Exhibit 99.1

Independent Auditors’ Report

Residential Capital, LLC

To the Board of Directors and Member of Residential Capital, LLC:

We have audited the accompanying Consolidated Balance Sheets of Residential Capital, LLC (the “Company”) (a wholly-owned subsidiary of Ally Financial Inc.) as of December 31, 2011 and 2010, and the related Consolidated Statements of Income, Comprehensive Income, Changes in Equity, and Cash Flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The Company’s Consolidated Statement of Income, Changes in Equity, and Cash Flows for the year ended December 31, 2009, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 2 to the consolidated financial statements, the reclassifications discussed in Note 1 to the consolidated financial statements, and the changes to the 2009 financial statements to retrospectively apply the change in accounting for the presentation of comprehensive income discussed in Note 1 to the consolidated financial statements, were audited by other auditors whose report, dated February 26, 2010, expressed an unqualified opinion on those statements and included an explanatory paragraph that stated that the Company’s liquidity and capital needs, combined with volatile conditions in the marketplace, raised substantial doubt about its ability to continue as a going concern.

We conducted our audits in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 2011 and 2010 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

We also have audited (1) the retrospective adjustments to the 2009 financial statements for the operations discontinued in 2010, as discussed in Note 2 to the consolidated financial statements (2) the reclassifications, as discussed in Note 1 to the consolidated financial statements, and (3) the changes to the 2009 financial statements to retrospectively apply the change in accounting for the presentation of comprehensive income discussed in Note 1 to the consolidated financial statements. Our procedures related to the retrospective adjustments for discontinued operations included (i) obtaining the Company’s underlying accounting analysis prepared by management of the retrospective adjustments for discontinued operations and comparing the retrospectively adjusted amounts per the 2009 financial statements to such analysis, (ii) comparing previously reported amounts to the previously issued financial statements for such year, (iii) testing the mathematical accuracy of the accounting analysis, and (iv) on a test basis, comparing the adjustments to retrospectively adjust the financial statements for discontinued operations to the Company’s supporting documentation. Our procedures related to the retrospective adjustments for the reclassifications included (i) comparing the previously reported amounts and adjustments to the previously issued financial statements for such year, and (ii) testing the mathematical accuracy of the application of the adjustments. Our procedures related to the changes to the 2009 financial

Independent Auditors’ Report

Residential Capital, LLC

statements to retrospectively apply the change in accounting for the presentation of comprehensive income included (i) obtaining the Company’s statement of comprehensive income for 2009, (ii) comparing the amounts included in such statement to amounts included in the previously issued financial statements, and (iii) testing the mathematical accuracy of such statement. In our opinion, such retrospective adjustments, reclassifications, and changes in the presentation of comprehensive income are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2009 consolidated financial statements of the Company other than with respect to the retrospective adjustments and reclassifications and, accordingly, we do not express an opinion or any other form of assurance on the 2009 consolidated financial statements taken as a whole.

As discussed in Note 20 to the consolidated financial statements, the Company has entered into a number of significant agreements and transactions with its affiliates.

As discussed in Note 1 and Note 22 to the consolidated financial statements, the Company has filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (1) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (2) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (3) as to member’s interest accounts, the effect of any changes that may be made in the capitalization of the Company; or (4) as to operations, the effect of any changes that may be made in its business.

The accompanying 2011 and 2010 financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s liquidity and capital needs, combined with conditions in the marketplace, raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1 to the consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Deloitte & Touche LLP

Detroit, Michigan

March 28, 2012 (July 19, 2012 as to Note 1 and Note 22)

Independent Auditors’ Report

Residential Capital, LLC

To the Board of Directors and Member of Residential Capital, LLC

In our opinion, the consolidated statements of income, changes in equity, and cash flows for the year ended December 31, 2009, before the effects of the adjustments to retrospectively reflect the discontinued operations discussed in Note 2 to the consolidated financial statements, the reclassifications discussed in Note 1 to the consolidated financial statements and the changes to retrospectively apply the change in the presentation of comprehensive income discussed in Note 1 to the consolidated financial statements, present fairly, in all material respects, the results of operations and cash flows of Residential Capital, LLC and its subsidiaries for the year ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America (the 2009 financial statements before the effects of the adjustments described above are not presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit, before the effects of the adjustments described above, of these statements in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s liquidity and capital needs, combined with volatile conditions in the marketplace raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively reflect the discontinued operations discussed in Note 2 to the consolidated financial statements, the reclassifications discussed in Note 1 to the consolidated financial statements, and the changes to retrospectively apply the change in accounting for the presentation of comprehensive income discussed in Note 1 to the consolidated financial statements and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

/s/ PricewaterhouseCoopers LLP

New York, New York

February 26, 2010

Consolidated Balance Sheet

Residential Capital, LLC


December 31, ($ in thousands)	2011			2010
Assets
Cash and cash equivalents	$	618,699		$	672,204
Mortgage loans held–for–sale ($56,976 and $21,828 fair value elected)		4,249,625			4,654,907
Finance receivables and loans, net
Consumer ($835,192 and $1,014,703 fair value elected)		1,022,730			1,313,702
Commercial		38,017			117,316
Allowance for loan losses		(28,616	)		(42,810	)

Total finance receivables and loans, net		1,032,131			1,388,208
Mortgage servicing rights		1,233,107			1,991,586
Accounts receivable, net		3,051,748			2,640,059
Other assets		6,628,152			5,485,201

Total assets	$	16,813,462		$	16,832,165

Liabilities
Borrowings
Borrowings from parent and affiliate	$	1,189,364		$	1,526,775
Collateralized borrowings in securitization trusts ($829,940 and $972,068 fair value elected)		830,318			1,057,287
Other borrowings		4,705,404			5,464,454

Total borrowings		6,725,086			8,048,516
Other liabilities		9,996,026			7,937,485

Total liabilities		16,721,112			15,986,001
Equity
Member’s interest		11,433,776			11,324,371
Accumulated deficit		(11,279,560	)		(10,434,497	)
Accumulated other comprehensive loss		(61,866	)		(43,710	)

Total equity		92,350			846,164

Total liabilities and equity	$	16,813,462		$	16,832,165

The assets of consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) did not have recourse to our general credit at December 31, 2011, and 2010 were as follows.


December 31, ($ in thousands)	2011			2010
Assets
Mortgage loans held–for–sale	$	8,658		$	21,482
Finance receivables and loans, net
Consumer ($835,192 and $1,014,703 fair value elected)		998,509			1,213,050
Allowance for loan losses		(10,126	)		(18,397	)

Total finance receivables and loans, net		988,383			1,194,653
Accounts receivable, net		1,027,411			1,167,976
Other assets		29,494			47,578

Total assets	$	2,053,946		$	2,431,689

Liabilities
Borrowings
Collateralized borrowings in securitization trusts ($829,940 and $972,068 fair value elected)	$	830,318		$	1,047,588
Other borrowings		855,631			903,601

Total borrowings		1,685,949			1,951,189
Other liabilities		29,099			29,271

Total liabilities	$	1,715,048		$	1,980,460

The Notes to the Consolidated Financial Statements are an integral part of these statements.

Consolidated Statement of Income

Residential Capital, LLC


Year ended December 31, ($ in thousands)	2011			2010			2009
Revenue
Interest income	$	390,840		$	860,976		$	811,553
Interest expense		433,492			629,600			628,352

Net financing revenue		(42,652	)		231,376			183,201
Other revenue
Servicing fees		839,640			972,533			1,058,541
Servicing asset valuation and hedge activities, net		(355,715	)		222,571			(762,394	)

Total servicing income, net		483,925			1,195,104			296,147
Gain on mortgage loans, net		222,159			650,490			479,544
Real estate related revenues, net		15,254			8,832			(267,236	)
Gain on extinguishment of debt		—			—			1,735,040
(Loss) gain on foreclosed real estate		(15,803	)		32,764			(54,100	)
Other revenue, net		(30,324	)		(67,534	)		(175,271	)

Total other revenue		675,211			1,819,656			2,014,124

Total net revenue		632,559			2,051,032			2,197,325
Provision for loan losses		24,021			(7,289	)		1,575,397
Noninterest expense
Representation and warranty expense, net		324,070			670,452			1,485,791
Compensation and benefits		319,602			261,785			325,214
Mortgage fines and penalties		204,000			—			—
Professional fees		118,549			73,234			149,142
Data processing and telecommunications		79,682			113,966			122,963
Occupancy		24,829			20,125			28,677
Advertising		18,162			369			10,286
Other noninterest expense, net		349,236			386,617			739,844

Total noninterest expense		1,438,130			1,526,548			2,861,917

(Loss) income before income taxes		(829,592	)		531,773			(2,239,989	)
Income tax expense		15,471			6,914			13,588

Net (loss) income from continuing operations		(845,063	)		524,859			(2,253,577	)

Income (loss) from discontinued operations, net of tax		—			50,216			(2,286,824	)

Net (loss) income		(845,063	)		575,075			(4,540,401	)
Less: Net income from discontinued operations attributable to the noncontrolling interest		—			—			3,430

Net (loss) income attributable to Residential Capital, LLC	$	(845,063	)	$	575,075		$	(4,543,831	)

The Notes to the Consolidated Financial Statements are an integral part of these statements.

Consolidated Statement of Comprehensive Income

Residential Capital, LLC


Year ended December 31, ($ in thousands)	2011			2010			2009
Net (loss) income	$	(845,063	)	$	575,075		$	(4,540,401	)
Other comprehensive income, net of tax
Unrealized gains on investment securities
Net unrealized (losses) gains arising during the period		(666	)		1,606			(508	)
Net realized (losses) gains reclassified to net (loss) income		(676	)		—			—

Net change		(1,342	)		1,606			(508	)
Translation adjustments
Translation		53			21,729			(48,239	)

Net change		53			21,729			(48,239	)
Cash flow hedges
Net unrealized gains (losses) arising during the period		—			—			(468	)

Net change		—			—			(468	)
Defined benefit pension plans
Net (losses) and prior service costs arising during the period		(16,867	)		(22,977	)		35,460
Net gain (loss) and prior service costs reclassified to net (loss) income		—			—			—

Net change		(16,867	)		(22,977	)		35,460

Other comprehensive income, net of tax		(18,156	)		358			(13,755	)

Cumulative effect of change in accounting principle		—			—			—

Comprehensive income		(863,219	)		575,433			(4,554,156	)
Comprehensive income attributable to the noncontrolling interest		—			—			1,195

Comprehensive income attributable to Residential Capital, LLC	$	(863,219	)	$	575,433		$	(4,552,961	)

The Notes to the Consolidated Financial Statements are an integral part of these statements.

Consolidated Statement of Changes in Equity

Residential Capital, LLC


($ in thousands)	Noncontrolling Interest			Member’s interest			Preferred membership interests			Accumulated deficit			Accumulated other comprehensive loss			Total equity
Balance at January 1, 2009	$	1,901,301		$	7,872,794		$	806,344		$	(6,461,472	)	$	(30,313	)	$	4,088,654
Net income (loss)		3,430			—			—			(4,543,831	)		—			(4,540,401	)
Capital contributions		163,858			4,047,465			—			—			—			4,211,323
Conversion of preferred membership interests		—			—			(806,344	)		—			—			(806,344	)
Sale of nonvoting stock of consolidated entity to parent		(2,069,784	)		(595,888	)		—			—			—			(2,665,672	)
Other comprehensive income, net of tax		1,195			—			—			—			(13,755	)		(12,560	)

Balance at December 31, 2009	$	—		$	11,324,371		$	—		$	(11,005,303	)	$	(44,068	)	$	275,000

Balance at January 1, 2010				$	11,324,371					$	(11,005,303	)	$	(44,068	)	$	275,000
Cumulative effect of change in accounting principles as of January 1, 2010, net of tax
Adoption of ASU 2009-17					—						(4,269	)		—			(4,269	)
Net income					—						575,075			—			575,075
Other comprehensive income, net of tax					—						—			358			358

Balance at December 31, 2010				$	11,324,371					$	(10,434,497	)	$	(43,710	)	$	846,164

Balance at January 1, 2011				$	11,324,371					$	(10,434,497	)	$	(43,710	)	$	846,164
Net loss					—						(845,063	)		—			(845,063	)
Capital contribution					109,405						—			—			109,405
Other comprehensive income, net of tax					—						—			(18,156	)		(18,156	)

Balance at December 31, 2011				$	11,433,776					$	(11,279,560	)	$	(61,866	)	$	92,350

The Notes to the Consolidated Financial Statements are an integral part of these statements.

Consolidated Statement of Cash Flows

Residential Capital, LLC


Year ended December 31, ($ in thousands)	2011			2010			2009
Operating activities
Net (loss) income	$	(845,063	)	$	575,075		$	(4,540,401	)
Reconciliation of net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		27,245			32,975			64,731
Accretion of deferred concession on secured notes		(101,113	)		(110,009	)		(165,743	)
Provision for loan losses		24,021			14,618			2,229,150
(Gain) loss on mortgage loans, net		(222,159	)		(482,187	)		50,140
Net loss (gain) on other assets		16,134			(36,385	)		413,820
Gain on extinguishment of debt		—			—			(1,735,040	)
(Recovery) impairment of held-for-sale platforms		—			(54,649	)		903,276
Equity in (earnings) loss of investees in excess of cash received		—			(973	)		6,543
Change in fair value of mortgage servicing rights		812,435			725,351			249,210
Originations and purchases of mortgage loans held–for–sale		(60,675,667	)		(70,295,821	)		(56,700,492	)
Proceeds from sales and repayments of mortgage loans held–for–sale		59,613,292			70,342,416			56,970,771
Net change in
Deferred income taxes		(4,636	)		—			(65,645	)
Accounts receivable		752,588			393,032			326,246
Other assets		(1,438,938	)		(3,737,896	)		(83,028	)
Other liabilities		2,470,237			3,068,161			1,317,033

Net cash provided by (used in) operating activities		428,376			433,708			(759,429	)

Investing activities
Net decrease in commercial finance receivables and loans		46,432			214,989			374,626
Net decrease in consumer mortgage finance receivables and loans		546,135			2,493,434			1,082,147
Net decrease in investments in real estate and other		4,543			107,187			134,263
Proceeds from sales of foreclosed and owned real estate		108,349			404,019			875,202
Proceeds from sale of business units to a third-party, net (a)		—			(122,782	)		—
Other, net		173,110			906,662			317,830

Net cash provided by investing activities		878,569			4,003,509			2,784,068

Financing activities
Net decrease in borrowings from parent and affiliate		(228,007	)		(362,017	)		(349,718	)
Proceeds from issuance of collateralized borrowings in securitization trusts		—			232,754			229,933
Repayments of collateralized borrowings in securitization trusts		(466,636	)		(2,178,383	)		(1,501,397	)
Proceeds from other long–term borrowings		787,325			471,395			1,511,000
Repayments of other long–term borrowings		(1,052,703	)		(2,083,745	)		(1,709,624	)
Net decrease in other short-term borrowings		(386,639	)		(830,446	)		(1,742,940	)
Payments of debt issuance costs		—			—			(27,278	)
Capital contributions to noncontrolling interest entity		—			—			150,000
Proceeds from capital contributions		—			—			600,494
Increase in deposit liabilities		—			—			1,629,258
Proceeds from sale of businesses to Parent, net (a)		—			—			(6,654,580	)

Net cash used in financing activities		(1,346,660	)		(4,750,442	)		(7,864,852	)
Effect of changes in foreign exchange rates on cash and cash equivalents		(13,790	)		64,695			(221,814	)

Net decrease in cash and cash equivalents		(53,505	)		(248,530	)		(6,062,027	)
Change in cash and cash equivalents of operations held–for–sale		—			155,473			(155,473	)
Cash and cash equivalents at beginning of year		672,204			765,261			6,982,761

Cash and cash equivalents at end of year	$	618,699		$	672,204		$	765,261

(a)	The amounts for the year ended December 31, 2010 and 2009 are net of cash and cash equivalents of $452.1 million and $6.7 billion, respectively, of business units at the time of disposition.

Consolidated Statement of Cash Flows

Residential Capital, LLC


Year ended December 31, ($ in thousands)	2011			2010			2009
Supplemental disclosures
Cash paid for
Interest	$	442,175		$	782,718		$	1,268,134
Income taxes		37,648			3,650			5,389
Non cash items
Mortgage loans held–for–sale transferred to consumer finance receivables and loans		4,756			30,535			379,522
Consumer finance receivables and loans transferred to mortgage loans held–for–sale		72,876			326,939			3,219,742
Consumer finance receivables and loans transferred to other assets		16,098			199,011			398,598
Mortgage loans held–for–sale transferred to other assets		47,073			107,540			1,682
Mortgage loans held–for–sale transferred to accounts receivable		1,169,108			655,836			126,270
Mortgage servicing rights recognized upon the transfer of financial assets		54,426			184,494			378,029
Capital contributions through forgiveness of borrowings from Ally Inc		109,405			—			—
Capital contributions of commercial finance receivables and loans to noncontrolling interest entity		—			—			13,858
Capital contributions through forgiveness of unsecured borrowings		—			—			35,254
Capital contributions through forgiveness of secured borrowings		—			—			1,149,597
Capital contributions of mortgage loans held-for-sale		—			—			1,431,931
Capital contributions of intercompany receivable from parent		—			—			316,206
Capital contributions through forgiveness of intercompany liability to parent		—			—			195,021
Conversion of preferred membership interests		—			—			806,344
Sale of nonvoting stock-non-cash consideration received through forgiveness of debt		—			—			383,443
Change upon initial adoption of new accounting standard (ASU 2009-17):
Increase in assets of operations held–for–sale		—			10,242,675			—
Increase in liabilities of operations held–for–sale		—			10,079,011			—
Increase in consumer finance receivables and loans		—			1,210,769			—
Increase in collateralized borrowings in securitization trusts		—			1,143,766			—
Decrease in consumer finance receivables and loans upon deconsolidation		—			1,968,859			—
Decrease in collateralized borrowings upon deconsolidation		—			1,545,409			—
Other disclosures
Proceeds from sales and repayments of consumer finance receivables and loans originally designated as mortgage loans held–for–sale		157,228			1,247,754			698,926
Proceeds from capital contributions to noncontrolling interest entity		—			—			150,000

Reconciliation of mortgage loans held–for–sale
Mortgage loans held–for–sale at beginning of year	$	4,654,907		$	5,309,529		$	2,628,907
Originations and purchases of mortgage loans		60,675,667			70,295,821			56,700,492
Gain (loss) on sale of mortgage loans, net		222,159			448,721			(21,069	)
Proceeds from sales and repayments of mortgage loans		(59,613,292	)		(70,342,416	)		(56,970,771	)
Proceeds from sales and repayments of loans transferred from consumer finance receivables and loans		(225,421	)		(906,238	)		(238,056	)
Originations of mortgage servicing rights		(54,426	)		(184,494	)		(378,029	)
Transfers to consumer finance receivables and loans		(4,756	)		(30,535	)		(379,522	)
Transfers from consumer finance receivables and loans		72,876			326,939			3,219,742
Transfers to accounts receivable		(1,169,108	)		(655,836	)		(126,270	)
Transfers to other assets		(47,073	)		(107,540	)		(1,682	)
Deconsolidation of mortgage loans held-for-sale upon sale of Ally Bank and ResMor Trust		—			—			(1,506,493	)
Net change in delinquent loans subject to repurchase option		(102,247	)		540,934			1,300,750
Contribution of mortgage loans held-for-sale		—			—			1,431,931
Other, net		(159,661	)		(39,978	)		(350,401	)

Mortgage loans held–for–sale at end of year	$	4,249,625		$	4,654,907		$	5,309,529

The Notes to the Consolidated Financial Statements are an integral part of these statements.

Notes to Consolidated Financial Statements

Residential Capital, LLC

1. Description of Business and Significant Accounting Policies

Residential Capital, LLC (ResCap, we, our, or us) is a wholly owned subsidiary of GMAC Mortgage Group, LLC (GMAC Mortgage Group) which is a wholly owned subsidiary of Ally Financial Inc. (Ally Inc.). On May 14, 2012, ResCap and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. See Note 22 — Subsequent Events for information related to the bankruptcy and other strategic actions taken by us and changes to our agreements with Ally Inc., Ally Investment Management (Ally IM) and Ally Bank.

Our operations are principally conducted through our subsidiaries Residential Funding Company, LLC (RFC) and GMAC Mortgage, LLC (GMAC Mortgage). We purchase, sell, securitize, and service residential mortgage loans in the United States. We broker virtually all of the loan production from our origination channels to our affiliate, Ally Bank. Virtually all of our purchases are executed with our affiliate, Ally Bank. Purchased loans are primarily agency eligible or government insured loans. Prime credit quality loans originated in conformity with the underwriting guidelines of the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) are generally sold to one of these government-sponsored entities in the form of agency–sponsored securitizations. Prime credit quality loans originated in conformity with the underwriting guidelines of the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) are generally sold into securitizations guaranteed by the Government National Mortgage Association (Ginnie Mae with Fannie Mae and Freddie Mac, collectively, the GSEs).

On November 2, 2011, Ally Inc. announced that in order to proactively address changes in the mortgage industry as a whole, Ally Bank would be taking immediate action to reduce its focus on its correspondent mortgage lending channel. The correspondent lending channel represented approximately 84% of Ally Bank’s 2011 mortgage loan originations. For the year ended December 31, 2011, we purchased $56.7 billion of mortgage loans from Ally Bank, which represents 93% of our total originations and purchases of consumer mortgage loans of $60.7 billion. We do not expect this action to have a material adverse impact on our financial condition, results of operations or cash flows. We do, however, expect the level of mortgage loan purchases from Ally Bank to decline in future periods, potentially significantly.

Our legacy business included non–conforming domestic and international residential mortgage loan originations, purchases, sales, and securitization activities; our captive mortgage reinsurance portfolio; and our domestic and international commercial-lending activities. In 2010, we effectively exited the European mortgage market through the sale of our United Kingdom and continental Europe platforms. See Note 2 — Discontinued Operations for additional information. In 2010, we also completed the sale of certain domestic and international mortgage assets, including consumer mortgage loans and retained interests, and settled representation and warranty claims with certain counterparties. See Note 19 — Guarantees, Commitments and Contingencies for additional information related to our representation and warranty settlements. The remaining legacy portfolios, which include limited international operations in Mexico, Canada and the United Kingdom, are being run-off, with periodic asset sales, workouts, or consideration and execution of other strategic disposition transactions to maximize our return.

We have been negatively impacted by the events and conditions in the mortgage banking industry and the broader economy, both domestically and internationally. The market deterioration led to fewer sources and significantly reduced levels of liquidity to finance our operations. We are highly leveraged relative to our cash flow and previously recognized credit and valuation losses that resulted in a significant deterioration in capital. We have been, and may continue to be, negatively impacted by exposure to representation and warranty obligations, adverse outcomes with respect to current or future litigation, fines, penalties or settlements related to our business activities and additional expenses to address regulatory requirements. Our ability to continue to

Notes to Consolidated Financial Statements

Residential Capital, LLC

purchase, sell, securitize and service residential mortgage loans could be negatively impacted by any change in our access to programs available to us under our agreements with the GSEs.

We received capital support in the form of debt forgiveness from Ally Inc. of $109.4 million during the year ended December 31, 2011. We also entered into a new $250.0 million secured financing agreement with BMMZ Holdings, LLC (BMMZ), a wholly owned subsidiary of Ally Inc., in December 2011, which replaced secured financing agreements with unaffiliated third-party liquidity providers. We remain heavily dependent on our parent and affiliates for funding and capital support, and except as noted in these financial statements, our parent and affiliates are under no obligation to provide such support and there can be no assurance that they will continue such actions. Consequently, there remains substantial doubt about our ability to continue as a going concern. Should Ally Inc. no longer continue to support our capital or liquidity needs or should we be unable to successfully execute other initiatives, it would have a material adverse effect on our business, financial condition and results of operations.

On February 9, 2012, Ally Inc. and ResCap entered into agreements with the Federal Government, State Attorneys General and state banking departments (the Settlement) in connection with investigations into procedures followed by mortgage servicing companies and banks in connection with mortgage foreclosure home sales and evictions. On March 12, 2012, the Settlement was filed as a consent judgment in the U.S. District Court for the District of Columbia. We separately reached an independent settlement with Oklahoma, which did not participate in the broader settlement and agreements with two other states for other releases. The Settlement requires cash payments of $110.0 million and borrower relief of $200.0 million, subject to an upward adjustment, over a three year period. We are also required to make cash payments of approximately $2.5 million in connection with separate state agreements. Borrower relief will include loan modifications, including principal reductions, rate modifications and refinancing for borrowers that meet certain criteria, and participation in certain other programs. The Settlement does not prevent state and federal authorities from pursuing criminal enforcement actions, securities-related claims (including actions related to securitization activities and Mortgage Electronic Registration Systems, or MERS), loan origination claims, certain claims brought by the Federal Deposit Insurance Corporation (FDIC) and the GSEs, and certain other matters. The Settlement also does not prevent claims that may be brought by individual borrowers.

On February 9, 2012, Ally Inc. and ResCap also agreed in principle with the Board of Governors of the Federal Reserve on a civil monetary penalty (CMP) of $207.0 million related to the same activities that were the subject of the Settlement. This amount will be reduced dollar-for-dollar in connection with certain aspects of our satisfaction of the required monetary payment and borrower relief obligations included within the Settlement. For the year ended December 31, 2011, we recognized $211.5 million of expense related to the Settlement and separate state agreements. On January 30, 2012, we received $196.5 million in capital support from Ally Inc. in connection with the settlement agreements and CMP in the form of debt forgiveness. See Note 19 — Guarantees, Commitments, and Contingencies for additional information.

On January 30, 2012, we entered into an agreement with Ally Inc. (the Letter Agreement) whereby in addition to the $196.5 million of capital support in connection with the settlement agreements and CMP, and as further consideration for the Letter Agreement, and in accordance with, and subject to, the authorization of the Board of Directors of Ally Inc., Ally Inc. committed to contribute capital to us in an amount necessary for us to exceed our consolidated tangible net worth covenant by $25.0 million as of and for the period ended January 31, 2012, provided such capital contribution was required as a result of operating losses in the ordinary course of business and did not exceed $100.0 million. We did not require capital support as of January 31, 2012.

In consideration of this Letter Agreement we have agreed to certain terms and conditions, including but not limited to, agreeing to meet our obligations to regulatory bodies or governmental agencies in connection with

Notes to Consolidated Financial Statements

Residential Capital, LLC

certain settlements and penalties (including the required payment under the Settlement described above), to negotiate in good faith an amendment to our subservicing agreement with Ally Bank and to negotiate in good faith such documents as are necessary to terminate certain other of our agreements with Ally Bank and to enter into new agreements with Ally Investment Management Inc. (Ally IM), a wholly owned subsidiary of Ally Inc. Refer to Note 20 — Related Party Transactions for additional information.

All of our credit facilities and certain other agreements contain covenants that require us to maintain consolidated tangible net worth of $250.0 million as of each month end. There are cross default provisions included within and among our credit facilities and our senior unsecured and junior secured debt and certain other agreements. A default under any one of these agreements can, through cross default provisions, create defaults in all of our other agreements. Failure to meet this covenant represents an event of default and may result in, among other things, an acceleration of the facility’s maturity and/or may trigger an early amortization event. See Note 9 — Borrowings for additional information related to our financial covenants and counterparties remedies in an event of default.

We recorded net losses of $845.1 million for the year ended December 31, 2011, and our consolidated tangible net worth, as defined, as of December 31, 2011 was $92.4 million, which constitutes an event of default under our credit facilities and certain other agreements. We obtained waivers or acknowledgment letters from each of our liquidity providers in connection with our credit facilities and counterparties to agreements with financial covenants under which they agreed not to pursue their contractual remedies with respect to the default. These waivers were predicated, in part, on the January 30, 2012 capital contribution we received from Ally Inc. We are in compliance with any conditions with respect to these waivers and acknowledgment letters. We are in compliance with all of our financial covenants as of March 28, 2012, the date of issuance of these Consolidated Financial Statements.

We seek to manage our liquidity and capital positions and explore initiatives to address our ongoing debt covenant compliance and liquidity needs, including debt maturing in the next twelve months and other risks and uncertainties. We have $2.0 billion in debt maturing in 2012, including $323.0 million in mortgage servicing rights secured funding facility borrowings maturing in March 2012 and $1.2 billion in secured borrowings from Ally Inc. and its subsidiaries maturing in April 2012. These initiatives could include, but are not limited to, the following: continuing to work with key credit providers to optimize all available liquidity options; continued exploration of funding and capital support from our parent and affiliates; and further reductions in assets or other restructuring activities, which could include a restructuring achieved through a Chapter 11 bankruptcy filing. In this context, we typically consider a number of factors to the extent applicable and appropriate including, without limitation, our financial condition, results of operations, and prospects, our ability to obtain third-party financing, tax considerations, the current and anticipated future trading price levels of our debt instruments, conditions in the mortgage banking industry and general economic conditions, and other investment and business opportunities available to us.

The outcomes of certain of these initiatives are, to a great extent, outside of our control, resulting in increased uncertainty as to their successful execution. There continues to be a risk that we may not be able to meet our debt service obligations, may default on our financial debt covenants due to insufficient capital, and/or may be in a negative liquidity position in future periods.

Consolidation and Basis of Presentation

The accompanying Consolidated Financial Statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Consolidated Financial Statements include our accounts and accounts of our majority–owned subsidiaries after

Notes to Consolidated Financial Statements

Residential Capital, LLC

eliminating all significant intercompany balances and transactions and include all variable interest entities (VIEs) in which we are the primary beneficiary. See Note 5 — Securitization and Variable Interest Entities for additional information. Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America.

We operate our international subsidiaries in a similar manner as we operate in the United States of America (U.S. or United States), subject to local laws or other circumstances that may cause us to modify our procedures accordingly. The financial statements of subsidiaries that operate outside of the United States are measured using the local currency as the functional currency. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year–end exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive income, a component of equity. Income and expense items are translated at average exchange rates prevailing during the reporting period.

Certain amounts in 2010 and 2009 have been reclassified to conform to the current period presentation. Amount reclassified in 2010 and 2009 relate to interest paid to investors of $57.2 million and $70.1 million in connection with consumer mortgage loans that were paid off prior to their stated maturity and interest paid to borrowers of $5.4 million and $5.6 million in connection with escrow deposits, both of which were included in interest expense in 2010 and 2009, we have reclassified these amounts to servicing fees in the Consolidated Statement of Income. Additionally, in 2010 and 2009 interest paid on loans of $57.9 million and $24.3 million related to loans repurchased out of Ginnie Mae securitizations, which was included in interest expense, has been reclassified to interest income in the Consolidated Statement of Income. Consumer and commercial finance receivables and loans that were previously presented net of allowance for loan losses, are now separately presented on our Consolidated Balance Sheets. Representation and warranty expense, net that was previously presented as a component of other noninterest expense, is now separately presented in our Consolidated Statement of Income. Certain balances within the operating, investing and financing sections of the Consolidated Statement of Cash Flows have been reclassified to conform to the current period presentation. These reclassifications have no impact to our consolidated financial position or results of operations.

During 2011, we identified errors in periods prior to 2011 which were not material to those prior periods. As a result, we corrected those errors in 2011 resulting in additional expense of $72.9 million, an increase in payables to affiliates of $47.4 million, and a net cash payment of $ 25.5 million. The misstatement had no impact on our consolidated financial condition at December 31, 2011.

Use of Assumptions and Critical Accounting Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period and related disclosures and critical accounting estimates. In developing these estimates and assumptions, management uses available evidence at the time of the financial statements. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ from our estimates. An accounting estimate is considered critical if the estimate requires management to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and if different estimates reasonably could have been used or changes in the accounting estimate are reasonably likely to occur from period to period that would have a material impact on our financial condition, results of operations or cash flows. If actual results differ from our assumptions, it may have an adverse impact on the results of operations and cash flows.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Valuation of Mortgage Loans Held–for–Sale

Mortgage loans held–for–sale are typically pooled together and sold into certain exit markets depending on the underlying attributes of the loan, product type, interest rate, and credit quality. To the extent observable market prices are not available, we will determine the fair value of mortgage loans held–for–sale using internally developed valuation models. These loans are valued on a discounted cash flow basis utilizing cash flow projections from internally developed models that require prepayment, default and discount rate assumptions. To the extent available, we will utilize market observable inputs such as interest rates and market spreads. If market observable inputs are not available, we are required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates. While numerous controls exist to calibrate, corroborate and validate the internal inputs, they require the use of judgment by us and can have a significant impact on the determination of the loan’s estimated fair value.

Valuation of Mortgage Servicing Rights

Mortgage servicing rights (MSRs) represent the capitalized value of the right to receive future cash flows from the servicing of mortgage loans for others. MSRs are a significant source of value derived from originating or acquiring mortgage loans. Because residential mortgage loans typically contain a prepayment option, borrowers often elect to prepay their mortgage loans by refinancing at lower rates during declining interest rate environments. The borrower’s ability to prepay is at times impacted by other factors in the current environment that may limit their eligibility to access a refinance (e.g. a high loan to value ratio). When this occurs, the stream of cash flows generated from servicing the original mortgage loan is terminated. As such, the market value of MSRs has historically been very sensitive to changes in interest rates and tends to decline as market interest rates decline and increase as interest rates rise. We capitalize MSRs on residential mortgage loans that we have originated and purchased based upon the fair value of the servicing rights associated with the underlying mortgage loans at the time the loans are sold or securitized. GAAP requires that the value of MSRs be determined based on market transactions for comparable servicing assets, if available. In the absence of representative market trade information, valuations should be based on other available market evidence and modeled market expectations of the present value of future estimated net cash flows that market participants would expect from servicing. When observable prices are not available, management uses internally developed discounted cash flow models 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 combined with market–based assumptions for loan prepayment rates, interest rates, default rates, and discount rates that management believes approximate yields required by investors for these assets. Servicing cash flows primarily include servicing fees, ancillary income, and late fees less operating costs to service the loans. The estimated cash flows are discounted using an option–adjusted spread-derived discount rate. Management considers the best available information and exercises significant judgment in estimating and assuming values for key variables in the modeling and discounting process. All of our MSRs are carried at estimated fair value.

We use the following key assumptions in our valuation approach:

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Prepayment — The most significant drivers of MSR value are actual and forecasted portfolio prepayment behavior. Prepayment speeds represent the rate at which borrowers repay their mortgage loans prior to scheduled maturity. The most significant factor influencing prepayment speeds is the interest rate environment. However, prepayment speeds are influenced by a number of factors such as the value of the collateral, government programs, and other market factors. As interest rates rise, prepayment speeds generally slow, and as interest rates decline, prepayment speeds generally accelerate. When mortgage loans are paid or expected to be paid earlier than originally estimated, the expected future cash flows associated with servicing such loans are reduced. We primarily use third–party models to project residential mortgage loan payoffs. In other cases, we estimate prepayment

Notes to Consolidated Financial Statements

Residential Capital, LLC

speeds based on historical and expected future prepayment rates. We measure model performance by comparing prepayment predictions against actual results at both the portfolio and product level.

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Discount rate — The cash flows of our MSRs are discounted utilizing appropriate risk-adjusted yield assumptions that, when applied to projected cash flows, produce benchmarked fair value.

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Base mortgage rate — The base mortgage rate represents the current market interest rate for newly originated mortgage loans. This rate is a key component in estimating prepayment speeds of our portfolio because the difference between the current base mortgage rate and the interest rates on existing loans in our portfolio is an indication of the borrower’s likelihood to refinance.

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Cost to service — In general, servicing cost assumptions are based on actual expenses directly related to servicing. These servicing cost assumptions are compared to market-servicing costs when market information is available. Our servicing cost assumptions include expenses associated with our activities related to loans in default.

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Volatility — Volatility represents the expected rate of change of interest rates. The volatility assumption used in our valuation methodology is intended to estimate the range of expected outcomes for future interest rates. We use implied volatility assumptions in connection with the valuation of our MSRs. Implied volatility is defined as the expected rate of change in interest rates derived from the prices at which options on interest rate swaps or swaptions are trading.

We also periodically perform a series of reasonableness tests as we deem appropriate, including the following:

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Review and compare data provided by an independent third–party broker. We evaluate and compare our fair value price, multiples, and underlying assumptions to data, including prepayment speeds, discount rates, and cost to service provided by an independent third–party broker.

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Review and compare pricing of publicly traded interest-only securities. We evaluate and compare our fair value to publicly traded interest-only stripped mortgage-backed securities by age and coupon for reasonableness.

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Review and compare fair value price and multiples. We evaluate and compare our fair value price and multiples to market fair value price and multiples in external surveys produced by third–parties.

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Compare actual monthly cash flows to projections. We compare actual monthly cash flows to those projected in the MSR valuation. Based upon the results of this comparison, we assess the need to modify the individual assumptions used in the valuation. This process calibrates the model to actual servicing cash flow results.

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Review and compare recent bulk mortgage servicing right acquisition activity. We evaluate market trades for reliability and relevancy and then consider, as appropriate, our estimate of fair value of each significant transaction to the traded price. Currently, there is a lack of comparable transactions between willing buyers and sellers in the bulk acquisition market, which are the best indicators of fair value. However, we continue to monitor and track market activity on an ongoing basis.

We generally expect our valuation to be within a reasonable range of these comparisons. Changes in these assumptions could have a significant impact on the determination of fair value. In order to develop our best estimate of fair value, management reviews and analyzes the output from the models and makes adjustments to the valuation to take into consideration other factors that may not be captured. If we determine our valuation has exceeded the reasonable range, we may adjust it accordingly.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The assumptions used in modeling expected future cash flows of MSRs have a significant impact on the fair value of MSRs and potentially a corresponding impact to earnings. See Note 6 — Servicing Activities for sensitivity analysis. At December 31, 2011, based on the market information obtained, we determined that our MSR valuations and the assumptions used to value those servicing rights were reasonable and consistent with what an independent market participant would use to value the assets.

Legal and Regulatory Reserves

Our legal and regulatory reserves reflect management’s best estimate of probable losses in connection with legal and regulatory matters. As a legal or regulatory matter develops, management, in conjunction with internal and external counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency related to a legal or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. When the loss contingency related to a legal or regulatory matter is deemed to be both probable and estimable, we will establish a liability with respect to such loss contingency and record a corresponding amount to other noninterest expense, net. To estimate the probable loss, we evaluate the individual facts and circumstances of the case including information learned through the discovery process, rulings on dispositive motions, settlement discussions, our prior history with similar matters and other rulings by courts, arbitrators or others. The reserves are continuously monitored and updated to reflect the most recent information related to each matter.

Additionally, in matters for which a loss contingency is not deemed probable, but rather reasonably possible to occur, we would attempt to estimate a loss or range of loss related to that event, if possible. For these matters, we do not record a liability. However, if we are able to estimate a loss or range of loss, we would disclose this loss if it is material to our consolidated financial statements. To estimate a range of probable or reasonably possible loss, we evaluate each individual case in the manner described above. We do not accrue for matters for which a loss event is deemed remote.

For details regarding the nature of all material contingencies, refer to Note 19 — Guarantees, Commitments and Contingencies.

Liability for Representation and Warranty Obligations

The liability for representation and warranty obligations reflects management’s best estimate of probable lifetime loss. We consider historical and recent demand trends in establishing the reserve. The methodology used to estimate the reserve considers a variety of assumptions including borrower performance (both actual and estimated future defaults), repurchase demand behavior, historical loan defect experience, historical and estimated future loss experience, which includes projections of future home price changes as well as other qualitative factors including investor behavior. In cases where we have limited or no current or historical demand experience with an investor, because of the inherent difficulty in predicting the level and timing of future demands, if any, losses cannot be reasonably estimated, and a liability is not recognized. Management monitors the adequacy of the overall reserve and makes adjustments to the level of reserve, as necessary, after consideration of other qualitative factors including ongoing dialogue with counterparties.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and certain highly liquid investment securities with maturities of three months or less from the date of purchase. Cash and cash equivalents that have restrictions as to our ability to withdraw the funds are included in other assets. The fair value of cash equivalents approximates book value because of the short maturities of these instruments.

Securitizations and Variable Interest Entities

We securitize, sell, and service consumer mortgage loans. Securitization transactions typically involve the use of variable interest entities and are accounted for either as sales or secured financings. Economic interests in the securitized and sold assets are generally retained in the form of senior or subordinated interests, interest– or principal–only strips, cash reserve accounts, residual interests, and servicing rights.

In order to conclude whether or not a variable interest entity is required to be consolidated, careful consideration and judgment must be given to our continuing involvement with the variable interest entity. In circumstances where we have both the power to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, we consolidate the entity, which would also preclude us from recording an accounting sale on the transaction. In the case of a consolidated variable interest entity, the accounting is consistent with a secured financing, that is, we continue to carry the loans and we record the securitized debt on our balance sheet. Further, there is no specific accounting record of our economic interests; rather, they are captured as the difference between the recognized assets and liabilities.

In transactions where either one or both of the power or economic criteria mentioned above are not met, we determine whether or not we achieve a sale for accounting purposes. In order to achieve sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond our control. If we were to fail any of the three criteria for sale accounting, the accounting would be consistent with the preceding paragraph (i.e., a secured borrowing). However, if we meet the criteria, the transaction would be recorded as a sale, and the variable interest entity would not be consolidated. See Note 5 — Securitizations and Variable Interest Entities for discussion on variable interest entities.

Gains or losses on off–balance sheet securitizations take into consideration the fair value of the retained interests including the value of certain servicing assets or liabilities, which are initially recorded at fair value at the date of sale. The estimate of the fair value of the retained interests and servicing requires us to exercise significant judgment about the timing and amount of future cash flows from the interests. See Note 16 — Fair Value for a discussion of fair value estimates.

Gains or losses on off–balance sheet securitizations are reported in gain on mortgage loans, net. Changes in the fair value of retained interests are reflected in other revenue, net. Retained interests, as well as any purchased securities, are included in other assets. Securities that are noncertificated and cash reserve accounts related to securitizations are included in other assets.

We generally retain master servicing for our non-agency consumer mortgage loan securitizations. We may receive servicing fees based on the securitized loan balances and certain ancillary fees, all of which are reported in servicing fees. We also retain the right to service the consumer mortgage loans sold in securitization transactions involving Ginnie Mae, Fannie Mae, Freddie Mac, and private investors.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Whether on or off balance sheet, the investors in the securitization trusts generally have no recourse to our assets outside of customary market representation and warranty provisions.

Mortgage Loans Held–for–sale

Loans held-for-sale are carried at lower of cost or fair value or at estimated fair value. The majority of held-for-sale loans are pooled together for purposes of determining the lower of cost or fair value based on loan characteristics. Loan origination fees, as well as discount points and incremental direct origination costs, are initially recorded as an adjustment of the cost of the loan and are reflected in the gain or loss on sale of loans when sold. Fair value is determined by type of loan and is generally based on contractually established commitments from investors, current investor yield requirements, current secondary market pricing, or cash flow models using market–based yield requirements. Our fair value option election loans primarily consist of conforming and government-insured mortgage loans. See Note 16 — Fair Value for details on fair value measurement.

We hold conditional repurchase options in off-balance sheet securitizations that allow us to repurchase a loan at par if it exceeds a certain pre-specified delinquency level (e.g. 90 days). We have discretion regarding when or if we will exercise these options, but generally we will do so only when it is in our best interest. We recognize those assets that can be repurchased under the conditional repurchase option (and any related liability to pay the trust) once the condition has been satisfied, but only in those situations where we have determined that we would have a more than trivial benefit. The assets are recorded in mortgage loans held-for-sale with a corresponding liability in other liabilities. We do not record the asset (and related liability to pay the trust) when delinquent loan repurchase options are both quantitatively and qualitatively deep out of the money, because we would not have a more than trivial benefit from the options.

Finance Receivables and Loans

We classify finance receivables and loans either as held-for-sale or held-for-investment based on management’s assessment of its intent and ability to hold for the foreseeable future or until maturity. Management’s intent and ability may change from time to time depending on a number of factors including economic, liquidity, and capital conditions. Management’s view of the foreseeable future is generally a twelve–month period based on the longest reasonably reliable net income, liquidity, and capital forecast period.

We elected the fair value option for consumer mortgage finance receivables and loans related to certain of our on–balance sheet securitizations, including those securitization trusts that were consolidated upon the adoption of ASU 2009–17. These securitized mortgage loans are legally isolated from us and are beyond the reach of our creditors. They are measured at fair value using a portfolio approach, or an in-use premise. The values for loans held on an in-use basis may differ considerably from loans held–for–sale that can be sold in the whole-loan market. This difference arises primarily due to the liquidity of the asset-backed (ABS) or mortgage-backed (MBS) security market and is evident in the fact that spreads applied to lower rated ABS/MBS are considerably wider than spreads observed on senior bond classes and in the whole-loan market. The objective in linking the fair value of these loans to the fair value of the related securitization debt is to properly account for our retained economic interest in the securitizations. See Note 16 — Fair Value for details on fair value measurement.

The balance of our consumer finance receivables and loans are reported at the principal amount outstanding, net of unearned income, premiums and discounts, and allowances. Unearned income, which includes deferred origination fees reduced by origination costs, is amortized over the contractual life of the related finance receivable or loan using the interest method. Loan commitment fees are deferred and amortized over the commitment period.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Our portfolio segments are based on the level at which we develop and document our methodology for determining the allowance for loan losses. Additionally, the classes of finance receivables are based on several factors including the method for monitoring and assessing credit risk, the method of measuring carrying value, and the risk characteristics of the finance receivable. Based on an evaluation of our process for developing the allowance for loan losses including the nature and extent of exposure to credit risk arising from our finance receivables, we have determined our portfolio segments to be consumer and commercial.

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Consumer mortgage — Consists of the following classes of finance receivables.

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1st Mortgage — Consists of residential mortgage loans that are secured in a first–lien position and have priority over all other liens or claims on the respective collateral.

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Home equity — Consists of residential home equity loans or mortgages with a subordinate–lien position.

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Commercial — Consists of the following classes of finance receivables.

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Commercial and Industrial Mortgage — Consists primarily of warehouse lending.

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Commercial Real Estate Mortgage — Related primarily to activities within our international operations which provided financing to residential land developers and homebuilders.

Impaired Loans

For all classes of consumer loans, impaired loans are loans that have been modified in troubled debt restructuring (TDR). All classes of commercial loans are considered impaired on an individual basis and reported when we determine it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement, including TDR. Income recognition is consistent with that of nonaccrual loans.

Nonaccrual Loans

Generally, we recognize all classes of loans as past due when they are 30 days delinquent. Revenue recognition is suspended when loans are placed on nonaccrual status. Generally, all classes of consumer loans are placed on nonaccrual status when delinquent for more than 60 days or when determined not to be probable of full collection. All commercial loans are placed on nonaccrual status when delinquent for more than 90 days. Revenue accrued, but not collected, at the date loans are placed on nonaccrual status is reversed and subsequently recognized only to the extent it is received in cash or until the loan qualifies for return to accrual status. Where there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of the loan. Loans are restored to accrual status only when contractually current and the collection of future payments is reasonably assured. Typically, this requires a sustained period of repayment performance of at least six consecutive months by the borrower.

Charge–offs

Consumer first–lien mortgage loans, which consist of our entire 1st mortgage class and a subset of our home equity class that are secured by real estate, are written down to the estimated fair value of the collateral, less costs to sell, once a mortgage loan becomes 180 days past due. Second-lien consumer mortgage loans within our consumer home equity class are charged off at 180 days past due. First and second–lien consumer mortgage loans in bankruptcy that are 60 days past due are written down to the estimated fair value of the collateral, less costs to sell, within 60 days of receipt of notification of filing from the bankruptcy court. Loans are considered collateral dependent at the time foreclosure proceedings begin and are charged off to the estimated fair value of the collateral, less costs to sell.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Commercial loans are individually evaluated and where collectability of the recorded balance is in doubt are written down to estimated fair value of the collateral, less costs to sell. Generally, all commercial loans, both collateral and noncollateral dependent, are charged off when they are 360 days or more past due.

Allowance for Loan Losses

The allowance for loan losses (the allowance) is management’s estimate of incurred losses on the consumer and commercial finance receivable and loan portfolios. We determine the amount of the allowance required for each of our portfolio segments based on its relative risk characteristics. The evaluation of these factors for both consumer and commercial finance receivables and loans involves complex, subjective judgments. Additions to the allowance are charged to current period earnings through the provision for loan losses; amounts determined to be uncollectible are charged directly against the allowance, net of amounts recovered on previously charged–off accounts.

The allowance is comprised of two components: reserves established for specific loans evaluated as impaired and portfolio-level reserves established for large groups of typically smaller balance homogenous loans that are collectively evaluated for impairment. We evaluate the adequacy of the allowance based on the combined total of these two components. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.

Measurement of impairment for specific reserves is generally determined on a loan–by–loan basis. An individual loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the agreement. Loans determined to be specifically impaired are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, an observable market price, or the estimated fair value of the collateral less estimated costs to sell whichever is determined to be the most appropriate. When these measurement values are lower than the carrying value of that loan, impairment is recognized. Loans that are deemed not to be individually impaired are pooled with other loans with similar risk characteristics for evaluation of impairment for the portfolio-level allowance.

For the purpose of calculating portfolio-level reserves, we have determined logical grouping of loans into two portfolio segments: consumer mortgage and commercial. The allowance consists of the combination of a quantitative assessment component based on statistical models, a retrospective evaluation of actual loss information to loss forecasts, and may include a qualitative component based on management judgment. Management takes into consideration relevant qualitative factors, including external and internal trends such as the impacts of changes in underwriting standards, collections and account management effectiveness, geographic concentrations, and economic events, among other factors, that have occurred but are not yet reflected in the quantitative assessment component. All qualitative adjustments are adequately documented, reviewed, and approved through our established risk governance processes.

Mortgage Servicing Rights

Primary servicing rights represent our right to service consumer residential mortgage loans. Primary servicing involves the collection of payments from individual borrowers and the distribution of these payments to the master servicer. Master servicing rights represent our right to service mortgage–and asset–backed securities and whole–loan packages issued for investors. Master servicing involves the collection of borrower payments from primary servicers and the distribution of those funds to investors. We may at times purchase and sell primary and master servicing rights through transactions with other market participants.

Notes to Consolidated Financial Statements

Residential Capital, LLC

We capitalize the value expected to be realized from performing specified mortgage servicing activities for others as MSRs when the expected future cash flows from servicing are projected to be more than adequate compensation for such activities. These capitalized servicing rights are purchased or retained upon sale or securitization of mortgage loans. MSRs are not recorded on securitizations accounted for as secured financings.

We measure all mortgage servicing assets at fair value. We define our servicing rights based on the availability of market inputs and the manner in which we manage the risks of our servicing assets. We leverage available relevant market data to determine the fair value of our recognized servicing assets.

Accounts Receivable

Accounts receivable are recorded at net realizable value and include servicer advances and receivables. Servicer advances arise in the ordinary course of business as we make advances to investors in mortgage loans serviced by us. Such advances are generally made to maintain scheduled investor cash flows in the event of borrower default or delinquency and may reflect payments of property taxes and insurance premiums in advance of collection from borrowers; principal and interest payments to investors prior to their collection from borrowers; and amounts advanced for mortgages in foreclosure. Servicer advances receive priority cash flows, including contractual interest, in the event of foreclosure or liquidation. As a result, the collection of the advances is reasonably assured. We establish a reserve for any servicing advances where collectability is in doubt.

Derivative Instruments and Hedging Activities

We use derivative instruments for risk management purposes. Certain of our derivative instruments were designated as qualifying hedge accounting relationships; other derivative instruments do not qualify for hedge accounting or have not been elected to be designated as a qualifying hedging relationship. All derivative financial instruments, whether designated for hedge accounting or not, are recorded as other assets or other liabilities and are measured at fair value. Additionally, we report derivative financial instruments on a gross basis.

At inception of a hedging relationship, we designate each qualifying derivative financial instrument as a hedge of the fair value of a specifically identified asset or liability (fair value hedge), as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or as a hedge of the foreign currency exposure of a net investment in a foreign operation. We formally document all relationships between hedging instruments and hedged items and risk management objectives for undertaking various hedge transactions. Both at the hedge’s inception and on an ongoing basis, we formally assess whether the derivatives designated in hedging relationships are highly effective in offsetting changes in the fair values or cash flows of hedged items.

Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges, along with the gain or loss on the hedged asset or liability attributable to the hedged risk, are recorded in current period earnings. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative financial instrument is recorded in accumulated other comprehensive income, a component of equity, and recognized in the income statement when the hedged cash flows affect earnings. For a derivative designated as hedging the foreign currency exposure of a net investment in a foreign operation, the gain or loss is reported in accumulated other comprehensive income, a component of equity, as part of the cumulative translation adjustment with the exception of the spot to forward difference, which is recorded in current period earnings. The ineffective portions of fair value, cash flow, and net investment hedges are immediately recognized in earnings, along with the portion of the change in fair value that is excluded from the assessment of hedge effectiveness, if any.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The hedge accounting treatment described herein is no longer applied if a derivative financial instrument is terminated, or the hedge designation is removed or is assessed to be no longer highly effective. For these terminated fair value hedges, any changes to the hedged asset or liability remain as part of the basis of the asset or liability and are recognized into income over the remaining life of the asset or liability. For cash flow hedges, unless it is probable that the forecasted cash flows will not occur within a specified period, any changes in fair value of the derivative financial instrument previously recognized remain in other comprehensive income, a component of equity, and are reclassified into earnings in the same period that the hedged cash flows affect earnings. Any previously recognized net derivative gain or loss for a terminated net investment hedge should remain in accumulated other comprehensive income, a component of equity, until earnings are impacted by a sale or liquidation of the associated foreign operation. In all instances, any subsequent changes in fair value of the derivative instrument are recorded in current period earnings.

Changes in the fair value of derivative financial instruments held for risk management purposes that are not designated as hedges under GAAP are reported in current period earnings.

Foreclosed Assets

Assets are classified as foreclosed and included in other assets when physical possession of the collateral is taken regardless of whether foreclosure proceedings have taken place. Foreclosed assets are carried at the lower of the outstanding balance at the time of foreclosure or the fair value of the asset less estimated costs to sell. Losses on the revaluation of foreclosed assets are charged to gain on mortgage loans, net at the time of foreclosure. Declines in value after foreclosure are charged to gain (loss) on foreclosed real estate.

Property and Equipment

Property and equipment, stated at cost, net of accumulated depreciation and amortization, are reported in other assets. Included in property and equipment are certain buildings, furniture and fixtures, leasehold improvements, IT hardware and software, and capitalized software costs. Depreciation is computed on the straight–line basis over the estimated useful lives of the assets, which generally ranges from 3 to 30 years. Capitalized software is generally amortized on a straight–line basis over its useful life, which generally ranges from three to five years. Capitalized software that is not expected to provide substantive service potential or for which development costs significantly exceed the amount originally expected is considered impaired and written down to fair value. Software expenditures that are considered general, administrative, or of a maintenance nature are expensed as incurred.

Legal and Regulatory Reserves

Reserves for legal and regulatory matters are established when those matters present loss contingencies that are both probable and estimable, with a corresponding amount recorded to noninterest expense. In cases where we have an accrual for losses, it is our policy to include within that estimate, an estimate for probable and estimable legal expenses related to the case. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, we do not establish an accrued liability. We continue to monitor legal and regulatory matters for further developments that could affect the requirement to establish a liability or that may impact the amount of a previously established liability. There may be exposure to loss in excess of any amounts recognized. For certain other matters where the risk of loss is determined to be reasonably possible, estimable, and material to the financial statements, disclosure regarding details of the matter and an estimated range of loss is required. The estimated range of possible loss does not represent our maximum loss exposure. Financial statement disclosure is also required for matters that are deemed probable or reasonably possible, material to the financial statements, but for which an estimated range of loss is not possible to

Notes to Consolidated Financial Statements

Residential Capital, LLC

determine. While we believe our reserves are adequate, the outcome of legal and regulatory proceedings is extremely difficult to predict and we may settle claims or be subject to judgments for amounts that differ from our estimates. For details regarding the nature of all material contingencies, see Note 19 — Guarantees, Commitments and Contingencies.

Liability for Representation and Warranty Obligations

We sell loans that take the form of securitizations guaranteed by the GSEs and to whole–loan purchasers. In addition, we infrequently sell securities to investors through private-label securitizations. In prior years, our volume of private label securitization issuance was considerably larger and included securitized loans where monolines insured the related bonds. In connection with these activities we provide to the GSEs, investors, monoline, and whole–loan purchasers various representations and warranties related to the loans sold. These representations and warranties generally relate to, among other things, the ownership of the loan; the validity of the lien securing the loan; the loan’s compliance with the criteria for inclusion in the transaction, including compliance with underwriting standards or loan criteria established by the buyer; ability to deliver required documentation; and compliance with applicable laws. Generally, these representations and warranties may be enforced at any time over the life of the loan. We also assume all of the customary representation and warranty obligations for loans we purchase from Ally Bank and subsequently sell into the secondary market.

Upon a breach of a representation, we correct the breach in a manner conforming to the provisions of the sale agreement. This may require us either to repurchase the loan, to indemnify (make–whole) a party for incurred losses, or provide other recourse to a GSE, monoline, or investor. Repurchase demands and claims for indemnification payments are generally reviewed on a loan–by–loan basis to validate if there has been a breach requiring repurchase or a make–whole payment. We actively contest claims to the extent we do not consider them valid. In cases where we repurchase loans, we bear the subsequent credit loss on the loans. Repurchased loans are classified as held–for–sale and initially recorded at fair value. Any initial impairment is charged to the liability for representation and warranty obligations. We seek to manage the risk of repurchase and associated credit exposure through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor standards.

At the time a loan is sold, an estimate of the fair value of the liability is recorded and classified in other liabilities and recorded as a component of gain on mortgage loans, net. We recognize changes in the liability throughout the life of the sold loans, as necessary, when additional relevant information becomes available. Changes in the liability are recorded as representation and warranty expense.

Reinsurance Arrangements

We have entered into excess layer reinsurance agreements with non-affiliated private mortgage insurance (PMI) companies that provide PMI for certain of our mortgage loan servicing portfolio. We assume the risk of loss over a specified first loss percentage for covered loans and in return earn a portion of the PMI premium associated with those mortgage loans. We reserve for loss and loss adjustment expenses when notices of default on insured mortgage loans are received and the specified first loss percentage covered by the ceding company is exhausted.

Income Taxes

We are a division of Ally Inc. a corporation, for income tax purposes. We are subject to corporate U.S. Federal, state and local taxes and are included in the consolidated Ally Inc. U.S. Federal and unitary and/or consolidated state income tax returns. We provide for our U.S. Federal and state taxes on a stand alone basis,

COMPANY NAME

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued)

Sidehead (continued)

which is consistent with the applicable tax sharing agreement between us and our Parent. The tax sharing agreement requires taxes to be based on the income tax liability determined as if we were a separate affiliated group of corporations filing consolidated U.S. Federal and state income tax returns. Our foreign businesses have been and continue to operate as corporations and are subject to, and provide for, U.S. Federal, state, and/or foreign income tax.

Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not.

Recently Adopted Accounting Standards

Comprehensive Income–Presentation of Comprehensive Income (ASU 2011-05)

As of December 31, 2011, we early adopted Accounting Standards Update (ASU) 2011-05, which amended Accounting Standards Codification (ASC) 220, Comprehensive Income. The amendments increased the prominence of items reported in other comprehensive income and facilitated convergence between GAAP and International Financial Reporting Standards (IFRS). This ASU required that nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We elected to early adopt ASU 2011-05, including the deferral permitted under ASU 2011-12. (Comprehensive Income — Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05), by retrospective application for the three years ended December 31, 2011. Because this ASU impacts only presentation, there was not a material impact to our financial condition or results of operations.

Receivables–A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (ASU 2011-02)

As of July 1, 2011, we adopted ASU 2011-02, which amends ASC 310, Receivables. ASU 2011-02 clarifies which loan modifications constitute a TDR. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of TDRs. The ASU must be applied retrospectively to modifications made to the beginning of the annual period of adoption, which for us is January 1, 2011.

Effective September 30, 2011, ASU 2011-02 also required us to disclose the total amount of receivables and the allowance for credit losses related to those receivables that are newly considered impaired for which impairment was previously measured under ASC 450-20, Contingencies — Loss Contingencies. Refer to Note 4 — Finance Receivables and Loans, Net for additional information regarding TDRs.

The adoption did not have a material impact to our consolidated financial condition or results of operations.

Receivables–Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20)

ASU 2010-20 was implemented in three distinct components as required by the ASU. Beginning with the three months ended September 30, 2011 and in conjunction with the requirements of ASU 2011-02, the deferral

Notes to Consolidated Financial Statements

Residential Capital, LLC

of TDR related disclosures within ASU 2010-20 prescribed by ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, was ended, which required us to expand our TDR disclosures to include more information on modifications that are classified as TDRs. Beginning with the three months ended March 31, 2011, ASU 2010-20 required us to disclose a rollforward of the allowance for loan losses and additional activity-based disclosures for both financing receivables, and the allowance for each reporting period. We early adopted the rollforward requirement during the December 31, 2010, reporting period along with the initial expansion of disclosures related to the credit quality of finance receivables and loans. Since the guidance relates only to disclosures, adoption of each of the phases did not have a material impact on our consolidated financial condition or results of operations.

Recently Issued Accounting Standards

Fair Value Measurement — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU 2011-04)

In May 2011, the FASB issued ASU 2011-04, which amends ASC 820, Fair Value Measurements. The amendments in this ASU clarify how to measure fair value. It is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. The ASU will be effective for us on January 1, 2012, and must be applied prospectively. Early adoption is not permitted. We do not expect the adoption to have a material impact to our consolidated financial condition or results of operations.

Balance Sheet — Disclosures about Offsetting Assets and Liabilities (ASU 2011-11)

In December 2011, the FASB issued ASU 2011-11, which contains new disclosure requirements regarding the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The new disclosures will give financial statement users information about both gross and net exposures. ASU 2011-11 is effective for us on January 1, 2013, and retrospective application is required. Since the guidance relates only to disclosures, adoption is not expected to have a material impact on our consolidated financial condition or results of operations.

2. Discontinued Operations

On January 30, 2009, Ally Inc. exercised its option to convert its 806,344 units of noncumulative, nonparticipating, perpetual preferred membership interest in us into the same number of preferred membership interests in IB Finance Holding Company, LLC (IB Finance). IB Finance owns Ally Bank, a commercial state nonmember bank chartered under the laws of the State of Utah. Also on January 30, 2009, we entered into an agreement and consummated a transaction pursuant to which Ally Inc. acquired 100% of our remaining nonvoting common interests in IB Finance, which common interests are attributable to the mortgage finance operations of Ally Bank. As a result of this transaction we deconsolidated IB Finance, including its subsidiary Ally Bank.

On October 1, 2010, we completed the sale of our United Kingdom (U.K.) and continental Europe (CE) platforms. These platforms included residential mortgage loan origination, acquisition, servicing, asset management, sale, and securitizations in the United Kingdom and continental Europe (the Netherlands and Germany). We classified our U,K. platform as discontinued operations in the year ended December 31, 2010. We classified our CE platforms as discontinued operations in the year ended December 31, 2009.

The associated operations and cash flows have been eliminated from our operations, and we will not have any significant continuing involvement in these platforms after the completion of the sale transactions. For all

Notes to Consolidated Financial Statements

Residential Capital, LLC

periods presented, all of the operating results were removed from continuing operations and are presented separately as discontinued operations, net of tax. The Notes to our Consolidated Financial Statements were adjusted to exclude discontinued operations unless otherwise noted.

Selected financial information for these discontinued operations is summarized below.


December 31, ($ in thousands)	2011		2010			2009
International Operations
Total net revenue	$	—	$	60,206		$	(637,619	)
Provision for loan losses		—		21,907			556,033
Noninterest expense, net		—		(8,768	)		1,040,261

Income (loss) before income taxes including direct costs to transact a sale		—		47,067			(2,233,913	)
Income tax benefit		—		(3,149	)		121

Net income from discontinued operations	$	—	$	50,216		$	(2,234,034	)

Ally Bank (a)
Total Net Revenue	$	—	$	—		$	34,488
Provision for loan losses		—		—			97,720
Noninterest expense		—		—			22,360

Loss before income taxes and noncontrolling interest		—		—			(85,592	)
Income tax benefit		—		—			(32,802	)

Loss before noncontrolling interest		—		—			(52,790	)
Less: Noncontrolling interest (b)		—		—			3,430

Net loss from discontinued operations	$	—	$	—		$	(56,220	)

(a)	This represents the activity from January 1, 2009, to the sale date of January 30, 2009.

(b)	Noncontrolling interest represents our interest in the automotive division of Ally Bank.

Notes to Consolidated Financial Statements

Residential Capital, LLC

3. Mortgage Loans Held–for–sale

The composition of residential mortgage loans held–for–sale reported at carrying value, were as follows.


	2011						2010
December 31, ($ in thousands)	Domestic (a) (b)		Foreign		Total		Domestic (a) (b)		Foreign		Total
1st Mortgage	$	3,497,392	$	12,011	$	3,509,403	$	3,788,748	$	10,461	$	3,799,209
Home equity		740,222		—		740,222		855,566		132		855,698

Total loans held–for–sale (c)	$	4,237,614	$	12,011	$	4,249,625	$	4,644,314	$	10,593	$	4,654,907

(a)

Includes mortgage loans subject to conditional repurchase options of $2.3 billion and $2.3 billion sold to Ginnie Mae guaranteed securitizations and $105.8 million and $145.7 million sold to off-balance sheet private-label securitization trusts at December 31, 2011 and 2010, respectively. The corresponding liability is recorded in other liabilities. See Note 5 — Securitizations and Variable Interest Entities for additional information.

(b)	Includes mortgage loans for which we have elected the fair value option of $57.0 million and $21.8 million at December 31, 2011 and December 31, 2010, respectively. See Note 16 — Fair Value for additional information.

(c)

The carrying values are net of discounts of $313.1 million and $295.1 million, fair value adjustments of ($28.0) million and ($0.9) million, lower of cost or fair value adjustments of $60.2 million and $48.4 million, and UPB write-downs of $1.5 billion and $1.8 billion at December 31, 2011 and 2010, respectively.

4. Finance Receivables and Loans, Net

The composition of finance receivables and loans, net reported at carrying value before allowance for loan losses, were as follows.


	2011						2010
December 31, ($ in thousands)	Domestic		Foreign		Total		Domestic		Foreign		Total
Consumer
1st Mortgage	$	130,024	$	256,494	$	386,518	$	140,998	$	452,435	$	593,433
Home equity		636,212		—		636,212		720,269		—		720,269

Total consumer (a) (b)		766,236		256,494		1,022,730		861,267		452,435		1,313,702

Commercial						—
Commercial and industrial		—		23,860		23,860		—		40,771		40,771
Commercial real estate		—		14,157		14,157		554		75,991		76,545

Total commercial		—		38,017		38,017		554		116,762		117,316

Total finance receivables and loans	$	766,236	$	294,511	$	1,060,747	$	861,821	$	569,197	$	1,431,018

(a)	Consumer mortgages include $835.2 million and $1.0 billion at fair value as a result of fair value option elections as of December 31, 2011 and 2010, respectively. See Note 16 — Fair Value for additional information.

(b)	The gross carrying value is net of fair value adjustments of $1.6 billion and $1.9 billion, and UPB write-downs of $8.0 million and $10.5 million at December 31, 2011 and 2010, respectively.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table presents an analysis of the activity in the allowance for loan losses on finance receivables and loans, net.


	2011									2010
($ in thousands)	Consumer			Commercial			Total			Consumer			Commercial			Total
Allowance at January 1,	$	17,681		$	25,129		$	42,810		$	38,602		$	133,779		$	172,381
Provision for loan losses
From continuing operations		680			23,341			24,021			10,356			(17,645	)		(7,289	)
From discontinued operations					—			—			—			—			—
Charge-offs
Domestic		(6,453	)		—			(6,453	)		(19,171	)		(49,740	)		(68,911	)
Foreign		(3,410	)		(42,018	)		(45,428	)		(2,347	)		(50,370	)		(52,717	)

Total charge-offs		(9,863	)		(42,018	)		(51,881	)		(21,518	)		(100,110	)		(121,628	)

Recoveries
Domestic		5,140			1,716			6,856			6,221			9,052			15,273
Foreign		—			6,810			6,810			—			53			53

Total recoveries		5,140			8,526			13,666			6,221			9,105			15,326
Net charge-offs		(4,723	)		(33,492	)		(38,215	)		(15,297	)		(91,005	)		(106,302	)
Deconsolidations (a)		—			—			—			(15,980	)		—			(15,980	)

Allowance at December 31,	$	13,638		$	14,978		$	28,616		$	17,681		$	25,129		$	42,810

Allowance for loan losses
Individually evaluated for impairment	$	3,035		$	14,978		$	18,013		$	3,626		$	23,799		$	27,425
Collectively evaluated for impairment	$	10,603		$	—		$	10,603		$	14,055		$	1,330		$	15,385
Finance receivables and loans
Individually evaluated for impairment	$	8,055		$	38,017		$	46,072		$	7,232		$	109,171		$	116,403
Collectively evaluated for impairment	$	179,483		$	—		$	179,483		$	291,766		$	8,145		$	299,911

(a)	In the fourth quarter of 2010, we deconsolidated various securitization trusts. See Note 5 — Securitizations and Variable Interest Entities for additional information.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table presents an analysis of our past due finance receivables and loans at gross carrying value.


($ in thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total
December 31, 2011
Consumer mortgage
1st Mortgage	$	29,730	$	14,664	$	158,255	$	202,649	$	183,869	$	386,518
Home equity		13,064		6,488		11,850		31,402		604,810		636,212

Total consumer		42,794		21,152		170,105		234,051		788,679		1,022,730
Commercial
Commercial and industrial		—		—		322		322		23,538		23,860
Commercial real estate		—		1,736		12,212		13,948		209		14,157

Total commercial		—		1,736		12,534		14,270		23,747		38,017

Total	$	42,794	$	22,888	$	182,639	$	248,321	$	812,426	$	1,060,747

December 31, 2010
Consumer mortgage
1st Mortgage	$	40,840	$	27,166	$	178,909	$	246,915	$	346,518	$	593,433
Home equity		16,531		7,344		12,659		36,534		683,735		720,269

Total consumer		57,371		34,510		191,568		283,449		1,030,253		1,313,702
Commercial
Commercial and industrial		—		35,671		3,970		39,641		1,130		40,771
Commercial real estate		—		—		69,529		69,529		7,016		76,545

Total commercial		—		35,671		73,499		109,170		8,146		117,316

Total	$	57,371	$	70,181	$	265,067	$	392,619	$	1,038,399	$	1,431,018

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table presents the gross carrying value of our finance receivables and loans in nonaccrual status.


December 31, ($ in thousands)	2011		2010
Consumer mortgage (a)
1st Mortgage	$	199,702	$	313,455
Home equity		36,651		51,936

Total consumer		236,353		365,391
Commercial (b)
Commercial and industrial		322		39,641
Commercial real estate		12,212		69,529

Total commercial		12,534		109,170

Total	$	248,887	$	474,561

(a)

Interest revenue that would have been accrued on total nonaccrual consumer mortgage finance receivables and loans at original contractual rates was $31.6 million and $24.5 million during the year ended December 31, 2011 and 2010, respectively. Interest income recorded for these nonaccrual loans was $9.0 million and $18.4 million during the year ended December 31, 2011 and 2010, respectively.

(b)

Interest revenue that would have been accrued on total nonaccrual commercial mortgage finance receivables and loans at original contractual rates was $4.5 million and $8.3 million during the year ended December 31, 2011 and 2010, respectively. Interest income recorded for these nonaccrual loans was $0.7 million and $7.6 million during the year ended December 31, 2011 and 2010, respectively.

Management performs a quarterly analysis of its consumer and commercial finance receivable and loan portfolios using a range of credit quality indicators to assess the adequacy of the allowance based on historical and current trends. Based on our allowance methodology, our credit quality indicators for consumer mortgage loans are performing and nonperforming and for commercial mortgage finance receivables and loans are pass and criticized.

The following table presents the credit quality indicators for our consumer mortgage loan portfolio at gross carrying value.


	2011						2010
December 31, ($ in thousands)	Performing		Nonperforming		Total		Performing		Nonperforming		Total
Consumer mortgage
1st Mortgage	$	186,816	$	199,702	$	386,518	$	279,978	$	313,455	$	593,433
Home equity		599,561		36,651		636,212		668,333		51,936		720,269

Total consumer mortgage	$	786,377	$	236,353	$	1,022,730	$	948,311	$	365,391	$	1,313,702

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table presents the credit quality indicators for our commercial finance receivable and loan portfolio at gross carrying value.


	2011						2010
December 31, ($ in thousands)	Pass		Criticized (a)		Total		Pass		Criticized (a)		Total
Commercial
Commercial and industrial	$	—	$	23,860	$	23,860	$	—	$	40,771	$	40,771
Commercial real estate		209		13,948		14,157		198		76,347		76,545

Total commercial	$	209	$	37,808	$	38,017	$	198	$	117,118	$	117,316

(a)	Includes loans classified as special mention, substandard, or doubtful. These classifications are based on regulatory definitions and generally represent loans in our portfolio that are of higher default risk.

As of December 31, 2011, the five largest state concentrations based on carrying value for our U.S.–only finance receivables and loans, net were as follows.


December 31, 2011
California	10.8	%
Michigan	6.5	%
Ohio	6.3	%
Texas	4.9	%
Florida	4.4	%
All other	67.1	%

Total	100	%

Impaired Loans and Troubled Debt Restructurings

Impaired Loans

Loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement or if the loan has been modified under a troubled debt restructuring.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table presents information about our impaired finance receivables and loans recorded at historical cost.


($ in thousands)	Unpaid principal balance (a)		Carrying value before allowance		Impaired with no allowance		Impaired with an allowance		Allowance for impaired loans
December 31, 2011
Consumer mortgage
1st Mortgage	$	436	$	436	$	—	$	436	$	109
Home equity		7,619		7,619		173		7,446		2,926

Total consumer		8,055		8,055		173		7,882		3,035
Commercial
Commercial and industrial		322		322		—		322		202
Commercial real estate		12,271		12,212		1,442		10,770		4,592

Total commercial		12,593		12,534		1,442		11,092		4,794

Total	$	20,648	$	20,589	$	1,615	$	18,974	$	7,829

December 31, 2010
Consumer mortgage
1st Mortgage	$	512	$	512	$	—	$	512	$	257
Home equity		6,720		6,720		—		6,720		3,369

Total consumer		7,232		7,232		—		7,232		3,626
Commercial
Commercial and industrial		44,410		39,641		—		39,641		14,043
Commercial real estate		69,651		69,529		28,154		41,375		9,756

Total commercial		114,061		109,170		28,154		81,016		23,799

Total	$	121,293	$	116,402	$	28,154	$	88,248	$	27,425

(a)	Unpaid principal balance represents gross carrying value adjusted for UPB write-downs on transfers or charge offs in accordance with our policy.

The following table presents information about our impaired finance receivables and loans excluding loans carried at fair value due to fair value option elections.


	2011				2010				2009
Year ended December 31, ($ in thousands)	Average balance		Interest income		Average balance		Interest income		Average balance		Interest income
Consumer	$	7,756	$	379	$	34,006	$	1,723	$	376,838	$	18,107
Commercial		58,006		6,364		189,354		7,627		881,065		3,201

Total	$	65,762	$	6,743	$	223,360	$	9,350	$	1,257,903	$	21,308

At December 31, 2011 and 2010, there were no commercial commitments to lend additional funds to debtors owing receivables whose terms have been modified in a troubled debt restructuring.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Troubled Debt Restructurings

As part of our loss mitigation efforts and participation in certain governmental programs (e.g., the Making Home Affordable Program), we may offer loan modifications to borrowers experiencing financial difficulties (TDRs). Loan modifications can include any or all of the following; principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates. Modifications can be either temporary or permanent. Temporary loan modifications are generally used to monitor the borrower’s ability to perform under the revised terms over a specified trial period; if the borrower performs, it may become a permanent loan modification. The majority of loan modifications are completed under proprietary programs. Total TDRs recorded at historical cost and reported at gross carrying value are $33.6 million and $16.7 million at December 31, 2011, and 2010, respectively.

The following table presents information related to finance receivables and loans recorded at historical cost modified in connection with a troubled debt restructuring during the period.

Year Ended December 31, 2011 ($ in thousands)

Number
of
Loans

Pre-modification
gross carrying
value

Post-modification
gross carrying
value

Consumer mortgage

1st Mortgage

196

164

Home equity

2,511

2,347

Total consumer mortgage

2,707

2,511

Commercial

Commercial and industrial

37,550

27,789

Commercial real estate

3,426

3,098

Total commercial

40,976

30,887

Total

43,683

33,398

The following table presents information related to finance receivables and loans recorded at gross carrying value that redefaulted (180 days or more delinquent) on or before the one year anniversary of being modified. The charge-off amount is determined in accordance with our charge-off policy.


December 31, 2011 ($ in thousands)	Number of Loans		Gross carrying value		Charge-off amount
Consumer mortgage
Home equity		5	$	96	$	56

Total consumer mortgage		5	$	96	$	56

5. Securitizations and Variable Interest Entities

Overview

We are involved in several types of securitization and financing transactions that utilize special–purpose entities (SPEs). A SPE is an 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.

The SPEs involved in securitization and other financing transactions are generally considered variable interest entities (VIEs). VIEs are entities that have either a total equity investment that is insufficient to permit

Notes to Consolidated Financial Statements

Residential Capital, LLC

the entity to finance its activities without additional subordinated financial support or whose equity investors lack the ability to control the entity’s activities.

Securitizations

We provide a wide range of consumer mortgage loan products to a diverse customer base. We often securitize these loans through the use of securitization entities, which may or may not be consolidated on our Consolidated Balance Sheet. We securitize consumer mortgage loans through either the GSEs or private–label (nonagency) securitizations. For the periods presented our consumer mortgage loans were primarily securitized through the GSEs.

In executing a securitization transaction, we sell pools of financial assets to a wholly owned, bankruptcy–remote SPE, which then transfers the financial assets to a separate, transaction–specific securitization entity for cash, servicing rights, and in some transactions, other retained interests. The securitization entity is funded through the issuance of beneficial interests in the securitized financial assets. The beneficial interests take the form of either notes or trust certificates that are sold to investors and/or retained by us. These beneficial interests are collateralized by the transferred loans and entitle the investors to specified cash flows generated from the securitized loans. In the aggregate, these beneficial interests have the same average life as the transferred financial assets. In addition to providing a source of liquidity and cost–efficient funding, securitizing these financial assets also reduces our credit exposure to the borrowers beyond any economic interest we may retain. We securitize conforming residential mortgage loans through GSE securitizations and we historically securitized nonconforming mortgage loans through private-label securitizations.

Each securitization is governed by various legal documents that limit and specify the activities of the securitization entity. The securitization entity is generally allowed to acquire the loans, to issue beneficial interests to investors to fund the acquisition of the loans, and to enter into derivatives or other yield maintenance contracts (e.g., coverage by monoline bond insurers) to hedge or mitigate certain risks related to the financial assets or beneficial interests of the entity. A servicer, who is generally us, is appointed pursuant to the underlying legal documents to service the assets the securitization entity holds and the beneficial interests it issues. Servicing functions include, but are not limited to, making certain payments of property taxes and insurance premiums, default and property maintenance payments, as well as advancing principal and interest payments before collecting them from individual borrowers. Our servicing responsibilities, which constitute continued involvement in the transferred financial assets, consist of primary servicing (i.e., servicing the underlying transferred financial assets) and/or master servicing (i.e., servicing the beneficial interests that result from the securitization transactions). Certain securitization entities also require the servicer to advance scheduled principal and interest payments due on the beneficial interests issued by the entity regardless of whether cash payments are received on the underlying transferred financial assets. Accordingly, we are required to provide these servicing advances when applicable. See Note 6 — Servicing Activities for additional information regarding our servicing rights.

The GSEs provide a guarantee of the payment of principal and interest on the beneficial interests issued in securitizations. In private-label securitizations, cash flows from the assets initially transferred into the securitization entity represent the sole source for payment of distributions on the beneficial interests issued by the securitization entity and for payments to the parties that perform services for the securitization entity, such as the servicer or the trustee. In certain private-label securitization transactions, a liquidity facility may exist to provide temporary liquidity to the entity. The liquidity provider generally is reimbursed prior to other parties in subsequent distribution periods. Monoline insurance may also exist to cover certain shortfalls to certain investors in the beneficial interests issued by the securitization entity. As noted above, in certain private-label securitizations, the servicer is required to advance scheduled principal and interest payments due on the

Notes to Consolidated Financial Statements

Residential Capital, LLC

beneficial interests regardless of whether cash payments are received on the underlying transferred financial assets. The servicer is allowed to reimburse itself for these servicing advances. Additionally, certain private-label securitization transactions may allow for the acquisition of additional loans subsequent to the initial loan transfer. Principal collections on other loans and/or the issuance of new beneficial interests, such as variable funding notes, generally fund these loans; we are often contractually required to invest in these new interests.

We may retain beneficial interests in our private-label securitizations, which may represent a form of significant continuing economic interest. These retained interests include, but are not limited to, senior or subordinate mortgage– or asset–backed securities, interest–only strips, principal–only strips, and residuals. Certain of these retained interests provide credit enhancement to the trust as they may absorb credit losses or other cash shortfalls. Additionally, the securitization agreements may require cash flows to be directed away from certain of our retained interests due to specific over–collateralization requirements, which may or may not be performance–driven.

We generally hold certain conditional repurchase options that allow us to repurchase assets from the securitization entity. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining transferred financial assets or outstanding beneficial interests at our discretion once the asset pool reaches a predefined level, which represents the point where servicing becomes burdensome (a clean–up call option). The repurchase price is typically the par amount of the loans plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to repurchase a transferred financial asset if certain events outside our control are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives us the option to purchase the loan if it exceeds a certain prespecified delinquency level. We have discretion regarding when or if we will exercise these options, but generally, we would do so only when it is in our best interest.

Other than our customary representation and warranty obligations, these securitizations are nonrecourse to us, thereby transferring the risk of future credit losses to the extent the beneficial interests in the securitization entities are held by third parties. Representation and warranty provisions generally require us to repurchase loans or indemnify the investor or other party for incurred losses to the extent it is determined that the loans were ineligible or were otherwise defective at the time of sale. See Note 19 — Guarantees, Commitments and Contingencies for detail on representation and warranty provisions. We did not provide any noncontractual financial support to any of these entities during the year-ended December 31, 2011 and 2010.

Other Variable Interest Entities

Servicer Advance Funding Entity — To assist in the financing of our servicer advance receivables, we formed a SPE that issues term notes and variable funding notes to third–party investors that are collateralized by servicer advance receivables. These servicer advance receivables are transferred to the SPE and consist of delinquent principal and interest advances we made as servicer to various investors; property taxes and insurance premiums advanced to taxing authorities and insurance companies on behalf of borrowers; and amounts advanced for mortgages in foreclosure. The SPE funds the purchase of the receivables through financing obtained from the third–party investors and subordinated loans or an equity contribution from us. This SPE is consolidated on our balance sheet at December 31, 2011 and 2010. The beneficial interest holder of this SPE does not have legal recourse to our general credit. We do not have a contractual obligation to provide any type of financial support in the future, nor have we provided noncontractual financial support to the entity during the years ended December 31, 2011 and 2010.

Home Equity Funding Entity — To assist in the financing of certain of our home equity mortgage loans, we formed a SPE that issued variable funding notes to third–party investors that are collateralized by home equity

Notes to Consolidated Financial Statements

Residential Capital, LLC

loans and revolving lines of credit. This SPE is consolidated on our balance sheet at December 31, 2011 and 2010. The beneficial interest holder of this VIE does not have legal recourse to our general credit. We do not have a contractual obligation to provide any type of financial support in the future, nor have we provided noncontractual financial support to the entity during the years ended December 31, 2011 and 2010.

Other — We have involvement with other immaterial on-balance sheet VIEs. Most of these VIEs are used for additional liquidity whereby we sell certain financial assets to the VIE and issue beneficial interests to third parties for cash.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Involvement with Variable Interest Entities

The determination of whether financial assets transferred by us to VIEs (and related liabilities) are consolidated on our balance sheet (also referred to as on–balance sheet) or not consolidated on our balance sheet (also referred to as off–balance sheet) depends on the terms of the related transaction and our continuing involvement (if any) with the SPE. We are deemed the primary beneficiary and, therefore, consolidate VIEs for which we have both (a) the power through voting rights or similar rights to direct the activities that most significantly impact the VIE’s economic performance, and (b) a variable interest (or variable interests) that (i) obligates us to absorb losses that could potentially be significant to the VIE and/or (ii) provides us the right to receive residual returns of the VIE that could potentially be significant to the VIE. We determine whether we hold a significant variable interest in a VIE based on a consideration of both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. We assess whether we are the primary beneficiary of a VIE on an ongoing basis. Our involvement with consolidated and nonconsolidated VIEs in which we hold a variable interest as of December 31, 2011 and 2010 is presented below.


($ in thousands)	Consolidated involvement with VIEs			Assets of nonconsolidated VIEs, net (a)		Maximum exposure to loss in nonconsolidated VIEs (b)
December 31, 2011
On–balance sheet variable interest entities
Private-label securitizations	$	939,159		$	—	$	—
Servicer Advance Funding		955,823			—		—
Home Equity Funding		156,423			—		—
Other		2,541			—		—
Off–balance sheet variable interest entities
Ginnie Mae securitizations		2,651,939	(c)		44,126,607		44,126,607
Private-label securitizations		140,709	(d)		4,408,206		4,408,206

Total	$	4,846,594		$	48,534,813	$	48,534,813

December 31, 2010
On–balance sheet variable interest entities
Private-label securitizations	$	1,211,055		$	—	$	—
Servicer Advance Funding		1,022,749			—		—
Home Equity Funding		186,368			—		—
Other		11,517			—		—
Off–balance sheet variable interest entities
Ginnie Mae securitizations		2,908,823	(c)		43,594,804		43,594,804
Private-label securitizations		183,323	(d)		5,371,282		5,371,282

Total	$	5,523,835		$	48,966,086	$	48,966,086

(a)	Asset values represent the current UPB of outstanding consumer mortgage loans within the VIEs.

(b)

Maximum exposure to loss represents the current UPB of outstanding consumer mortgage loans based on our customary representation and warranty provisions. This measure is based on the unlikely event that all of the loans have underwriting defects or other defects that trigger a representation and warranty provision and the collateral supporting the loans are worthless. This required disclosure is not an indication of our expected loss.

(c)

Includes $377.8 million and $569.0 million classified as MSRs and $2.3 billion and $2.3 billion of mortgage loans held–for–sale that are subject to conditional repurchase options at December 31, 2011 and 2010, respectively. The corresponding liability related to conditional repurchase option loans is recorded in other liabilities.

(d)

Includes $26.5 million and $37.6 million classified as other assets, $8.4 million and $0.0 million classified as mortgage servicing rights, and $105.8 million and $145.7 million of mortgage loans held–for–sale that are subject to conditional repurchase options at December 31, 2011, and 2010, respectively. The corresponding liability related to conditional repurchase option loans is recorded in other liabilities.

Notes to Consolidated Financial Statements

Residential Capital, LLC

On–balance Sheet Variable Interest Entities

We engage in securitization and other financing transactions that do not qualify for off–balance sheet treatment. In these situations, we hold beneficial interests or other interests in the VIE, which represents a form of significant continuing economic interest. The interests held include, but are not limited to, senior or subordinate mortgage– or asset–backed securities, interest–only strips, principal–only strips, residuals, and servicing rights. Certain of these retained interests provide credit enhancement to the securitization entity as they may absorb credit losses or other cash shortfalls. Additionally, the securitization documents may require cash flows to be directed away from certain of our retained interests due to specific over–collateralization requirements, which may or may not be performance–driven. Because these securitization entities are consolidated, these retained interests and servicing rights are not recognized as separate assets on our Consolidated Balance Sheet.

We consolidate certain of these entities because we have a controlling financial interest in the VIE, primarily due to our servicing activities, and because we hold a significant variable interest in the VIE. We are the primary beneficiary of certain private-label securitization entities for which we perform servicing activities and have retained a significant variable interest in the form of a beneficial interest. In cases where we did not meet sale accounting under previous guidance, unless we have made modifications to the overall transaction, we do not meet sale accounting under current guidance as we are not permitted to revisit sale accounting guidelines under the current guidance. In cases where substantive modifications are made, we then reassess the transaction under the amended guidance based on the new circumstances.

Consolidated VIEs represent separate entities with which we are involved. The third–party investors in the obligations of consolidated VIEs have legal recourse only to the assets of the VIEs and do not have recourse to us, except for customary representation and warranty provisions or situations where we are the counterparty to certain derivative transactions involving the VIE. Cash flows from the assets are restricted only to pay such liabilities. Thus, our economic exposure to loss from outstanding third–party financing related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets. All assets are restricted for the benefit of the beneficial interest holders. See Note 16 — Fair Value for discussion of the assets and liabilities for which the fair value option has been elected.

Off-balance Sheet Variable Interest Entities

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. The cash flows from the assets of nonconsolidated securitization entities generally are the sole source of payment on the securitization entities’ liabilities. The creditors of these securitization entities have no recourse to us with the exception of market customary representation and warranty provisions as described in Note 19 — Guarantees, Commitments and Contingencies.

Nonconsolidated VIEs include entities for which we either do not hold significant variable interests or do not provide servicing or asset management functions for the financial assets held by the securitization entity. Additionally, to qualify for off–balance sheet treatment, transfers of financial assets must meet sale accounting conditions in ASC 860. Our residential mortgage loan securitizations consist of GSE and private-label securitizations. We are not the primary beneficiary of any GSE loan securitization transaction because we do not have the power to direct the significant activities of such entities. Additionally, we do not consolidate certain private-label securitizations because we do not have a variable interest that could potentially be significant or we do not have power to direct the activities that most significantly impact the performance of the VIE.

Notes to Consolidated Financial Statements

Residential Capital, LLC

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, servicing rights, or retained interests (if applicable). As an accounting policy election, we elected fair value treatment for our MSR portfolio. 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 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.

The following summarizes the pretax gains and losses recognized on financial assets sold into nonconsolidated securitization and similar asset-backed financing entities.


Year ended December 31, ($ in thousands)	2011		2010		2009
Consumer mortgage — GSEs	$	686,833	$	718,632	$	680,388
Consumer mortgage — nonagency		—		—		(4,191	)

Total pretax (loss) gain	$	686,833	$	718,632	$	676,197

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table summarizes cash flows received from and paid to securitization entities that are accounted for as a sale and in which we have a continuing involvement with the transferred assets (e.g., servicing) that were outstanding during 2011, 2010, and 2009. This table contains information regarding cash flows received from and paid to nonconsolidated securitization entities that existed during each period.


	Consumer mortgage
Year ended December 31, ($ in thousands)	GSEs			Nonagency
2011
Cash proceeds from transfers completed during the year	$	59,814,651		$	—
Cash flows received on retained interests in securitization entities		—			17,132
Servicing fees		518,084			194,882
Purchases of previously transferred financial assets
Representation and warranty obligations		(143,340	)		(37,386	)
Other repurchases		(2,537,257	)		(145,798	)(a)
Other cash flows		(6,302	)		186,637

Total net cash flows	$	57,645,836		$	215,467

2010
Cash proceeds from transfers completed during the year	$	68,821,918		$	—
Cash flows received on retained interests in securitization entities		—			27,559
Servicing fees (b)		476,901			188,553
Purchases of previously transferred financial assets
Representation and warranty obligations		(388,873	)		(13,343	)
Other repurchases		(1,865,408	)		(260,638	)(a)
Other cash flows		(25,200	)		(20,165	)

Total net cash flows	$	67,019,338		$	(78,034	)

2009
Cash proceeds from transfers completed during the year	$	56,250,755		$	34,049
Cash flows received on retained interests in securitization entities		—			118,656
Servicing fees		420,693			272,460
Purchases of previously transferred financial assets
Representation and warranty obligations		(342,750	)		(29,916	)
Other repurchases		(385,442	)		(821	)
Other cash flows		(148,059	)		(119,977	)

Total net cash flows	$	55,795,197		$	274,451

(a)	Includes repurchases in connection with clean up call options.

(b)

We determined the amounts previously disclosed related to servicing fees for the year ended December 31, 2010, were misstated. Previously disclosed servicing fees were $733.1 million for GSEs and $203.8 million for nonagency. These amounts were corrected in the presentation above. The misstatement had no impact on our consolidated financial condition or results of operations.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table represents on–balance sheet mortgage loans held–for–sale and consumer finance receivable and loans, off–balance sheet securitizations, and whole–loan sales where we have continuing involvement. The tables present information about delinquencies and net credit losses. See Note 6 — Servicing Activities for further detail on total serviced assets.


	Total UPB						Amount 60 days or more past due					Net credit losses (recoveries)
December 31, ($ in thousands)	2011			2010			2011			2010		2011		2010
On–balance sheet loans
Consumer mortgage held–for–sale	$	4,650,917	(a)	$	4,999,392	(a)	$	3,049,234	(a)	$	3,078,832	$	30,580	$	(43,446	)(b)
Consumer mortgage finance receivables and loans		2,623,763			3,203,724			422,017			448,280		131,297		214,120

Total on–balance sheet loans		7,274,680			8,203,116			3,471,251			3,527,112		161,877		170,674

Off–balance sheet securitization entities
Consumer mortgage — GSEs (c)		131,751,844			152,516,605			7,675,811			11,956,110		n/m		n/m
Consumer mortgage — nonagency		60,768,935			69,416,571			11,232,126			12,145,511		3,981,684		4,604,781

Total off–balance sheet securitization entities		192,520,779			221,933,176			18,907,937			24,101,621		3,981,684		4,604,781

Whole-loan transactions (d)		17,516,446			18,549,877			2,209,088			2,843,642		695,066		1,030,113	(b)

Total	$	217,311,905		$	248,686,169		$	24,588,276		$	30,472,375	$	4,838,627	$	5,805,568

n/m = not meaningful

(a)

Includes loans subject to conditional repurchase options of $2.3 billion and $2.3 billion guaranteed by Ginnie Mae, and $131.8 million and $145.7 million sold to certain nonagency mortgage securitization entities at December 31, 2011 and 2010, respectively. The corresponding liability is recorded in other liabilities.

(b)

We determined the amounts previously disclosed related to net credit losses for the year ended December 31, 2010, were misstated. Previously disclosed net credit losses were $119.3 million for on-balance sheet mortgage loans held-for-sale and $61.1 million for whole-loan transactions. These amounts were corrected in the presentation above. The misstatement had no impact on our consolidated financial condition or results of operations.

(c)	Anticipated credit losses are not meaningful due to the GSEs guarantees.

(d)	Whole-loan transactions are not part of a securitization transaction, but represent pools of consumer mortgage loans sold to investors.

Changes in Accounting for Variable Interest Entities

ASU 2009–17 became effective on January 1, 2010, and upon adoption, we consolidated certain securitization entities that were previously held off–balance sheet. On January 1, 2010, we recognized a net increase of $11.5 billion to assets and liabilities on our Consolidated Balance Sheet ($10.1 billion of the increase relates to operations classified as held–for–sale and ultimately sold).

We previously held on our Consolidated Balance Sheet certain mortgage securitization entities, which were on–balance sheet prior to the adoption of ASU 2009–17 because we did not meet the sale accounting requirements at the inception of the transactions. Specific provisions inherent in these deals, included but were not limited to, the ability of the trust to enter into a derivative contract and the inclusion of a five loan repurchase

Notes to Consolidated Financial Statements

Residential Capital, LLC

right. The existence of the ability to enter into a derivative precluded the entities from being deemed a QSPE and the existence of the five loan repurchase right precluded sale accounting treatment. These two provisions, when used in combination, were deemed substantive and precluded sale accounting. We also retained servicing and, in most cases, retained an economic interest in the entities in the form of economic residuals, subordinate bonds, and/or IO strips. During 2010, we completed the sale of 100% of our retained residuals and subordinate bonds related to certain of these on–balance sheet securitization entities. In addition, any repurchase rights associated with these structures were removed from these deals through exercise of such right. These collective actions were deemed to be substantial to warrant a recharacterization of the original transactions, and as such, they were reassessed under ASC 860, and it was concluded that the securitization entities satisfied sale accounting requirements. Furthermore, the sale of the 100% economic interests resulted in the loss of a controlling financial interest in the securitization entities and accordingly consolidation was not required. The combination of these actions resulted in the derecognition of assets previously sold to these securitization entities. Consolidated assets and consolidated liabilities of $1.2 billion and $1.2 billion, respectively, associated with this transaction were derecognized, and a gain of $51.3 million was recorded. During 2010, we completed the sale of our significant retained residuals and subordinate bonds related to certain other on-balance sheet securitization entities, which were consolidated upon adoption of ASU 2009–17 (but were not consolidated prior to the adoption of ASU 2009–17). Since we disposed of our variable interests in these securitization entities to unrelated third parties, a reassessment was required to determine whether we continued to hold a controlling financial interest. All subordinate retained economic interests in these entities were sold, and therefore, we no longer held a controlling financial interest. All assets and liabilities associated with the trust were derecognized and all retained interests in the entities, including insignificant retained senior interests and mortgage servicing rights, were recorded at their fair values at the date of deconsolidation. Consolidated assets and consolidated liabilities of $709.2 million and $707.1 million, respectively, associated with this transaction were derecognized and a gain of $1.4 million was recorded.

We continue to hold servicing rights associated with these deconsolidation transactions; however retained servicing does not preclude deconsolidation because the retained servicing we hold does not absorb a potentially significant level of variability in the securitization entities. Upon deconsolidation, $8.9 million of servicing rights and $1.3 million of retained interests associated with these transaction were recorded.

Notes to Consolidated Financial Statements

Residential Capital, LLC

6. Servicing Activities

Mortgage Servicing Rights

The following table summarizes our activity related to MSRs. Although there are no market transactions that are directly observable, management estimates fair value based on the price it believes would be received to sell the MSR asset in an orderly transaction under current market conditions.


($ in thousands)	2011			2010
Estimated fair value at January 1,	$	1,991,586		$	2,539,588
Additions recognized on sale of mortgage loans		54,357			184,494
Subtractions from sales of servicing assets		(401	)		(550	)
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model		(552,970	)		(148,973	)
Other changes in fair value		(259,465	)		(576,378	)
Changes in fair value related to discontinued operations
Other changes that affect the balance (a) (b)		—			(6,595	)

Estimated fair value at December 31,	$	1,233,107		$	1,991,586

(a)	In 2010 we derecognized $18.8 million of MSRs upon initial adoption of ASU 2009–17.

(b)	In 2010 we deconsolidated certain VIEs resulting in the recognition of $8.9 million of MSRs. See Note 5 — Securitizations and Variable Interest Entities for additional information.

Changes in fair value due to changes in valuation inputs or assumptions used in the valuation models 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 run-off of the portfolio.

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


December 31, ($ in thousands)	2011			2010
Weighted average life (in years)		4.3			5.8
Weighted average prepayment speed		18.0	%		12.2	%
Impact on fair value of 10% adverse change	$	(71,223	)	$	(91,142	)
Impact on fair value of 20% adverse change		(135,292	)		(172,307	)
Weighted average discount rate		9.5	%		13.2	%
Impact on fair value of 10% adverse change	$	(25,396	)	$	(43,670	)
Impact on fair value of 20% adverse change		(48,913	)		(85,104	)

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 rate and prepayment risks associated with these assets.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Risk–mitigation Activities

The primary economic risk related to our MSR is interest rate risk and the resulting impact on prepayment speeds. 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 this risk with both derivative and nonderivative financial instruments. These instruments include interest rate swaps, caps and floors, options to purchase these items, futures and forward contracts, constant monthly maturity (index trades), synthetic interest only and principal only securities and/or to–be–announced (TBAs) securities. The net fair value of derivative financial instruments used to mitigate this risk amounted to $(199.8) million, and $(207.6) million at December 31, 2011, and 2010, respectively. See Note 17 — Derivative Instruments and Hedging Activities for additional information.

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


Year ended December 31, ($ in thousands)	2011			2010			2009
Change in estimated fair value of mortgage servicing rights	$	(812,435	)	$	(725,351	)	$	(246,225	)
Change in fair value of derivative financial instruments		456,720			947,922			(516,169	)

Servicing valuation and hedge activities, net	$	(355,715	)	$	222,571		$	(762,394	)

Mortgage Servicing Fees

The components of servicing fees were as follows.


Year ended December 31, ($ in thousands)	2011		2010		2009
Contractual servicing fees (net of guarantee fees and including sub servicing)	$	638,406	$	725,864	$	828,807
Late fees		55,822		69,822		70,761
Ancillary fees		145,412		176,847		158,973

Total	$	839,640	$	972,533	$	1,058,541

Mortgage Servicer Advances

In connection with our primary 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. Servicer 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 servicer advances are included in accounts receivable and totaled $1.8 billion and $1.8 billion at December 31, 2011 and 2010, respectively. We maintain an allowance for uncollectible primary servicer advances, which totaled $42.5 million and $25.0 million at December 31, 2011 and 2010, respectively. Our potential advance obligation is influenced by a borrower’s performance and credit quality. Additionally, we have fiduciary responsibility for mortgage escrow and custodial funds of approximately $4.4 billion and $4.2 billion at December 31, 2011 and 2010, respectively. These amounts are segregated in custodial bank accounts, which are not included on our Consolidated Balance Sheet.

We advance funds for various activities related to the foreclosure process principally related to attorney fees and costs, appraisals, escrow, insurance and property preservation, in the event we, or the investor, determine

Notes to Consolidated Financial Statements

Residential Capital, LLC

foreclosure is the most appropriate loss mitigation strategy. In the current environment, many states and local jurisdictions are requiring us to alter our processes in connection with foreclosures and in some circumstances this can result in restarting the foreclosure process entirely or repeating certain of the required steps (foreclosure restarts). To the extent we restart the process, in whole or in part, we will not be reimbursed for advances in connection with the original activities. The circumstances and extent of any foreclosure restart are specific and unique to each state and/or local jurisdiction. During the year ended December 31, 2011, we recognized losses of $22.1 million in connection with foreclosure restarts. These losses are recorded in other noninterest expense, net. At December 31, 2011, we had an allowance for uncollectible advances in connection with estimated foreclosure restarts of $9.9 million.

At December 31, 2011, we had an allowance for uncollectible primary servicer advances of $7.5 million related to expected loan modification activities in connection with our February 9, 2012 settlement agreement. See Note — 19 Guarantees, Commitments and Contingencies for additional information. To the extent amounts had been advanced for loans that are expected to be modified in connection with the settlement, these amounts will not be collected. The amount of this allowance is management’s best estimate given the anticipated modification activity.

When we act as a subservicer of mortgage loans we perform the responsibilities of a primary servicer but do not own the corresponding primary servicing rights. We receive a fee from the primary servicer for such services. As the subservicer, we would have the same responsibilities of a primary servicer in that we would make 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. As of December 31, 2011 and 2010, outstanding servicer advances related to subserviced loans were $124.9 million and $140.0 million, and we had a reserve for uncollectible subservicer advances of $1.1 million and $0.5 million, respectively.

In many cases where we act as master servicer we also act as primary servicer. In connection with our master servicing activities, we service the mortgage–backed and mortgage–related asset–backed securities and whole–loan packages sold to investors. As the master servicer, we collect mortgage loan payments from primary servicers and distribute those funds to investors in mortgage–backed and asset–backed securities and whole–loan packages. As the master servicer, we are 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 are responsible for advancing the payment to the trust or whole–loan investors. Master servicer advances, including contractual interest, are priority cash flows in the event of a default, thus making their collection reasonably assured. In most cases, we are 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 servicer advances of $158.2 million and $90.4 million as of December 31, 2011 and 2010, respectively. We had no reserve for uncollectible master servicer advances at December 31, 2011 or 2010.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Serviced Mortgage Assets

In many cases, we act as both the primary and master servicer. However, in certain cases, we also service loans that have been purchased and subsequently sold through a securitization trust or whole–loan sale whereby the originator retained the primary servicing rights and we retained the master servicing rights.

The unpaid principal balance of total serviced mortgage assets was as follows.


December 31, ($ in millions)	2011		2010 (d)
On–balance sheet mortgage loans (a)
Held–for–sale and investment	$	6,828	$	8,310
Off–balance sheet mortgage loans
Loans held by third–party investors
Consumer mortgage private-label		50,886		59,463
Consumer mortgage agency		131,635		152,374
Consumer mortgage whole-loan portfolios		15,104		17,888
Purchased servicing rights (b)		3,247		3,946

Total primary serviced mortgage loans		207,700		241,981
Subserviced mortgage loans (c)		169,531		136,812

Master servicing only mortgage loans		8,557		10,548

Total serviced mortgage loans	$	385,788	$	389,341

(a)	Includes on–balance sheet securitization consumer finance receivables and loans. See Note 4 — Finance Receivables and Loans, net, for additional information.

(b)	There is no recourse to us outside of customary contractual provisions relating to the execution of the services we provide.

(c)

Includes loans where we act as a subservicer under contractual agreements with the primary servicer. As subservicer, there is no recourse to us outside of customary contractual provisions relating to the execution of the services we provide, except for loans subserviced on behalf of Ally Bank. See Note 20 — Related Party Transactions for additional information.

(d)

We have reclassified conditional repurchase option loans of $2.3 billion from off–balance sheet mortgage loans to on–balance sheet mortgage loans and $364.0 million of foreign mortgage loans from subserviced mortgage loans to primary serviced mortgage loans. These corrections had no impact on the total serviced mortgage loans.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table sets forth information concerning the delinquency experience in our domestic consumer mortgage loan primary servicing portfolio, including pending foreclosures.


	December 31, 2011						December 31, 2010
($ in millions)	Number of loans			Unpaid principal balance			Number of loans (a)			Unpaid principal balance (a)
Total U.S. mortgage loans primary serviced		1,587,113		$	207,380			1,802,172		$	241,391

Period of delinquency
30 to 59 days		67,239		$	9,289			75,324			10,488
60 to 89 days		25,138			3,695			29,106			4,303
90 days or more		27,570			4,467			28,079			4,413
Foreclosures pending		68,166			13,018			76,582			14,934
Bankruptcies		34,956			4,869			35,889			4,809

Total delinquent loans		223,069		$	35,338			244,980		$	38,947

Percent of U.S. mortgage loans primary serviced		14.1	%		17.0	%		13.6	%		16.1	%

(a)	We have reclassified resolved bankruptcies, previously reported in Bankruptcies, to their corresponding delinquency status at December 31, 2010. This classification is consistent with the December 31, 2011 presentation.

Certain of our subsidiaries which conduct our primary and master servicing activities are required to maintain certain servicer ratings in accordance with master agreements entered into with a GSE. At December 31, 2011, we are in compliance with the servicer rating requirements of the master agreements.

We are also required to maintain consolidated tangible net worth, as defined, of $250.0 million, under our agreements with a GSE. In the event of default, the GSE could require posting collateral in an amount based on repurchase demands outstanding plus recourse obligations; termination or suspension of our selling and servicing contract; require additional or more frequent financial and operational reporting; limit early funding programs or trading desk transactions; accelerate rebuttal time periods for outstanding repurchase demands; or take other actions permitted by law. Should we or our subsidiaries fail to remain in compliance with these requirements and as a result should our mortgage selling and servicing contract be terminated, cross default provisions within certain credit and bilateral facilities could be triggered. Our consolidated tangible net worth at December 31, 2011, was $92.4 million, in breach of our contractual covenant. We received a letter of acknowledgment from the GSE indicating they would take no immediate action in connection with the breach. We are in compliance with the contractual covenant as of March 28, 2012, the date of issuance of these Consolidated Financial Statements.

At December 31, 2011, domestic insured private-label securitizations with an unpaid principal balance of $6.0 billion contain provisions entitling the monoline or other provider of contractual credit support (surety providers) to declare a servicer default and terminate the servicer upon the failure of the loans to meet certain portfolio delinquency and/or cumulative loss thresholds. Securitizations with an unpaid principal balance of $5.4 billion had breached a delinquency and/or cumulative loss threshold. While we continue to service these loans and receive service fee income with respect to these securitizations, the value of the related MSR is zero at December 31, 2011. Securitizations with an unpaid principal balance of $607.3 million have not yet breached a delinquency or cumulative loss threshold. The value of the related MSR is $2.8 million at December 31, 2011.

Notes to Consolidated Financial Statements

Residential Capital, LLC

7. Accounts Receivable, Net


December 31, ($ in thousands)	2011		2010
Servicer advances, net (a)	$	2,045,446	$	2,026,128
Loan insurance guarantee receivable, net (b)		745,396		392,384
Due from brokers for derivative trades		94,024		9,749
Servicing fees receivable		87,208		110,195
Accrued interest receivable		37,962		48,315
Other		41,712		53,288

Total accounts receivable, net	$	3,051,748	$	2,640,059

(a)	The allowance for uncollectible servicer advances was $43.7 million and $25.5 million at December 31, 2011 and 2010, respectively.

(b)	Represents mortgage loans in foreclosure for which a guarantee from Ginnie Mae exists, net of a reserve for uncollectible guaranteed receivables of $21.8 million and $15.1 million at December 31, 2011 and 2010, respectively.

8. Other Assets


December 31, ($ in thousands)	2011			2010
Property and equipment at cost	$	252,890		$	366,312
Accumulated depreciation and amortization		(207,645	)		(325,602	)

Net property and equipment		45,245			40,710
Fair value of derivative contracts in receivable position		4,877,197			3,298,622
Collateral placed with derivative counterparties		1,095,287			1,244,398
Restricted cash (a)		448,819			609,594
Foreclosed assets		71,485			132,655
Trading securities		33,303			46,914
Interests retained in financial asset sales		23,102			20,588
Income taxes receivable		5,111			—
Available for sale securities		—			27,670
Other		28,603			64,050

Total other assets	$	6,628,152		$	5,485,201

(a)

At December 31, 2011, $93.8 million for a GSE collateral account, $126.1 million related to a cash reserve account for our reinsurance business, $3.9 million for appeals bond for legal proceedings, $112.0 million related to collateral posted with Ally Bank, and $76.1 million related to funds collected, but not yet distributed to a third–party. At December 31, 2010, restricted cash included $91.7 million for a GSE collateral account, $177.8 million related to a cash reserve account for our reinsurance business, $127.5 million for appeals bond for legal proceedings, $110.9 million related to collateral posted with Ally Bank, and $72.7 million related to funds collected, but not yet distributed to a third–party.

Notes to Consolidated Financial Statements

Residential Capital, LLC

9. Borrowings

Borrowings were as follows.


	Weighted average end of period interest rates						December 31,
	December 31,						2011						2010
($ in thousands)	2011			2010			Unsecured		Secured		Total		Unsecured		Secured		Total
2011
Short-term borrowings
Borrowings from parent		3.0	%		3.0	%	$	—	$	183,595	$	183,595	$	—	$	681,000	$	681,000
Borrowings from affiliate		5.1	%		—	%		—		250,000		250,000		—		—		—

Other short-term borrowings		6.3	%		4.5	%		—		323,000		323,000		13,363		955,811		969,174

Total short-term borrowings		5.0	%		3.9	%		—		756,595		756,595		13,363		1,636,811		1,650,174

Long-term borrowings
Borrowings from parent		3.0	%		3.0	%		—		755,769		755,769		—		845,775		845,775
Collateralized borrowings in securitization trusts (a)		4.7	%		5.0	%		—		830,318		830,318		—		1,057,287		1,057,287

Other long-term borrowings		8.0	%		8.3	%		1,096,789		3,285,615		4,382,404		1,342,167		3,153,113		4,495,280

Total long-term borrowings		6.9	%		7.1	%		1,096,789		4,871,702		5,968,491		1,342,167		5,056,175		6,398,342

Total borrowings		6.7	%		6.4	%	$	1,096,789	$	5,628,297	$	6,725,086	$	1,355,530	$	6,692,986	$	8,048,516

(a)	Collateralized borrowings with an outstanding balance of $2.6 billion and $3.0 billion were recorded at fair value of $829.9 million and $972.1 million as of December 31, 2011 and 2010, respectively. See Note 16 — Fair Value for additional information.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The following table summarizes the maturity profile of our borrowings by type. Amounts represent the scheduled maturity of debt, assuming no early redemptions occur. For sources of borrowings without a stated maturity date (as is the case with uncommitted agreements), the maturities are assumed to occur within 2012.

December 31, 2011 ($ in millions)

2012

2013

2014

2015

2016

2017 and
thereafter

Total

Secured borrowings

Borrowings from parent

939.4

—

939.4

Borrowings from affiliate

250.0

—

250.0

Collateralized borrowings in securitization trusts (a)

—

830.3

Other secured borrowings

428.3

853.7

752.7

719.3

—

854.6

3,608.6

Total secured borrowings

1,617.7

853.7

752.7

719.3

—

1,684.9

5,628.3

Unsecured borrowings

337.7

537.1

107.6

114.4

—

1,096.8

Total borrowings

1,955.4

1,390.8

860.3

833.7

—

1,684.9

6,725.1

(a)

The principal on the debt securities is paid using cash flows from underlying collateral (mortgage loans). Accordingly, the timing of the principal payments on these debt securities is dependent on the payments received, and as such, we elected to represent the full term of the securities in the 2017 and thereafter time frame.

The most restrictive financial covenants in our credit facilities require us to maintain consolidated tangible net worth of $250.0 million as of the end of each month, consolidated liquidity of $250.0 million daily, and unrestricted liquidity of $250.0 million daily. For these purposes, consolidated tangible net worth is defined as our consolidated equity excluding intangible assets. Unrestricted liquidity is defined as certain unrestricted and unencumbered cash balances in U.S. dollars and cash equivalents on a consolidated basis. We view unrestricted liquidity as cash readily available to cover operating demands across our business operations. These financial covenants are included in certain of our bilateral facilities. Should we fail to remain in compliance with these requirements, remedies include but are not limited to, at the option of the facility provider, termination of further funding, acceleration of outstanding obligations, rights to realize against the assets securing or otherwise supporting the facility, and other legal remedies. Our liquidity providers can waive their contractual rights in the event of a default.

We are required to maintain consolidated tangible net worth, as defined, of $250.0 million, under our agreements with a GSE. In the event of default, the GSE could require posting collateral in an amount based on repurchase demands outstanding plus recourse obligations; termination or suspension of our selling and servicing contract; require additional or more frequent financial and operational reporting; limit early funding programs or trading desk transactions; accelerate rebuttal time periods for outstanding repurchase demands; or take other actions permitted by law. We and certain of our subsidiaries are also required to maintain certain servicer ratings. Should we or our subsidiaries fail to remain in compliance with these requirements and as a result should our mortgage selling and servicing contract be terminated, cross default provisions within certain credit and bilateral facilities could be triggered.

As of December 31, 2011, we were in compliance with our consolidated and unrestricted liquidity requirements and required servicer ratings.

At December 31, 2011, our consolidated tangible net worth, as defined, was $92.4 million, a breach of our covenants. On January 30, 2012, we received capital support from Ally Inc. of $196.5 million through forgiveness of debt. We received waivers in connection with this breach from each of our credit providers,

Notes to Consolidated Financial Statements

Residential Capital, LLC

including Ally Inc. and BMMZ (see Note 20 — Related Party Transactions), and an acknowledgment letter from the GSE indicating they would take no immediate action as a result of the breach. We are in compliance with the provisions of such waivers and acknowledgments. We are in compliance with all of our financial covenants at March 28, 2012, the date of issuance of these Consolidated Financial Statements.

The following table summarizes the outstanding, unused, and total capacity of our funding facilities at December 31, 2011. We use both committed and uncommitted credit facilities. The financial institutions providing the uncommitted facilities are not legally obligated to advance funds under them.

December 31, 2011 ($ in thousands)

Outstanding

Unused
capacity

Total
capacity

Facilities with parent

Ally Inc. Senior Secured Credit Facility

755,769

—

755,769

Ally Inc. LOC

183,595

1,416,405

1,600,000

Total facilities with parent

939,364

1,416,405

2,355,769

Facilities with affiliate

Secured financing agreement - BMMZ

250,000

—

250,000

Secured funding facilities - committed

Secured financing agreement

—

250,000

Mortgage servicing rights facility

323,000

177,000

500,000

Servicer advance funding facilities

780,385

144,615

925,000

Home equity funding facility

135,800

—

135,800

Other funding facilities

—

11,000

Total committed

1,489,185

582,615

2,071,800

Secured funding facilities - uncommitted

Mortgage servicing rights facility

—

50,000

Total uncommitted

—

50,000

Total secured funding facilities

1,489,185

632,615

2,121,800

Total funding facilities

2,428,549

2,049,020

4,477,569

Facilities with Parent and Affiliates

Ally Inc. Senior Secured Credit Facility

The Ally Inc. Senior Secured Credit Facility matures on April 13, 2012. The borrowers, RFC and GMAC Mortgage (collectively, the Borrowers), no longer have the ability to request revolving loans under the facility. The facility is secured by certain domestic whole loans, accounts receivable, notes receivable, securities, and equity investments of the Borrowers. The facility contains limitations on the use of proceeds from sales of pledged collateral with any such proceeds required to be paid to Ally Inc. to reduce the balance outstanding.

Ally Inc. LOC

The Ally Inc. Line of Credit (LOC) matures on April 13, 2012. The maximum capacity of the LOC is $1.6 billion, comprised of $1.1 billion of secured capacity and $500.0 million of unsecured capacity. GMAC Mortgage and RFC (collectively, the Borrowers) are borrowers under this facility. Certain domestic whole loans, accounts receivable, notes receivable, mortgage servicing rights, securities, and equity investments of the Borrowers secure draws under the secured portion of the LOC, which are available to the extent there is

Notes to Consolidated Financial Statements

Residential Capital, LLC

sufficient collateral securing the draw. Draws on the unsecured portion of the LOC are available only after the secured portion has been fully utilized. Draws under the LOC are available only if certain unrestricted and unencumbered balances in U.S. dollars and cash equivalents of us and our subsidiaries are less than $300.0 million. The available amount and the borrowing base of the LOC will both be reduced by the amount of any collateral posted or delivered by Ally IM to the Borrowers or us pursuant to certain derivative transaction agreements with Ally IM. The obligations under the LOC and the Ally IM Derivative Agreements are cross-collateralized for the benefit of Ally Inc. On December 30, 2011, Ally Inc. forgave $109.4 million of the outstanding balance of this facility. In addition, on January 30, 2012, Ally Inc. forgave $196.5 million of the outstanding balance of this facility.

BMMZ Holdings, LLC Secured Financing Agreement

On December 21 2011, the Borrowers entered into a secured financing agreement with our affiliate BMMZ Holdings LLC (BMMZ) a wholly-owned subsidiary of Ally Inc. The initial aggregate facility amount is $250.0 million. The secured financing agreement is collateralized by domestic mortgage loan assets. The maturity date is the earlier of the maturity date of the LOC agreement or December 19, 2012.

Secured Funding Facilities

Secured Financing Agreement

Our secured financing agreement had a maximum facility amount of $250.0 million and was to mature on May 30, 2013. The secured financing agreement was collateralized by domestic mortgage loan assets. This facility was terminated on January 27, 2012.

Mortgage Servicing Rights Facility

As of December 31, 2011, we have $500.0 million of committed funding capacity and $50.0 million of uncommitted capacity through which eligible mortgage servicing rights are funded. The facility matures on March 30, 2012. On February 1, 2012, this facility was amended and the committed amount was reduced to $300.0 million and the uncommitted amount was increased to $250.0 million.

Servicer Advance Funding Facilities

As of December 31, 2011, a secured facility to fund mortgage servicer advances had total capacity of $800.0 million, consisting of term notes in the amount of $450.0 million and a variable funding note of $350.0 million. On March 13, 2012, a new variable funding note was issued with a total capacity of $800.0 million with the proceeds used to pay down the existing variable funding note and term notes on March 13, and March 15, 2012, respectively. The variable funding note will begin amortizing on March 12, 2013.

A second secured facility to fund mortgage servicer advances has capacity of $125.0 million. On August 1, 2012, the scheduled revolving period will end, after which date no new advances will be funded and the 18–month repayment period will begin. Termination will occur upon the earlier of the end of the repayment period or the date the outstanding loan amount is paid in full.

Home Equity Funding Facility

As of December 31, 2011, the secured facility to fund home equity mortgage loans consisted of $135.8 million in variable funding notes due to mature on February 25, 2031.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Collateralized Borrowings in Securitization Trusts

We previously sold pools of consumer mortgage loans through private-label securitization transactions. The purpose of these securitizations was to provide permanent funding and exit for these assets. Certain of these securitizations were accounted for as secured borrowings, and therefore, the debt is reflected on our Consolidated Balance Sheet.

Other Borrowings

Junior Secured Notes

As of December 31, 2011, $2.1 billion of outstanding junior secured notes maturing in May 2015. The unamortized balance of deferred concession recognized as a result of our 2008 exchange offer was $246.1 million. The deferred concession is being amortized over the life of the secured notes using the effective yield method. For the years ended December 31, 2011, 2010, and 2009, $101.1 million, $110.0 million, and $165.7 million, respectively, of deferred concession were amortized into current period earnings as a reduction of interest expense.

GMAC Mortgage, its immediate parent, GMAC Residential Holding Company, LLC (Res Holdings), RFC, its immediate parent, GMAC-RFC Holding Company, LLC (RFC Holdings), and Homecomings Financial, LLC (Homecomings), a wholly owned subsidiary of RFC, are all guarantors with respect to the junior secured notes.

Upon repayment in full of the Ally Inc. Senior Secured Credit Facility, net cash proceeds from sales of assets that were previously pledged as collateral to the Ally Inc. Senior Secured Credit Facility may be used to repurchase, optionally redeem or optionally prepay the junior secured notes. In the event net cash proceeds are not used to repurchase or optionally redeem or prepay the junior secured notes, or to reinvest in permissible collateral with a fair value substantially equivalent to the net cash proceeds (collectively, the Reinvested Proceeds), under certain circumstances, we may be required to make an offer to all holders of the junior secured notes to purchase notes in an amount equal to the excess of the net cash proceeds over the Reinvested Proceeds.

Unsecured Notes

As of December 31, 2011, senior unsecured notes include $675.1 million of U.S. dollar-denominated notes maturing between June 2012 and June 2015, $128.6 million euro denominated notes maturing in May 2012 and $164.2 million U.K. sterling-denominated notes maturing between May 2013 and July 2014. We hedge a portion of the interest rate risk associated with our fixed-rate euro and U.K. sterling notes. As of December 31, 2011, we had interest rate swap agreements in place with notional amounts of $143.6 million and $101.2 million for our euro and U.K sterling denominated notes, respectively.

Medium-term Unsecured Notes

As of December 31, 2011, medium–term unsecured notes include $128.8 million of peso-denominated notes issued by our wholly-owned subsidiary GMAC Financiera S.A de C.V. maturing in June 2012. ResCap, GMAC Mortgage, Res Holdings, RFC, RFC Holdings, and Homecomings are guarantors of the medium-term unsecured notes.

Notes to Consolidated Financial Statements

Residential Capital, LLC

Collateral for Secured Debt

The following table summarizes the carrying value of assets that are restricted, pledged, or for which a security interest has been granted as collateral for the payment of certain debt obligations.


December 31, ($ in thousands)	2011		2010
Cash and cash equivalents	$	82,389	$	102,825
Mortgage loans held–for–sale		1,688,037		1,940,690
Finance receivables and loans, net
Consumer		1,005,982		1,288,556
Commercial		4,226		45,016

Total finance receivables and loans, net		1,010,208		1,333,572
Mortgage servicing rights		855,343		1,422,298
Accounts receivable, net		2,404,231		2,203,855
Other assets		81,960		142,161
Total assets restricted as collateral		6,122,168		7,145,401

Related secured debt	$	5,628,297	$	6,692,986

A portion of the assets included in the table above represent assets of subsidiaries whose equity has been pledged to secure the Ally Inc. Senior Secured Credit Facility and the Ally Inc. LOC. At December 31, 2011, there were $3.4 million of equity interests of these subsidiaries pledged to the Ally Inc. Senior Secured Credit Facility. We have also provided a lien on certain of our consolidated assets, as specified in the Ally Inc. Senior Secured Credit Facility agreements, for the benefit of the Ally Inc. Senior Secured Credit Facility and the Junior Secured Notes. Included in the table above is $2.0 billion and $2.2 billion at December 31, 2011 and 2010, respectively, of collateral pledged that can be re–hypothecated or re–pledged by the secured party.

The following table summarizes the carrying value of assets pledged and the amount of related debt outstanding by our secured borrowing types.


	2011				2010
December 31, ($ in thousands)	Total assets restricted as collateral		Related secured debt		Total assets restricted as collateral		Related secured debt
Borrowings from parent and affiliate
Ally Inc. Senior Secured Credit Facility	$	1,340,954	$	755,769	$	1,521,660	$	845,775
Ally Inc. LOC		1,582,033		183,595		1,507,387		681,000
Borrowings from affiliate		401,118		250,000		—		—
Collateralized borrowings in securitization trusts		918,232		830,318		1,200,201		1,057,288
Other secured borrowings
Junior Secured Notes (a)		—		2,366,600		—		2,467,714
Secured financing agreements		—		—		549,812		195,322
Mortgage servicing rights facility		634,345		323,000		1,054,796		500,000
Servicer advance funding facilities		1,086,011		780,385		1,118,357		768,489
Home equity funding facility		153,191		135,800		181,671		177,398
Other secured facility		6,284		2,830		11,517		—

Total	$	6,122,168	$	5,628,297	$	7,145,401	$	6,692,986

(a)	The Junior Secured Notes are secured by the same collateral that secures the Ally Inc. Senior Secured Credit facility.

Notes to Consolidated Financial Statements

Residential Capital, LLC

10. Other Liabilities


December 31, ($ in thousands)	2011		2010
Fair value of derivative instruments	$	5,113,531	$	3,259,749
Liability for option to repurchase assets (a)		2,386,734		2,499,857
Liability for representation and warranty obligations		824,776		830,021
Collateral received from derivative counterparties		656,109		587,120
Accounts payable		360,726		248,416
Mortgage foreclosure settlement		204,000		—
Reserve for legal proceedings		94,516		112,737
Reserve for insurance losses		91,615		162,564
Employee compensation and benefits		87,542		60,509
Interest payable		62,225		69,795
Liability for assets sold with recourse		32,156		40,249
Ally Inc. management fee (b)		31,020		23,986
Payable to Ally Bank		21,001		—
Restructuring reserve		4,342		7,494
Income taxes		—		8,876
Other		25,733		26,112

Total other liabilities	$	9,996,026	$	7,937,485

(a)

We recognize a liability for the conditional repurchase option on certain assets held by off-balance sheet securitization trusts. The corresponding asset is recorded in mortgage loans held for sale. See Note 3 — Mortgage Loans Held–for–Sale and Note 5 — Securitizations and Variable Interest Entities for additional information.

(b)	Includes costs for personnel, information technology, communications, corporate marketing, procurement, and services related to facilities incurred by Ally Inc. and allocated to us. See Note 20 — Related Party Transactions for additional information.

11. Other Revenue, net


Year ended December 31, ($ in thousands)	2011			2010			2009
Change due to fair value option elections
Consumer mortgage finance receivables and loans, net	$	143,614		$	1,350,729		$	432,734
Collateralized borrowings		(253,329	)		(1,567,508	)		(647,733	)
Loan broker fee from Ally Bank		55,622			64,543			78,089
Insurance income		21,540			35,462			54,599
Trading securities income		1,639			10,640			(88,088	)
(Loss) gain on interests retained in financial assets sales		(5,182	)		3,811			(26,932	)
Loss on sale of servicer advance receivables to Ally Inc.		—			—			(5,679	)
Other		5,772			34,789			27,739

Total other revenue, net	$	(30,324	)	$	(67,534	)	$	(175,271	)

Notes to Consolidated Financial Statements

Residential Capital, LLC

12. Other Noninterest Expense, net


Year ended December 31, ($ in thousands)	2011		2010		2009
Loan administration fees	$	70,345	$	71,547	$	89,741
Legal fees		68,976		29,089		61,046
Ally Inc. management fees (a)		67,672		93,263		284,567
Insurance losses		31,388		36,113		166,962
Equipment and supplies		30,624		32,249		50,328
Restructuring expense (reversals)		3,048		17,410		(10,705	)
Real estate owned expense		2,572		30,484		62,086
Other		74,611		76,462		35,819

Total other noninterest expense, net	$	349,236	$	386,617	$	739,844

(a)	Includes allocated costs for personnel, information technology, communication, corporate marketing, procurement, and services related to facilities incurred by Ally Inc. and allocated to us. See Note 20 — Related Party Transactions for additional information.

13. Other Comprehensive Income

The following table summarizes our activity related to the components of other comprehensive income.


($ in thousands)	Unrealized gain (loss) on available for sale securities (a)			Foreign currency translation adjustment (b)			Unrealized gain (loss) on cash flow hedges (c)			Defined benefit pension plans over (under) funded (d)			Accumulated other comprehensive income (loss)
Balance at January 1, 2009	$	243		$	53,876		$	468		$	(84,900	)	$	(30,313	)
2009 net change		(508	)		(48,239	)		(468	)		35,460			(13,755	)

Balance, December 31, 2009	$	(265	)	$	5,637		$	—		$	(49,440	)	$	(44,068	)
2010 net change		1,607			21,728			—			(22,977	)		358

Balance at December 31, 2010	$	1,342		$	27,365		$	—		$	(72,417	)	$	(43,710	)
2011 net change		(1,342	)		53			—			(16,867	)		(18,156	)

Balance at December 31, 2011	$	—		$	27,418		$	—		$	(89,284	)	$	(61,866	)

(a)	Represents the after-tax difference between the fair value and amortized cost of available for sale securities.

(b)	Includes after-tax gains and losses on foreign currency translation from operations for which the functional currency is other than the U.S. dollar. There was zero tax impact to the net change amounts for the years ended December 31, 2011, 2010, and 2009, respectively.

(c)	In 2007, we discontinued our cash flow hedge program.

(d)	Includes after-tax impact of the over(under)-funded status of our defined benefit plans. See Note 15 — Employee Benefit Plans for additional information.

Notes to Consolidated Financial Statements

Residential Capital, LLC

The net changes in the following table represent the sum of net unrealized gains or losses on available for sale securities with the respective reclassification adjustments. Reclassification adjustments are amounts recognized in net income during the year due to realized gains or losses.


Year Ended December 31, ($ in thousands)	Pretax			Tax effect			Net of tax
2011
Available for sale securities
Net unrealized losses arising during the year	$	(90	)	$	(576	)	$	(666	)
Reclassification of net losses included in net income		(676	)		—			(676	)

Net unrealized losses arising during the year, net of reclassification adjustment	$	(766	)	$	(576	)	$	(1,342	)

2010
Available for sale securities
Net unrealized gains arising during the year	$	1,031		$	576		$	1,607

Net unrealized gains arising during the year, net of reclassification adjustment	$	1,031		$	576		$	1,607

2009
Available for sale securities
Net unrealized gains arising during the year	$	(1,818	)	$	524		$	1,294
Net change due to sale of Ally Bank to Ally Inc.		1,210			(424	)		(786	)

Net unrealized losses arising during the year, net of reclassification adjustment		(608	)		100			508

Cash flow hedges
Reclassification of net gains included in net income		(468	)		—			(468	)

Net unrealized gains arising during the year, net of reclassification adjustment	$	(468	)	$	—		$	(468	)

14. Income Taxes

The following table summarizes income (loss) from continuing operations before income tax expense.


Year ended December 31, ($ in millions)	2011			2010			2009
U.S. (loss)	$	(733	)	$	(116	)	$	(2,152	)
Non-U.S. income (loss)		(97	)		648			(88	)

Income (loss) from continuing operations before income tax expense	$	(830	)	$	532		$	(2,240	)

Notes to Consolidated Financial Statements

Residential Capital, LLC

The significant components of income tax expense from continuing operations were as follows.


Year ended December 31, ($ in thousands)	2011			2010			2009
Current income tax expense (benefit)
U.S. Federal	$	14,362		$	11,929		$	3,242
Foreign		1,496			(2,569	)		13,623
State and local		4,249			(2,446	)		(1,403	)

Total current expense		20,107			6,914			15,462

Deferred income tax (benefit)
U.S. Federal		—			—			(1,620	)
Foreign		(4,636	)		—			(2,760	)
State and local		—			—			2,506

Total deferred tax (benefit)		(4,636	)		—			(1,874	)

Total income tax expense from continuing operations	$	15,471		$	6,914		$	13,588

A reconciliation of the statutory U.S. Federal income tax rate to the effective income tax rate for continuing operations is shown in the following table.


Year ended December 31,	2011			2010			2009
Statutory U.S. Federal rate		35.0	%		35.0	%		35.0	%
Change in tax rate resulting from
State and local income taxes, net of federal income tax benefit		3.1			2.8			3.3
Change in tax status		—			—			9.6
LLC results not subject to federal or state income taxes		—			—			(7.0	)
Foreign capital loss		—			(0.2	)		0.6
Effect of valuation allowance change		(37.5	)		(34.0	)		(42.6	)
Other		(2.5	)		(2.3	)		0.5

Effective tax rate		(1.9	)%		1.3	%		(0.6	)%

Consolidated tax expense does not naturally correspond with consolidated pretax income because we apply a valuation allowance to our domestic and foreign net deferred tax assets. For the year ended December 31, 2011 consolidated tax expense of $15.5 million, is largely driven by certain U.S. taxes that are not eligible for offset by U.S. net operating losses.

At December 31, 2011, we had U.S. Federal and state net operating loss carryforwards and capital loss carryforwards of $844.2 million and $1.4 billion, respectively. The federa

Nationstar Mortgage LLC 8-K