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Foreclosure Issue Threatens GMAC Ratings

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Mortgage Daily

                                                 January 24, 2010

The residential servicer ratings of GMAC Mortgage LLC might be downgraded as a result of problems with its foreclosure process that were reported this week.

GMAC disclosed this week it discovered employees had signed thousands of documents tied to foreclosures containing information they didn’t personally verify even though they are required to do so by law. Affidavits were signed by employees who didn’t have first-hand knowledge about the accuracy of documents they were certifying.

As a result, impacted foreclosures were put on hold while it investigates the issue.

“A new process has already been developed and implemented so that though some existing foreclosures may experience delays while corrective action is taken, there will be no interruption in new foreclosures,” a spokesman said in a statement to Mortgage Daily.

Friday, Moody’s Investors Service placed GMAC’s primary servicer rating for prime residential loans on review for a possible downgrade. Moody’s also placed GMAC’s primary servicer rating on review for subprime mortgages, second liens and high loan-to-value mortgages.

Each of the imperiled ratings currently sit at SQ3 — with SQ1+ being the very best possible ratings and SQ5- being the worst.

In addition, GMAC’s special servicer rating is on ratings watch.

“The rating action is due to irregularities in GMAC Mortgage’s foreclosure process that have recently come to light,” the ratings agency explained. “These incidents could result in delayed foreclosures and longer REO timelines, as well as reputational risk, legal challenges to previously completed foreclosures and long-term liquidity concerns for GMAC Mortgage.”

Moody’s also warned that timelines could be extended in jurisdictions that require the servicer to restart the foreclosure process.

GMAC, which serviced 2.6 million loans for $380 billion as of July 31, is gaining more time to deal with the issue while foreclosures are suspended, according to Moody’s.

As Moody’s reviews GMAC’s ratings for possible downgrade, it will primarily focus its efforts on determining how much foreclosure and REO timelines will increase. It will also analyze the effectiveness of new procedures at the servicer.

Other factors under consideration are how the servicing operation will be impacted by the developments and the potential restructuring or sale of Residential Capital LLC by parent Ally Financial Inc.

In a separate news release, Moody’s said GMAC-RFC’s master servicer quality rating was confirmed at SQ3+ and removed from downgrade review. The rating was placed on review in July.

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