Servicing Activities

Mortgage Servicing Rights

The following table summarizes past activity related to MSRs, which were carried at fair value. Management estimated fair value using our transaction data and other market data or, in periods when there were limited MSRs market transactions that were directly observable, internally developed discounted cash flow models (an income approach) were used to estimate the fair value. These internal valuation models estimated net cash flows based on internal operating assumptions that we believed 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 believed approximate yields required by investors in this asset.



Three months ended September 30, ($ in millions)	2013		2012
Estimated fair value at July 1,	$	—	$	1,105
Additions	—		50
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model	—		(192		)
Other changes in fair value	—		(61		)
Estimated fair value at September 30,	$	—	$	902



Nine months ended September 30, ($ in millions)	2013			2012 (a)
Estimated fair value at January 1,	$	952		$	2,519
Additions	60			167
Sales (b)	(911		)	—
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model	(32		)	(330		)
Other changes in fair value	(69		)	(324		)
Deconsolidation of ResCap	—			(1,130		)
Estimated fair value at September 30,	$	—		$	902


(a)	Includes activities of our discontinued operations.


(b)	Includes the sales of agency MSRs to Ocwen and Quicken Loans, Inc. (Quicken) on April 1, 2013 and April 16, 2013.

Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model included all changes due to a revaluation by a model or by a benchmarking exercise. Other changes in fair value primarily included 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 2012 Annual Report for additional information regarding our significant assumptions and valuation techniques used in the valuation of mortgage servicing rights.

Risk Mitigation Activities

The primary risk of 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 previously economically hedged 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 September 30,					Nine months ended September 30,
($ in millions)	2013		2012			2013			2012
Change in estimated fair value of mortgage servicing rights	$	—	$	(253	)	$	(101	)	$	(538	)
Change in fair value of derivative financial instruments	—		387			(112		)	612
Servicing asset valuation and hedge activities, net	$	—	$	134		$	(213	)	$	74

Mortgage Servicing Fees

The components of mortgage servicing fees were as follows.



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2013		2012		2013		2012
Contractual servicing fees, net of guarantee fees and including subservicing	$	—	$	59	$	61	$	223
Late fees	—		3		1		8
Ancillary fees	—		3		4		9
Total mortgage servicing fees	$	—	$	65	$	66	$	240

Mortgage Servicing Advances

Historically, we serviced loans sold to third-party investors. The majority of Ally Bank's on-balance sheet mortgage loans are subserviced by Ocwen, pursuant to a servicing agreement. In connection with the servicing of our on-balance sheet mortgage loans, we make certain payments for property taxes and insurance premiums, and default and property maintenance payments before collecting them from individual borrowers. Servicing advances are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property. These servicing advances are included in other assets on the Condensed Consolidated Balance Sheet and totaled $11 million and $82 million at September 30, 2013 and December 31, 2012, respectively. We maintained an allowance for uncollected primary servicing advances of $0 and $1 million at September 30, 2013 and December 31, 2012, respectively. Our potential obligation is influenced by the loan’s performance and credit quality.

Mortgage Serviced 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 included loans sold to third-party investors, where Ally Bank had retained primary servicing. Loans owned by Ally Bank are categorized as loans held-for-sale or finance receivables and loans, which are discussed in further detail in Note 6 and Note 7, 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)	September 30, 2013		December 31, 2012
On-balance sheet mortgage loans
Held-for-sale and investment	$	7,798	$	10,938
Off-balance sheet mortgage loans
Loans sold to third-party investors
GSEs	—		119,384
Whole-loan	—		2
Total primary serviced mortgage loans	$	7,798	$	130,324

Automobile Finance 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 $13 million and $48 million during the three months and nine months ended September 30, 2013, respectively, compared to $26 million and $86 million for the three months and nine months ended September 30, 2012, respectively.

Automobile Finance Serviced Assets

The total serviced automobile finance loans outstanding were as follows.



($ in millions)	September 30, 2013		December 31, 2012
On-balance sheet automobile finance loans and leases
Consumer automobile	$	56,450	$	53,715
Commercial automobile	28,452		32,822
Operating leases	17,254		13,550
Operations held-for-sale	4,308		25,979
Other	52		41
Off-balance sheet automobile finance loans
Loans sold to third-party investors
Securitizations	1,017		1,474
Whole-loan	3,466		6,541
Other (a)	5,437		—
Total serviced automobile finance loans and leases	$	116,436	$	134,122


(a)	Consists of serviced assets sold in conjunction with the divestiture of our Canadian automotive finance operations.