Securitizations and Variable Interest Entities

We securitize, transfer, and service consumer and commercial automotive loans, and operating leases. We often securitize these loans and notes secured by operating leases (collectively referred to as financial assets) through the use of special-purpose entities (SPEs). A SPE is a legal entity that is designed to fulfill a specified limited need of the sponsor. Our principal use of SPEs is to obtain liquidity by securitizing certain of our financial assets and operating lease assets which may, or may not, be included on our Condensed Consolidated Balance Sheet.

The transaction-specific SPEs involved in our securitization transactions are often considered VIEs. VIEs are entities that have either a total equity investment at risk that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors at risk lack the ability to control the entity’s activities.

The nature, purpose, and activities of nonconsolidated securitization entities are similar to those of our consolidated securitization entities with the primary difference being the nature and extent of our continuing involvement. Additionally, to qualify for off-balance sheet treatment, transfers of financial assets must meet appropriate sale accounting conditions. For nonconsolidated securitization entities, the transferred financial assets are removed from our balance sheet provided the conditions for sale accounting are met. The financial assets obtained from the securitization are primarily reported as cash, or retained interests (if applicable). Liabilities incurred as part of these securitization transactions, such as representation and warranty provisions, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities on our Consolidated Balance Sheet. Upon the sale of the loans, we recognize a gain or loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction. We had no pretax gain on sales of financial assets into nonconsolidated VIEs for the three months ended March 31, 2018, and a pretax gain of $2 million for the three months ended March 31, 2017.

We provide long-term guarantee contracts to investors in certain nonconsolidated affordable housing entities and have extended a line of credit to provide liquidity. Since we do not have control over the entities or the power to make decisions, we do not consolidate the entities and our involvement is limited to the guarantee and the line of credit.

We have involvement with various other nonconsolidated equity investments, including affordable housing entities and venture capital funds and loan funds. We do not consolidate these entities and our involvement is limited to our outstanding investment, additional capital committed to these funds plus any previously recognized low income housing tax credits that are subject to recapture.

Refer to Note 11 to the Consolidated Financial Statements in our 2017 Annual Report on Form 10-K for further description of our securitization activities and our involvement with VIEs.

The following table presents our involvement in consolidated and nonconsolidated VIEs in which we hold variable interests. For additional detail related to the assets and liabilities of consolidated variable interest entities refer to the Condensed Consolidated Balance Sheet.



($ in millions)	Carrying value of total assets			Carrying value of total liabilities			Assets sold to nonconsolidated VIEs (a)		Maximum exposure to loss in nonconsolidated VIEs
March 31, 2018
On-balance sheet variable interest entities
Consumer automotive	$	17,993	(b)	$	8,232	(c)
Commercial automotive	10,428			3,521
Off-balance sheet variable interest entities
Consumer automotive	32		(d)	—			$	1,658	$	1,691	(e)
Commercial other	702		(f)	331		(g)	—		882		(h)
Total	$	29,155		$	12,084		$	1,658	$	2,573
December 31, 2017
On-balance sheet variable interest entities
Consumer automotive	$	17,597	(b)	$	7,677	(c)
Commercial automotive	12,550			2,558
Off-balance sheet variable interest entities
Consumer automotive	37		(d)	—			$	1,964	$	2,001	(e)
Commercial other	592		(f)	248		(g)	—		790		(h)
Total	$	30,776		$	10,483		$	1,964	$	2,791


(a)	Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs.


(b)	Includes $8.4 billion and $8.5 billion of assets that are not encumbered by VIE beneficial interests held by third parties at March 31, 2018, and December 31, 2017, respectively. Ally or consolidated affiliates hold the interests in these assets.


(c)	Includes $31 million and $29 million of liabilities that are not obligations to third-party beneficial interest holders at March 31, 2018, and December 31, 2017, respectively.

(d)

Represents retained notes and certificated residual interests, of which $31 million and $36 million is classified as held-to-maturity securities at March 31, 2018, and December 31, 2017, respectively. $1 million is classified as other assets at both March 31, 2018, and December 31, 2017. These assets represent our compliance with the risk retention rules under the Dodd-Frank Act, requiring us to retain at least five percent of the credit risk of the assets underlying asset-backed securitizations.

(e)

Maximum exposure to loss represents the current unpaid principal balance of outstanding loans, retained notes, certificated residual interests, as well as certain noncertificated interests retained from the sale of automotive finance receivables. This measure is based on the very unlikely event that all of our sold loans have defects that would trigger a representation and warranty provision and the underlying collateral supporting the loans becomes worthless. This required disclosure is not an indication of our expected loss.


(f)	Amounts are classified as other assets.


(g)	Amounts are classified as accrued expenses and other liabilities.

(h)

For certain nonconsolidated affordable housing entities, maximum exposure to loss represents the yield we guaranteed investors through long-term guarantee contracts. The amount disclosed is based on the unlikely event that the underlying properties cease generating yield to investors and the yield delivered to investors in the form of low income tax housing credits is recaptured. For nonconsolidated equity investments, maximum exposure to loss represents our outstanding investment, additional committed capital, and low income housing tax credits subject to recapture. The amount disclosed is based on the unlikely event that our committed capital is funded, our investments become worthless, and the tax credits previously delivered to us are recaptured. This required disclosure is not an indication of our expected loss.

Cash Flows with Off-balance Sheet Securitization Entities

The following table summarizes cash flows received and paid related to securitization entities and asset-backed financings where the transfer is accounted for as a sale and we have a continuing involvement with the transferred consumer automotive assets (e.g., servicing) that were outstanding during the three months ended March 31, 2018, and 2017. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated securitization entities that existed during each period.



Three months ended March 31, ($ in millions)	Consumer automotive
2018
Cash disbursements for repurchases during the period	$	(1	)
Servicing fees	5
Cash flows received on retained interests in securitization entities	5
2017
Cash proceeds from transfers completed during the period	$	1,138
Servicing fees	9
Other cash flows	2

Delinquencies and Net Credit Losses

The following tables present quantitative information about delinquencies and net credit losses for off-balance sheet securitizations and whole-loan sales where we have continuing involvement.



	Total amount				Amount 60 days or more past due
($ in millions)	March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Off-balance sheet securitization entities
Consumer automotive	$	1,658	$	1,964	$	12	$	16
Total off-balance sheet securitization entities	1,658		1,964		12		16
Whole-loan sales (a)	1,167		1,399		3		4
Total	$	2,825	$	3,363	$	15	$	20


(a)	Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors.



	Net credit losses
	Three months ended March 31,
($ in millions)	2018		2017
Off-balance sheet securitization entities
Consumer automotive	$	3	$	3
Total off-balance sheet securitization entities	3		3
Whole-loan sales (a)	1		1
Total	$	4	$	4


(a)	Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors.