ResCap, Ally ink deal tied to resolution of billions in FHFA claims

By Caroline Salls

Pittsburgh, Nov. 18 - Residential Capital, LLC requested court approval of a settlement with its official committee of unsecured creditors, Ally Financial Inc. and its non-debtor affiliates that is ancillary to a separate settlement between Ally and the Federal Housing Finance Agency (FHFA) resolving billions of dollars of FHFA claims related to the ResCap debtors' residential mortgage-backed securities (RMBS).

According to the settlement motion filed Nov. 18 with the U.S. Bankruptcy Court for the Southern District of New York, the FHFA entered into the Ally settlement as conservator for the Federal Home Loan Mortgage Corp. (Freddie Mac).

As a result of the settlement, the proponents of ResCap's plan of reorganization modified the plan to provide that the claims of the FHFA will be allowed in the amount of $1.2 billion. In exchange for that claim, the FHFA will receive a $24 million cash distribution on the plan effective date.

In addition, a third-party release carve out will be modified to allow the FHFA to retain specified claims against Ally.

As a result of the Ally/FHFA settlement, Freddie Mac and the FHFA have withdrawn their objections to the plan and will not litigate the impact of the Housing and Economic Recovery Act of 2008 (HERA) at confirmation.

The Ally/FHFA settlement also resolves the FHFA's claims against Ally pending in district court, the motion said. That settlement includes a substantial contribution from Ally to resolve the FHFA case.

Also, the FHFA assigned to Ally the FHFA's and Freddie Mac's rights to receive any distributions under the plan on account of the FHFA claims.

According to the motion, the FHFA claims are based on litigation stemming from Freddie Mac's purchase of about $6 billion in debtor-sponsored RMBS.

ResCap said the FHFA objected to the plan's proposed subordination of the FHFA claims, and a ruling in the FHFA's favor could have had a significant negative effect on the distributions to the debtors' other creditors.

In its plan objection, the FHFA alleged that the plan unfairly discriminated against FHFA, did not satisfy the best interests test, violated HERA because it failed to recognize the FHFA's alleged priority recovery status and was not proposed in good faith.

A hearing is scheduled for Nov. 25.

Residential Capital, a New York-based mortgage originator and servicer, filed for bankruptcy on May 14, 2012. Its case number is 12-12020.

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