Ally Bank, the nation’s fifth-largest mortgage servicer formerly known as GMAC Mortgage, has recently put its mortgage subsidiary, Residential Capital, into bankruptcy. As you may recall, Ally is still majority-owned by the US government. This latest move by Ally is part of a continuing effort to escape its mortgage liabilities. But this move begs the question: how does it affect the foreclosure fraud settlement to which Ally is a signatory?
Ally had previously planned to repay its loan from the federal government with an initial public offering, but that no longer appears to be an option. Now, the bankruptcy of Residential Capital appears to be the means by which the government will be paid, while relieving itself of major liabilities with the mortgage unit. Also, it could spawn a copycat in the form of Bank of America, which has considered using bankruptcy for Countrywide.
Under the settlement agreement, Ally sold off its servicing arm for $2.5 billion to Fortress Investment Group, an investment management firm. Presumably, Ally will still honor the signed agreement with 49 state Attorneys General and the federal government while it completes the sale and the bankruptcy process. I understand Barclays Bank will finance the servicer during the bankruptcy. Ally will also throw in $750 million in cash for creditors of Residential Capital. Considering that there is a separate management group which has its own group of lawyers and specialists running the servicer, and now a bankruptcy process expected to last the rest of 2012, its worth questioning whether or not this will affect the aforementioned settlement. The investors will have to get in line for payments.
Nationstar, the nation’s largest non-bank mortgage servicer, which is majority-owned by Fortress, will most likely end up with the loans in the purchase. After the purchase, Nationstar would have $370 billion in loans to service. Nationstar also originates mortgages and manages loans in foreclosure as it attempts to become a fully integrated mortgage company. And in the end, Ally gets to rid itself of its mortgage problems, leaving them with a profitable retail banking and car loan portfolio. If only the same could be said for homeowners saddled with former GMAC Mortgage loans.
If you have any questions about predatory lending or mortgage servicing fraud, contact Bill Robertson, one of our lawyers in the firm’s Consumer Fraud Section, at 800-898-2034 or by email at Bill.Robertson@beasleyallen.com. Bill is currently handling cases involving predatory lending practices. He is also handling cases involving mortgage servicing fraud of several different companies.
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