The GMAC fiasco

By Felix Salmon
September 21, 2010
Yves Smith has been doing a fabulous job covering the latest fiasco at Ally Financial, the state-owned bank which used to be called GMAC.

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Yves Smith has been doing a fabulous job covering the latest fiasco at Ally Financial, the state-owned bank which used to be called GMAC. But to get a quick idea of how dysfunctional the situation is, all you need to do first is read the official GMAC memo to its agents in 23 states around the country, and then read the official GMAC press release on the subject.

The memo could hardly be any clearer. “Do not proceed with evictions, cash for keys transactions, or lockouts,” it says. “All files should be placed on hold, regardless of occupant type. Do not proceed with REO sale closings.”

Yet here’s how the press release begins:

Recent reports have stated that GMAC Mortgage instituted a moratorium on all residential foreclosures in 23 states. This is not true. In fact, all new residential foreclosures are continuing in the ordinary course of business with no interruption in our usual practice.

There’s no good reason for this kind of misdirection and mendacity. Ally is meant to be the friendly, transparent bank; instead, at the first sign of trouble, it retreats into Clintonian language (didja spot that “new” in the press release?) which only serves to reinforce the impression that no banks, including Ally, can ever be trusted.

The substantive problem here seems to be a series of affidavits — tens of thousands of them — signed by Jeffrey Stephan of GMAC Mortgage/Homecomings Financial. The states where GMAC has put its evictions on hold are the ones where you need to go to court to get an eviction. And when you go to court, you need to provide an affidavit signed by someone with personal knowledge of the case in question. Stephan, it seems, had no such personal knowledge: rather, he was something of a “robo-signer”, who would put his name to affidavits without even reading them.

As Smith details, this problem is just as likely to get much bigger as it is to quietly get sorted out in the coming weeks. GMAC was not the only mortgage lender using robo-signers. And during the housing boom, all manner of legal corners were cut when mortgages were written, which can make them very hard to legally enforce.

And although the GMAC moratorium is so far only in 23 states (including Florida, but excluding California), the legal issues are surely substantively the same in the 27 other states as well. Just because you don’t need to go to court to get an eviction doesn’t mean you can toss someone out of their home without your legal i’s dotted and t’s crossed.

All of this is complicated, too, by the fact that the US Treasury owns 56.3% of Ally. At most banks, it’s generally assumed that the shareholders just want to see the maximum possible returns, over the long run. That’s not a safe assumption, however, when your shareholder is Treasury, which has been ploughing billions of dollars into schemes designed to prevent evictions.

It would be wonderful if GMAC could take the high road here, and act with full transparency in a manner consistent with the best possible practices that Treasury would like to see in the mortgage market. Judging by its press release, there’s not much indication that’s happening yet. But maybe a couple of phone calls from Washington might change its mind. I wonder how Elizabeth Warren is settling in to her new job.

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