Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt evictions tied to foreclosures on homeowners in 23 states including Florida, Connecticut and New York.
GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 marked “urgent.” Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to immediately stop evictions, cash- for-key transactions and lockouts, according to the document, addressed to GMAC preferred agents.
The suspensions will “allow time to address a potential issue that was raised in a number of existing foreclosures challenging the internal procedure we used for executing one or more judicially required forms,” Ally spokeswoman Gina Proia said today in an e-mailed statement. Foreclosures won’t be suspended and will continue with “no interruption,” she said.
Lenders and lawmakers have been trying to slow foreclosures and keep people in their homes as U.S. seizures set records. Bank repossessions climbed 25 percent in August from a year earlier to 95,364, according to RealtyTrac Inc., the Irvine, California-based data provider. Detroit-based Ally, the auto and home lender formerly known as GMAC Inc., is 56.3 percent owned by the U.S. after more than $17 billion of taxpayer bailouts.
Working on Issue
The company has been working on the issue for “more than three months” and expects it to be resolved “within the next few weeks,” Proia said. She declined to provide further details, saying some of the cases are in litigation.
Suspensions will occur “where the related foreclosure could have been impacted by the same internal procedure. We are also reviewing certain previously completed foreclosures where the same procedure may have been used,” Proia said.
The lender will suspend sales of bank-owned properties and extend closings 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the memo.
Barclays Capital analysts told clients in a note today the action may involve issues with officials in so-called judicial states where lenders must appear before a judge before starting foreclosure proceedings. Of the 23 states listed in the memo, all except North Carolina are judicial states, and the only judicial state not on the list is Delaware, the analysts led by Jasraj Vaidya wrote.
“This would hint at some potential issues with judicial states,” the analysts wrote. The moratorium may be an attempt “to ensure that the process does not have significant flaws that can leave it open to legal action in the future,” they said.
There is no public enforcement action pending against GMAC in North Carolina, Ha Nguyen, a spokeswoman for the state’s bank commissioner, said today.
Florida Attorney General William McCollum in August announced an investigation into three law firms that represent loan servicers in foreclosures. McCollum issued subpoenas to the firms, which are alleged to have submitted fraudulent documents to the courts in “numerous occasions” or failed to submit documents at all, according to an Aug. 10 statement from McCollum’s office.
“Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of the law firms under investigation,” the statement said.
GMAC Mortgage ranked fourth among U.S. home-loan originators in the first six months of this year, with $26 billion of mortgages, according to Inside Mortgage Finance, an industry newsletter. Wells Fargo & Co. ranked first, with $160 billion, and Citigroup Inc. was fifth, with $25 billion.
Ally’s 8 percent notes maturing in 2031 rose $4.13, or 4 percent, today to 108.5 cents on the dollar to yield 7.21 percent, according to the Trace bond-price reporting system.
Following is a table of the affected states.
Connecticut Florida Hawaii Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Nebraska New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Pennsylvania South Carolina South Dakota Vermont Wisconsin