Residential Capital LLC, the bankrupt mortgage company indirectly owned by the U.S. government, won court approval to quit funding $1.7 billion in consumer home- equity lines of credit to conserve cash.
U.S. Bankruptcy Judge James Peck today approved the company’s request to tell customers it will no longer fund their so-called heloc loans. Peck ordered ResCap to provide consumers with information about their legal rights related to the loan contracts.
“I consider this to be a fairly important matter,” Peck said in court in Manhattan.
ResCap filed for bankruptcy yesterday with plans to sell most of its assets to Fortress Investment Group LLC. The company listed assets of $15.7 billion and debt of $15.3 billion in its petition in U.S. Bankruptcy Court in Manhattan. ResCap’s Chapter 11 filing is the biggest this year, based on liabilities, according to data compiled by Bloomberg.
Today’s decision means ResCap will no longer loan money to consumers who have approved, home-equity lines of credit. Funding such loans would “create liquidity concerns for the estates,” ResCap said in court papers.
The company will continue to service loans that already have been funded. ResCap also will keep making and funding mortgage loans to consumers buying homes.
Ally Financial Inc., the Detroit-based auto lender trying to repay a U.S. government bailout, is ResCap’s parent.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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