Negotiations are breaking down between creditors of bankrupt mortgage lender Residential Capital LLC and its parent, Ally Financial Inc., making it likely that the government-owned auto-finance company will face litigation as it seeks to sever ties, the Wall Street Journal reported today. The creditors, including Wilmington Trust Corp. and other members of a committee representing ResCap's unsecured creditors, are pushing Ally to provide more money to settle potential liabilities it could face as ResCap's parent. Ally, which is 74 percent-owned by the U.S. government, is working to cap its exposure to the subprime lender's mortgage business so it can move forward on efforts to repay its $17.2 billion crisis-era bailout and focus on its core auto-lending and online-banking businesses.
