Ally Financial Inc. has reported a net income of $79 million for the fourth quarter of 2010, compared to a net loss of $5 billion for the fourth quarter of 2009. Core pre-tax income, which reflects income from continuing operations before taxes and original issue discount (OID) amortization expense from bond exchanges, totaled $533 million in the fourth quarter of 2010, compared to a core pre-tax loss of $3.5 billion in the comparable prior year period.
For full-year 2010, Ally reported net income of $1.1 billion, compared to a net loss of $10.3 billion in 2009. Core pre-tax income in 2010 totaled $2.5 billion, compared to a core pre-tax loss of $5.8 billion in the prior year.
The losses reported for the 2009 fourth quarter and full year were largely affected by losses related to legacy assets in the mortgage operations.
Ally's mortgage operations, which includes ResCap and the mortgage activities of Ally Bank and ResMor Trust, reported a pre-tax income from continuing operations of $123 million during the fourth quarter of 2010, versus a pre-tax loss from continuing operations of $3.4 billion in the comparable prior year period. The company's mortgage operations business is now reported as two distinct segments: Origination and servicing and legacy portfolio and other. The principal activities of the origination and servicing segment include originating, purchasing, selling, and securitizing conforming and government-insured residential mortgage loans in the U.S. and Canada; servicing residential mortgage loans for Ally and others; and providing collateralized lines of credit to other mortgage originators, which the company refers to as warehouse lending. In addition, the segment also originates high-quality prime jumbo mortgage loans in the U.S. The company utilizes three primary channels for originating mortgages: Wholesale lending, traditional retail lending and community financial institutions. The legacy portfolio and other segment primarily consists of loans originated prior to Jan. 1, 2009, and includes non-core business activities including portfolios in run off.
"2010 was a transformational year for Ally as we successfully achieved our strategic objectives and restored financial performance with $2.5 billion of core pre-tax income for the year," said Ally Chief Executive Officer Michael A. Carpenter. "Our automotive finance business remained a leading provider of auto loans with U.S. consumer originations increasing 72 percent over last year. We substantially reduced risk in the mortgage business and are focused on our conforming mortgage origination and servicing platform; and Ally Bank has demonstrated the strength of its customer value proposition with strong deposit growth and high retention rates. These steps, along with our improved cost and capital structures and access to the capital markets, have significantly strengthened the company and will enable repayment of the U.S. Treasury's investment over time."
The mortgage origination and servicing segment reported fourth quarter 2010 pre-tax income from continuing operations of $172 million, compared to a pre-tax loss from continuing operations of $180 million during the fourth quarter 2009. Results were driven by strong originations from refinancings, continued strong margins, higher net servicing revenue, lower provision for loan losses and lower non-interest expense.
Total mortgage loan production in the fourth quarter of 2010 was $23.8 billion, compared to $20.5 billion in the third quarter of 2010 and $18.1 billion in the fourth quarter of 2009. The vast majority of fourth quarter 2010 production was driven by the origination of prime conforming loans. Production increased compared to the prior quarter, as the refinance market remained strong during the quarter. Approximately, 84 percent of the company's global mortgage loan production during the quarter was due to refinancings.
The legacy portfolio and other segment of Ally’s mortgage operations reported a pre-tax loss from continuing operations of $49 million, compared to a $3.2 billion pre-tax loss from continuing operations in the corresponding prior year period. The results in the quarter were primarily driven by an improved gain on the sale of loans, significantly lower loan loss provision and lower representation and warranty expense compared to the fourth quarter of 2009.
GMAC Mortgage has also reported that it has executed more than twice as many loan modifications than foreclosures. Among the large servicers, the company's conversion rate for Home Affordable Modification Program (HAMP) trial modifications to HAMP permanent modifications is 73 percent, a significantly higher success rate than that of its nearest competitor. Since 2008, GMAC Mortgage has completed more than 610,000 default workouts for borrowers, which comprises 22 percent of loans serviced during that time period.
In 2010, ResCap and certain of its subsidiaries reached an agreement with Fannie Mae to resolve potential repurchase exposure for breaches of selling representations and warranties. The agreement covers loans serviced by GMAC Mortgage on behalf of Fannie Mae prior to June 30, 2010, and all mortgage-backed securities (MBS) that Fannie Mae purchased at various times prior to the settlement, including private label securities. The settlement was for approximately $462 million and releases ResCap and its subsidiaries from liability related to originations for approximately $292 billion of original UPB ($84 billion of current UPB) on these loans.
During the fourth quarter, Ally's indirect subsidiary, GMAC Mortgage, continued to make significant progress in its review of foreclosure cases where an affidavit may have been used that was subject to a procedural issue. Of the approximately 25,000 potentially affected affidavits identified at the end of the third quarter, all but 2,548 have been remediated or, where necessary, re-executed. As each of the files were addressed and deemed to be appropriate, the foreclosure process for those select cases continued to move forward. Of the remaining population being reviewed and, where needed, remediated, there are 2,540 cases in three states where further guidance from the states on remediation efforts is required. The company has not found any evidence of inappropriate foreclosures in its review process to date related to the affidavit matter.
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