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NEW YORK — While the auto segment of Ally Financial is showing
strength, the mortgage side of its business is deteriorating and recent reports
are indicating that bankruptcy proceedings are near.

In fact, the Wall Street Journal indicated that Ally's mortgage
subsidiary, Residential Capital, could file for bankruptcy as early as Sunday
or Monday, marking what the report said would be the last chapter for an
operation that was once among the country's largest subprime lenders.

The WSJ stated a filing also would mark the beginning of a
legal battle that will likely test whether a big financial firm can shed
years-old mortgage problems in court.

Another online report from Bloomberg said Ally received an
oral commitment from bondholders of Residential Capital to support a bankruptcy
filing.

Bloomberg reported investors were given material, nonpublic
information and are negotiating final details of what they'd receive to settle
their claims, said one person, who declined to be identified because the talks
aren't public.

Bloomberg explained the talks could create a "prepackaged"
bankruptcy for ResCap, which may shorten disputes and court proceedings, and in
turn make it easier for Ally to repay a U.S. bailout that left the U.S.
Treasury Department with a 74-percent stake.

The story pointed out a ResCap bankruptcy would rank among
the largest tied to a Treasury-owned asset since General Motors won court
protection in 2009.

Ally alluded to trouble with its mortgage subsidiary in recent
filings with the Securities and Exchange Commission.

"Residential Capital continues to be negatively impacted by
the events and conditions in the mortgage banking industry and the broader
economy that began in 2007," officials acknowledged in their Form 10-Q. "Market
deterioration has led to fewer sources of, and significantly reduced levels of,
liquidity available to finance ResCap's operations. ResCap is highly leveraged
relative to its cash flow and has recognized credit and valuation losses and
other charges resulting in a significant deterioration in capital.

"In the future, ResCap may also 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 mortgage-related activities and additional expenses
to address regulatory requirements," they continued.

Late last month, Ally reported a rise in auto loan
orginations as part of its first-quarter financial statement.

Ally's total first-quarter U.S. auto originations settled at
$9.7 billion, up from the fourth-quarter amount of $9.2 billion. However, the
figure was off from the year-ago total of $11.6 billion.

"Consumer financing origination levels in the first quarter
of 2011 were driven by a significant increase in automaker incentive programs
during that period," Ally pointed out.

Ally's loan business associated with used vehicles moved
higher quarter-over-quarter, as well, ticking up to $2.6 billion from $2.3
billion.

Fueling those quarter-over-quarter loan rises was a jump of
39,000 extra contracts as Ally reported 376,000 total contracts originated
during the first quarter. The company indicated 59 percent of those loans
coming out of General Motors dealers were subvented, the highest level dating
back a year. Ally noted 48 percent of loans originating at Chrysler dealers
were subvented, an amount flat from the previous quarter.