The Real Deal Miami

Freddie Mac and Ally Financial fail to disclose $325 million settlement

May 31, 2011 01:24PM

A $325 million payment from Ally Financial to Freddie Mac has come to light in an exhibit deep within an amended offering document by Ally as part of a planned share sale to the public, according to the Wall Street Journal. Prior to the revelation, neither Ally, General Motors’ former financing arm which is now primarily government-owned, nor Freddie had disclosed the settlement amount, which had only been documented by the companies in their quarterly securities filings.

Like another settlement between the two firms for $462 million last December, this latest does not mark a major setback; the company had already reserved for the potential repurchase expense. However, the lack of detailed foreclosure makes it difficult for investors to know how to interpret a deal.

Investors must question how the government is balancing the need to reduce taxpayer loss with avoiding actions that may destabilize banks, the Journal said. Understanding the economics and rationale behind settlements such as the Ally deal is vital.

The Federal Housing Finance Agency, Fannie May and Freddie’s regulator, is a year into an inquiry into private-label mortgage securities sold by banks to investors, including Fannie and Freddie. In January, some members of congress also questioned whether mortgage settlements with Bank of America and between Ally and Fannie were actually back-door bailouts. [WSJ]