UPDATE 1-Ally looks to sell most of its mortgage business

Oct 26 (Reuters) - Ally Financial Inc's banking subsidiary said on Friday that it was looking to sell most of its remaining mortgage business, the company's latest step toward exiting the home loan business to focus on its U.S. auto lending and banking operations.

Ally Bank said it was exploring strategic alternatives for its agency mortgage servicing rights portfolio and its business lending operations. The portfolio had $122 billion of mortgage loans in the third quarter.

The company, which is majority owned by the U.S. government after a series of bailouts during the financial crisis, is also selling international operations in a bid to pay back taxpayers. Ally is the former auto lending arm of General Motors Co. 1/8ID: nL1E8LN21R 3/8

The business lending unit buys mortgages from other correspondent lenders and brokers. Ally started reducing volume in its correspondent lending business in November.

A number of banks, led by Bank of America Corp, have stopped buying loans from other banks and brokers to reduce exposure to a business that produced huge losses after the financial crisis but is now booming as homeowners rush to refinance at low interest rates. Bank of America initially sought to sell its correspondent business but eventually shut it down last year when it could not find a buyer.

Ally said it would continue making a ``modest level'' of high-quality residential jumbo mortgages for its own portfolio through correspondents and wholesale brokers.

The business lending operation has about 350 employees, Ally spokeswoman Gina Proia said. No employees have been affected at this time, she said.

As of Dec. 31, Ally had 14,800 employees worldwide, although that number is set to shrink with the planned sale of international businesses.

Ally, once known as GMAC, received $17 billion in bailouts from the U.S. government during the financial crisis. Including dividend payments, it has paid back $5.8 billion.

The company's Residential Capital LLC mortgage unit filed for bankruptcy in May, and the assets were bid on this week in an auction. 1/8ID: nL1E8LPG33 3/8

Ocwen Financial Corp and Walter Investment Management Corp won Ally's mortgage servicing and lending business with a $3 billion bid, while Warren Buffett's Berkshire Hathaway Inc won a loan portfolio with a $1.5 billion offer. A sale approval hearing will be held in bankruptcy court on Nov. 19.