the company was undergoing a shift in ownership that would see it sold to Cerberus Capital and eventually the U.S. Treasury Department’s Troubled Asset Relief Program.

So what might stop Ally from securitizing again? Like other issuers who fled the market and have yet to return, it can’t be sure how investors will respond. Prospective issuers also are hesitant to return before figuring out how they’ll fare under risk-retention guidelines set forth in the Dodd-Frank Act (see article on Page 3). Plus, securitization lost some appeal with the implementation this year of new “safe harbor” rules from the FDIC.

Ally’s mortgage-lending operations are led by Thomas Marano, who took his current job about two years ago at former GMAC unit Residential Capital. Marano is best known for a 25-year run in which he played a leading role in the asset- and mortgage-backed bond underwriting unit of Bear Stearns.

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