The recent foreclosure issues
at GMAC Mortgage, now Ally Financial
, is opening the company to legal challenges as four state attorneys general offices are now pursuing foreclosure abatements.
Early last week, GMAC put a hold on REO sales in 23 states
where foreclosure affidavits were found to be signed without a notary or knowledge of document details due to processing high volumes of defaults -- a practice called "robo-signing."
Not only has Moody's Investors Service put the GMAC servicer rating up for review
, but now four attorneys general offices are investigating the company.
The California and Connecticut AG offices demanded all foreclosures in the state be frozen until the company can prove compliance with state law. The Iowa AG Tom Miller and Texas AG Greg Abbott opened a civil investigation into foreclosure practices at GMAC. The Illinois AG Lisa Madigan demanded a meeting GMAC to address the issue.
Other state AG offices, where foreclosure levels are high such as Nevada, Ohio, Michigan, and Arizona all told HousingWire that they are aware of the issues but cannot confirm or deny any investigation.
"My office will investigate whether other banks engaged in such practices because these failings involve much more than mere technicalities, as GMAC/Ally has claimed," said the Connecticut AG Richard Blumenthal. "As a consumer advocate and attorney, I am dismayed and shocked that the bank blatantly skirted legal requirements and procedural safeguards to increase the volume and pace of foreclosures."
A report out today by Moody's said it is too early to estimate the legal exposure of these developments. GMAC has said that an internal review revealed nothing factually wrong with the documents other than how they were signed.
"Settlement costs could be minimal, however, if the factual elements of the foreclosures, including the validity of borrower liens, default status, and amount owed, are indisputable. Ally’s capital base provides a good level of cushion to absorb such costs and reserves, if needed," according to the Moody's report.
Ally must maintain a total risk-based capital ratio of 15% and while it still has a cushion to absorb upcoming losses and operational pauses, its reputation is again at stake (Click on box below).
Moody's on Friday just confirmed the GMAC master servicing rating in relation to an issue with how the company was servicing Residential Capital Group loans, only to have ratings go right back on review.
Bill Fricke, vice president and senior credit officer at Moody's told HousingWire the firm will re-evaluate GMAC over the next three months. If the downgrade is made, private and agency investors will know that the loans they've invested in are not being serviced correctly, Fricke said.
"It's about the servicer's reputation," Fricke said. "Servicing is obviously on everyone's radar screen these days. It says something directly to GMAC’s performance as a servicer. Especially, given all the attention servicers are getting these days."
Write to Jon Prior