WASHINGTON, Jan. 2 (UPI) -- U.S. mortgage service giant ResCap, which owes Ally Bank $1.2 billion by April, will not be hip-checked into bankruptcy, sources told the New York Post.
Sources said Ally will not force ResCap into court, as it would put Ally's own restructuring plans at risk, the newspaper said.
In addition, the government-sponsored mortgage brokers Federal Home Loan Mortgage Corp., known as Freddie Mac, and Federal National Mortgage Association, known as Fannie Mae, would have few options beside taking ResCap to court if it declared bankruptcy. The two mortgage giants have an escape clause that allows them to return assets to the underwriter if they are improperly written.
Instead of forcing ResCap into bankruptcy, Ally will need to put the mortgage unit on life support, investing in the business to keep it afloat.
Ally accepted $17 billion in bailout funds from the government, which means ResCap's survival could also determine the fate of the taxpayers' investment.
If ResCap fails, Ally's ability to repay the government would also be at risk.
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