Moody’s, the now ever vigilant rating agency, has caught wind of the failure of servicers to properly follow legal procedures when foreclosing on properties. In an announcement this week, the rating agency has decided to review Ally Financial (f/k/a GMAC Mortgage) for downgrade following the servicer's acknowledgement that they may have not been properly preparing foreclosure documents.
In what is commonly referred to as “Robo-foreclosures,” Ally Financial appears to have been filing foreclosure affidavits in court that were not signed by persons with actual knowledge of the facts required for such paperwork. In addition, affidavits were not notarized in the presence of the notary. In its response, a spokesman for Ally was quoted in an article for HousingWire as saying that the substantive content of the foreclosure paperwork, such as loan balance, delinquency and note and mortgage information, did not appear to have been misstated or inaccurate and that Ally believes “that the substantive content of the affidavits in question were factually accurate.” Naturally, it is Ally’s interpretation of what is ‘accurate substantive content’ and what was just ‘procedural errors’ – like due process. And hey, that notary thing – really – it’s like the corporate seal – does anyone really think it’s important these days? And what is it now, a buck? I remember when it was $0.25!
In an attempt to rectify the situation, Ally has suspended evictions on foreclosures where a faulty affidavit was detected. Whether they are closing the barn door after the horse got out is pretty clear. More important is the impact this will have on the securitization structures. With approximately $380 billion under servicing management as of July 31, such a hick-up in foreclosures will mean less money coming back to investors as this mess is fixed. And with plaintiff attorneys more than happy to run cases like this into court and tie up liquidation of the REO property, it looks like everyone, other than the delinquent borrower who will be getting a continuing free ride due to Ally’s slip-up, will be taking it in the shorts. Even Ally, as first in line to receive reimbursements from liquidation proceeds, will have to now wait for their money as these foreclosures are cleaned up. Moody’s will be looking at any rating impact based, at least in part, on this new timeline for foreclosures and REO liquidations and its legal and financial impact to Ally. Should be interesting to see what Ally's policies and procedures said about this.
Maybe GMAC can get some additional TARP money to help out. They still have a few more days before TARP goes away.
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