On Friday, GMAC Mortgage, the mortgage origination and servicing operation of Ally Financial Inc., announced that it would stop purchasing mortgage loans from the third party in Massachusetts. However, the company would honor all its contractual obligations made as of December 5 as well as continue providing services to its existing customers. Additionally, GMAC will go on offering loans to homeowners through its direct lending unit in the state.
GMAC stated that the sudden interruption in new mortgage purchases, originated by correspondent lenders and wholesale brokers, is a result of recent developments that made mortgage lending financially not feasible in Massachusetts. Another major reason behind this is, the lawsuit filed for alleged violation of foreclosure practices by the state attorney general (AG) Martha Coakley against the company and four other large mortgage servicers – JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), Citigroup Inc. (C) and Wells Fargo & Company (WFC).
The lawsuit charged that these five major mortgage servicers used various foreclosure procedures – use of ‘robo-signers,’ misleading homeowners in relation to loan modification processes, utilizing flawed documents and illegally foreclosing a property – to speed up foreclosures without properly following the rules.
Earlier in October 2010, GMAC along with JPMorgan and Bank of America had temporarily suspended foreclosures across the country, following the detection of faulty foreclosure paperwork. After this, the U.S. bank regulators along with the state AGs geared up to take actions against mortgage servicers.
The banks and regulators along with the AGs are in the middle of settlement deal designed to provide new guidelines for foreclosure practices across the nation. However, several obstacles have cropped up in the settlement agreement between the mortgage servicers and the AGs. Hence, there is a delay in settlement of these charges.
Furthermore in November, GMAC had announced that it would exit its correspondent lending operations, where it used to buy loans originated by other banks, all across the country. Like GMAC, Bank of America has also announced the closure of its correspondent lending unit by the end of this year.
Our Take
Whatever be the reason for exiting corresponding mortgage lending in Massachusetts – financial or legal – GMAC will continue to face foreclosure litigation charges. Also, clearing the foreclosure mess will go a long way to resolve the housing crisis. Therefore, we are optimistic that various counteractive measures, if implemented correctly, would prevent yet another foreclosure crisis.
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