GMAC moves on foreclosures

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September 26th, 2010 9:51 PM

GMAC Mortgage, a unit of Ally Financial, is moving forward with foreclosure proceedings using disputed affidavits, despite saying last week that it would halt evictions and sales of repossessed properties until it completed an internal review of its procedures.

The controversy, which has prompted investigations into GMAC by the Attorneys General of Illinois and Texas, underscores a larger problem facing the US housing industry: record keeping has not kept pace with the explosion of mortgage originations and securitisations that took place during the housing boom.

As a result, many lenders are finding that they do not have the legal documents required to foreclose on delinquent borrowers.

“The financial industry became cavalier about the documentation and paperwork underlying these loans,” says Christopher Peterson, an associate dean for academic affairs and law professor at the University of Utah. “That has resulted in a recipe for not knowing who owns what.”

The issue highlights the problems faced by banks as record numbers of homeowners fall behind on mortgage repayments.

In the days before loans were packaged into securities and sold to investors, a mortgage was filed with the local county land registry and those records were updated each time the loan changed hands, creating a tangible paper trail.

Securitisation allowed mortgages to be transferred among owners, known as securitised trusts, much more frequently. Banks were either unwilling or unable to keep up with the paperwork, according to scores of lawsuits brought by homeowners who say they were improperly foreclosed on.

Compounding the problem is an electronic registry – Mortgage Electronic Registration Systems – developed in 1997 by the big banks in conjunction with Fannie Mae and Freddie Mac that lawyers for these homeowners say has complicated the process.

Carmella Lejarde, MERS spokeswoman, says that any borrower who has one of the 64m loans registered on their system can easily find out the owner of his or her loan. But she also says sometimes the owners “opt out,” meaning that MERS does not have to disclose anything about them. “That puts borrowers at a huge disadvantage,” says Prof Peterson.

Documentation is an issue in a foreclosure case making its way through Maine’s State Superior Court. According to an affidavit filed by GMAC employee Jeffrey Stephan, GMAC owned both the mortgage and note, giving it the right to foreclose on the property.

But Thomas Cox, a lawyer for the homeowner, says the loan is actually owned by Freddie Mac, the government-owned mortgage finance company.

Mr Stephan has said in depositions that he signed 10,000 such affidavits a month without verifying the accuracy of the information contained in the documents. GMAC has said that it does not believe the affidavits contained factual inaccuracies.

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