Break in Case of Bankruptcy: GMAC Splits Mortgage Account
GMAC Mortgage (GMACM) is going forward with plans to separate its mortgage-collections master account, in hopes that it may resolve some of the issues surrounding the $6bn of residential mortgage-backed (RMBS) securities currently under review for possible downgrade. Moody's Investors Service previously raised concerns that, in the event of bankruptcy, the use of a single account could create contention over the ownership of funds. GMACM, a wholly owned subsidiary of Residential Capital (ResCap), still has several hurdles to overcome before the review resolves, according to commentary from Moody's. Plans to cure the rating watch come amid reports at the New York Post that GMAC hired Goldman Sachs (GS) to begin selling off ResCap. A GMAC Financial Services spokesperson could not comment on the reported plan to sell ResCap. For Moody's the chief concern remains GMACM's "commingling and netting of collections," according to Eric Fellows, vice president and senior credit officer in the structured finance group at Moody's. GMAC put cashflows from multiple residential mortgage-backed security (RMBS) deals in a shared custodial bank account. As a result, the credit-rating agency placed $6bn of potentially impacted securities on review for possible downgrade. ResCap said last week it is separating the trusts into individual custodial bank accounts, which it believes will resolve any issues. Moody's will monitor the corrective action for success, according to Fellows, who authored the GMACM commentary in a recent Moody's Investors Service "Resi Landscape." "They've moved forward very quickly in establishing the accounts, with respect to the securities backing the servicer advance facility," Fellows tells HousingWire. "We still want to take a look at the bank remittance statements and the reconciliation and also review a verification agent report. We just want to make sure the cash is flowing through the individual accounts as it should without any issues." On February 7, certain notes -- some $700m, according to Fellows -- associated with GMAC’s servicer advance facility (SAF) were placed on review. On March 4, Moody's put an additional $5.9bn of GMACM-serviced RMBS that are not part of the SAF transaction on review. "Specifically, aggregating multiple transactions into a common custodial account raises concerns that in the event of a bankruptcy of GMACM there could be competing claims on the funds in the shared account," Fellows wrote in the commentary. "This is not inconceivable as GMACM is a wholly owned subsidiary of Residential Capital, which is currently C-rated. Should these competing claims prove successful in diverting cash, they could adversely affect the probability that certain of the affected securities will be paid in full." Concerns over a bankruptcy of ResCap or parent GMAC seems especially relevant in light of the Congressional Oversight Panel (COP)'s recent report that GMAC could have been placed into bankruptcy and its costly subsidiary operations wound-down, rather than financially bailed out by the government. Fellows said the COP report had no bearing on the writing of the "Resi Landscape" commentary. GMACM told Moody's it "essentially discontinued the netting process," according to Fellows, and set March 1, 2010 as the date to have discrete trust-specific custodial accounts in place for the RMBS trusts associated with the SAF. "With respect to the other securities that went on watch -- those that are unaffiliated with the servicer advance facility -- they communicated to us that they will put the individual accounts in place by April 1st," Fellows said. "We still have that trailing period during which we want to verify the cash is flowing as it should." Write to Diana Golobay. Disclosure: The author holds no relevant investment positions.