Fitch begins review of servicer foreclosure processes after GMAC issue
Fitch Ratings is contacting its rated servicers to review internal foreclosure processes after recent problems at GMAC Mortgage will cause higher losses on residential mortgage-backed securities.
Last week, GMAC, now Ally Financial, admitted employees signed foreclosure affidavits in 23 states without knowledge of the documents or a notary present. Moody's Investors Service put its servicer rating and billions of dollars in affected RMBS up for review. Several state attorneys general offices have launched investigations.
Fitch said high loss severities already projected on defaulted loans in those 23 states will limit any further rating downgrades on affected RMBS exposed to these loans. But the credit rating agency said probes into the foreclosure process could lead to servicer downgrades.
"Any servicer with a significant portion of their portfolio in judicial foreclosure states will be either directly or indirectly impacted by the attention focused on this problem," said Diane Pendley, managing director and head of U.S. RMBS operational risk for Fitch.
While Fitch said the problems at GMAC could be a result of high foreclosure volumes, a servicer's rating will be downgraded if it is determined that its process is not adequate.
Fitch will look at the operational deficiencies at each servicer, including its impact on the portfolio of existing foreclosure inventory. Fitch will also monitor the risk of broader foreclosure moratoriums and class action suits that would weigh on a servicer's financial condition.
If Fitch finds that a servicer has filed deficient foreclosure affidavits like GMAC did, it will expect an amended filing, a simple substitution for active foreclosures but may prove more difficult on completed cases. These longer liquidation time lines and higher legal costs may lead to higher loss severities for affected RMBS transactions.
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