Servicing Activities

Mortgage Servicing Rights

The following tables summarize activity related to MSRs, which are carried at fair value. As MSRs do not trade in an active market with observable prices, management estimates fair value using internally developed discounted cash flow models (an income approach) to estimate the fair value. These internal valuation models estimate net cash flows based on internal operating assumptions that we believe would be used by market participants in orderly transactions combined with market-based assumptions for loan prepayment rates, interest rates, and discount rates that we believe approximate yields required by investors in this asset.



Three months ended June 30, ($ in millions)	2012			2011
Estimated fair value at April 1,	$	2,595		$	3,774
Additions recognized on sale of mortgage loans	—			144
Additions from purchases of servicing rights	42			15
Subtractions from sales of servicing assets	—			—
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model	(301		)	(135		)
Other changes in fair value	(101		)	(97		)
Deconsolidation of ResCap	(1,130		)	—
Estimated fair value at June 30, (a)	$	1,105		$	3,701


(a)	For the three months ended June 30, 2012, the remaining balance was at Ally Bank. Please see Note 1 for more information regarding the Debtors' Bankruptcy and the deconsolidation of ResCap.



Six months ended June 30, ($ in millions)	2012			2011
Estimated fair value at January 1,	$	2,519		$	3,738
Additions recognized on sale of mortgage loans	—			328
Additions from purchases of servicing rights	117			16
Subtractions from sales of servicing assets	—			(266		)
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model	(138		)	163
Other changes in fair value	(263		)	(278		)
Deconsolidation of ResCap	(1,130		)	—
Estimated fair value at June 30, (a)	$	1,105		$	3,701


(a)	For the six months ended June 30, 2012, the remaining balance was at Ally Bank. Please see Note 1 for more information regarding the Debtors' Bankruptcy and the deconsolidation of ResCap.

Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model include all changes due to a revaluation by a model or by a benchmarking exercise. Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic runoff of the portfolio. Refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for additional information regarding our significant assumptions and valuation techniques used in the valuation of mortgage servicing rights.

The key economic assumptions and sensitivity of the fair value of MSRs to immediate 10% and 20% adverse changes in those assumptions were as follows.



($ in millions)	June 30, 2012			December 31, 2011
Weighted average life (in years)	4.8			4.7
Weighted average prepayment speed	13.1		%	15.7		%
Impact on fair value of 10% adverse change	$	(78	)	$	(135	)
Impact on fair value of 20% adverse change	(147		)	(257		)
Weighted average discount rate	8.0		%	10.2		%
Impact on fair value of 10% adverse change	$	(14	)	$	(59	)
Impact on fair value of 20% adverse change	(26		)	(114		)

These sensitivities are hypothetical and should be considered with caution. Changes in fair value based on a 10% and 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks associated with these assets.

Risk Mitigation Activities

The primary risk of our servicing rights is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments that could reduce the value of the MSRs. We economically hedge the impact of these risks with both derivative and nonderivative financial instruments. Refer to Note 20 for additional information regarding the derivative financial instruments used to economically hedge MSRs.

The components of servicing valuation and hedge activities, net, were as follows.



	Three months ended June 30,						Six months ended June 30,
($ in millions)	2012			2011			2012			2011
Change in estimated fair value of mortgage servicing rights	$	(402	)	$	(232	)	$	(401	)	$	(115	)
Change in fair value of derivative financial instruments	329			127			337			(77		)
Servicing asset valuation and hedge activities, net	$	(73	)	$	(105	)	$	(64	)	$	(192	)

Mortgage Servicing Fees

The components of mortgage servicing fees were as follows.



	Three months ended June 30,				Six months ended June 30,
($ in millions)	2012		2011		2012		2011
Contractual servicing fees, net of guarantee fees and including subservicing	$	160	$	247	$	386	$	504
Late fees	8		16		27		37
Ancillary fees	18		37		53		70
Total mortgage servicing fees	$	186	$	300	$	466	$	611

Mortgage Servicing Advances

In connection with our primary Mortgage servicing activities (i.e., servicing of mortgage loans), we make certain payments for property taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before collecting them from individual borrowers. Servicing advances including contractual interest, are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property, thus making their collection reasonably assured. These servicing advances are included in other assets on the Condensed Consolidated Balance Sheet and totaled $66 million and $1.9 billion at June 30, 2012, and December 31, 2011, respectively. We maintain an allowance for uncollected primary servicing advances of $1 million and $43 million at June 30, 2012, and December 31, 2011, respectively. Our potential obligation is influenced by the loan’s performance and credit quality.

When we acted as a subservicer of mortgage loans we performed the responsibilities of a primary servicer but did not own the corresponding primary servicing rights. We received a fee from the primary servicer for such services. As the subservicer, we had the same responsibilities of a primary servicer in that we made certain payments of property taxes and insurance premiums, default and property maintenance, as well as advances of principal and interest payments before collecting them from individual borrowers. At June 30, 2012, and December 31, 2011, outstanding servicer advances related to subserviced loans were $0 million and $125 million, respectively, and we had a reserve for uncollected subservicer advances of $0 million and $1.1 million, respectively.

In many cases, where we acted as master servicer, we also acted as primary servicer. In connection with our master-servicing activities, we serviced the mortgage-backed and mortgage-related asset-backed securities and whole-loan packages sold to investors. As the master servicer, we collected mortgage loan payments from primary servicers and distributed those funds to investors in the mortgage-backed and mortgage-related asset-backed securities and whole-loan packages. As the master servicer, we were required to advance scheduled payments to the securitization trust or whole-loan investors. To the extent the primary servicer does not advance the payments, we were responsible for advancing the payment to the trust or whole-loan investors. Master-servicing advances, including contractual interest, are priority cash flows in the event of a default, thus making their collection reasonably assured. In most cases, we were required to advance these payments to the point of liquidation of the loan or reimbursement of the trust or whole-loan investors. We had outstanding master-servicing advances of $0 million and $158 million at June 30, 2012, and December 31, 2011, respectively. We had no reserve for uncollected master-servicing advances at June 30, 2012, or December 31, 2011.

Serviced Mortgage Assets

Total serviced mortgage assets consist of primary servicing activities. These include loans owned by Ally Bank, where Ally Bank is the primary servicer, and loans sold to third-party investors, where Ally Bank has retained primary servicing. Loans owned by Ally Bank are categorized as loans held-for-sale or consumer finance receivables and loans which are discussed in further detail in Note 7 and Note 8, respectively. The loans sold to third-party investors were sold through off-balance sheet GSE securitization transactions.

The unpaid principal balance of our serviced mortgage assets were as follows.



($ in millions)	June 30, 2012 (a)		December 31, 2011
On-balance sheet mortgage loans
Held-for-sale and investment	$	9,716	$	18,871
Operations held-for-sale	—		541
Off-balance sheet mortgage loans
Loans sold to third-party investors
Private-label	—		50,886
GSEs	127,383		262,868
Whole-loan	3		15,105
Purchased servicing rights	—		3,247
Operations held-for-sale	—		4,912
Total primary serviced mortgage loans	137,102		356,430
Subserviced mortgage loans	—		26,358
Subserviced operations held-for-sale	—		4
Total subserviced mortgage loans	—		26,362
Master-servicing-only mortgage loans	—		8,557
Total serviced mortgage loans	$	137,102	$	391,349


(a)	At June 30, 2012 the remaining balances were at Ally Bank, due to the deconsolidation of ResCap. Please see Note 1 for more information regarding the Debtors' Bankruptcy and the deconsolidation of ResCap.

Ally Bank is subject to certain net worth requirements associated with its servicing agreements with Fannie Mae and Freddie Mac. The majority of Ally Bank’s serviced mortgage assets are subserviced by GMAC Mortgage, LLC (GMACM), a subsidiary of ResCap, pursuant to a servicing agreement. GMACM is required to maintain certain servicer ratings in accordance with master agreements with the GSEs, which are highly correlated with GMACM’s consolidated tangible net worth and overall financial strength. At June 30, 2012, Ally Bank was in compliance with the requirements of the servicing agreements.

Automobile Servicing Activities

We service consumer automobile contracts. Historically, we have sold a portion of our consumer automobile contracts. With respect to contracts we sell, we retain the right to service and earn a servicing fee for our servicing function. Typically, we conclude that the fee we are paid for servicing consumer automobile finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. We recognized automobile servicing fees of $30 million and $60 million during the three months and six months ended June 30, 2012, respectively, compared to $41 million and $87 million for three months and six months ended June 30, 2011, respectively.

Automobile Serviced Assets

The total serviced automobile loans outstanding were as follows.



($ in millions)		June 30, 2012		December 31, 2011
On-balance sheet automobile loans and leases
Consumer automobile		$	68,759	$	63,884
Commercial automobile		38,373		37,302
Operating leases		11,197		9,275
Operations held-for-sale		43		102
Off-balance sheet automobile loans
Loans sold to third-party investors
Securitizations	—	1,803		—
Whole-loan		8,805		12,318
Total serviced automobile loans and leases		$	128,980	$	122,881