U.S. Bankruptcy court approves ResCap's $596.5 mln deal with FGIC

Reuters

By Tom Hals

Sept 13 (Reuters) - A U.S. Bankruptcy Court approved a$596.5 million agreement on Friday between Financial GuarantyInsurance Co and bankrupt Residential Capital LLC, which settlesbillions of dollars of claims stemming from mortgage-backedsecurities.

The agreement is another step toward ending the formermortgage lender's complex bankruptcy, but it was opposed byholders of junior secured notes issued by ResCap.

Opponents argued that Judge Martin Glenn of Manhattan'sbankruptcy court should reject the deal because ResCap allegedlyoverestimated what it might owe FGIC, a bond insurer. Critics ofthe deal also said the deal was improperly negotiated, anallegation the judge rejected in his 53-page opinion.

In return for the $596.5 million, FGIC will release itsclaim that ResCap owed it at least $5.55 billion.

FGIC had claimed that ResCap had misrepresented the homeloans contained in the mortgage bonds that FGIC had insured.When the U.S. housing market crashed, many of those home loansdefaulted, triggering an insurance payment by FGIC.

The bond insurer was seized in 2009 by its regulator, theDepartment of Financial Services of the State of New York, whichordered the company to stop making payments on claims. Arehabilitation plan for the insurer became effective last month.

ResCap was once the country's fifth-largest mortgageservicer. It filed for Chapter 11 bankruptcy last year.

Glenn, the bankruptcy judge, approved in June a $2.1 billionsettlement with the company's former parent, government-ownedAlly Financial Inc. The money will help repay ResCap creditorswho had alleged that Ally stripped ResCap of its online lender,Ally Bank.

Ally was known as General Motors Acceptance Corp prior toits government bail-out during the financial crisis.

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