Ally Financial Exits Mortgage Lending: Staff Layoffs Ahead!

As we step into 2025, the mortgage landscape is already shaking up, and it’s not a pretty sight. One of the prominent players in the mortgage game, Ally Financial, has declared its exit from the mortgage lending scene.

According to a recent announcement from their spokesperson, the company is preparing to wind down its mortgage origination operations in the first quarter of this year. The ripple effects mean that fewer than 5% of their workforce will face layoffs. However, it’s clear that they’re reshuffling their strategy—cutting back in some areas like mortgage lending while ramping up hiring in others.

Ally Financial Bids Farewell to Mortgage Lending

Despite having a decade-long presence in the mortgage sector under the Ally Financial name, it seems like they’re hanging up their boots. The driving force behind this decision? Soaring mortgage rates that have lingered longer than anyone anticipated—definitely not the same story as the subprime lending crisis of the early 2000s.

In case you didn’t know, Ally Financial was previously known as GMAC, a unit of General Motors, until 2010. They also had a subprime lending division, Residential Capital (ResCap), which famously fell into a quagmire during the mortgage crisis, resulting in a bailout from the Treasury after their hefty loan portfolio collapsed. But after some turbulence, they rebranded as Ally Bank, and a year later, Ally Financial emerged, establishing itself as a player in consumer-direct mortgage lending.

With the launch of Ally Home, they aimed to set themselves apart by delivering a “high-touch experience” that their digital-only competitors often lacked. Initially, this strategy seemed promising, but as mortgage rates climbed, the once-thriving loan origination volume began to plummet.

Ally Financial’s Dwindling Loan Volume

Delving into their financials, it becomes apparent that Ally Financial managed to secure only about $1 billion in home loan origination volume over the past year. While that may sound substantial, it’s a drop in the bucket for a large depository bank.

In the first quarter alone, they funded a mere $0.2 billion, with only $0.3 billion in the subsequent quarters. Despite their focus on providing a seamless digital experience and operational efficiency, the once-coveted high-touch approach has proven too costly or simply out of favor with consumers.

In the latest quarter, Ally Financial recorded $256 million in loan origination volume, reflective of the current high mortgage rate climate. Interestingly, over 70% of their mortgage originations were from existing bank depositors, indicating a lack of aggressive outreach to attract new customers. At this rate, the future of their mortgage business seems bleak.

The Rise of Nonbank Lenders

This bold move raises questions about the future of mortgage lending among traditional banks, especially as nonbank lenders continue to dominate the market. In 2023, United Wholesale Mortgage emerged as the top mortgage lender in the country, and they’re strictly a nonbank operation that collaborates only with mortgage brokers.

Following closely behind is Rocket Mortgage, together commanding nearly 10% of the total origination market. Meanwhile, traditional giants like Chase and Wells Fargo find themselves grappling with shrinking mortgage footprints, with Wells Fargo actively cutting back its mortgage operations.

With Ally Financial announcing that less than 1% of the home loans it originated in the latest quarter were retained on its balance sheet, it begs the question: what’s next for the major banks in the mortgage arena?

Stay informed: Explore the latest updates on mortgage layoffs, closures, and mergers.