Moody's Investors Service has placed on review for possible downgrade GMAC Mortgage's servicer quality (SQ) ratings.
The SQ ratings affected are: 'SQ3+' as a primary servicer of prime residential mortgage; 'SQ3' as a primary servicer of subprime residential mortgage loans; 'SQ3' as a primary servicer of second lien loans; 'SQ3' as a primary servicer of HLTV residential mortgage loans; and 'SQ3' as a special servicer.
According to a release from Moody's, the rating action was a result of irregularities in GMAC Mortgage's foreclosure process that were recently disclosed.
This month, GMAC told real estate brokers to suspend evictions and REO property sales in 23 states. The suspension is aimed at giving GMAC Mortgage time to address a potential issue arising from its implementation of state-mandated steps in processing foreclosures.
The rating agency said that these incidents could cause delayed foreclosures and longer REO timelines, as well as reputational risk, legal challenges to previously completed foreclosures and long-term liquidity concerns for the servicing firm.
The timelines, Moody's analysts said, could be extended if certain jurisdictions need to restart the foreclosure process for loans that are already undergoing a foreclosure.
GMAC Mortgage revealed that one or more of its employees had signed affidavits even without having first-hand knowledge of the accuracy of the facts stated in the document. In addition, according to a deposition by one of the firm's employee, these affidavits were not signed in the presence of a notary.
The effect of these servicing irregularities on the validity of previous foreclosures and on GMAC Mortgage is still uncertain.
Over the review period, Moody's will primarily concentrate on finding out the extent of the increase to foreclosure and REO timelines and the effectiveness of new procedures.
Moreover, rating analysts will review the legal and financial impact of the recent developments to the servicing operations, as GMAC Mortgage's corporate parent, Ally Financial continues to explore strategic alternatives for Residential Capital (Rescap), and its mortgage business.
GMAC Mortgage is subsidiary of ResCap, which is a subsidiary of Ally, which was formerly GMAC. Ally Financial and ResCap have senior unsecured ratings of 'B3' and of 'C', respectively.
GMAC Mortgage's primary servicing portfolio comprised roughly 2.6 million loans for an unpaid principal balance of around $380 billion as of July 31.
Confirmation of Master Servicer Rating
At the same time, Moody's has also confirmed GMAC-RFC's Servicer Quality (SQ) rating of 'SQ3+' as a Master Servicer. The rating is no longer on review for possible downgrade.
This rating action resolves the July 19 review for possible downgrade placed on the rating. During that time, a number of subservicers with which GMAC-RFC had oversight responsibility for were commingling funds. ResCap was the investor in these funds and trust funds in custodial bank accounts.
Additionally, a number of GMAC-RFC's subservicers held funds in financial institutions which ratings fell below 'Prime-1'.
Since then, GMAC-RFC has resolved these issues by having the servicers not only create the necessary bank accounts but also move collection funds to appropriately rated financial institutions. Another option given to servicers was to transfer servicing to GMAC Mortgage if the servicer was unable to meet the new requirements.
GMAC-RFC has also updated its Servicer Guide to require segregated custodial accounts and bank accounts at appropriately rated financial institutions, and will monitor its subservicers on an annual basis.
The previous rating action for GMAC-RFC's SQ ratings happend on July 19. During this period, Moody's continued the review for possible downgrade on GMAC-RFC's SQ rating of 'SQ3+' as a Master Servicer.
Moody's SQ ratings represent the rating agency's view of a servicer's ability to prevent or mitigate asset pool losses under changing markets. The rating scale ranges from 'SQ1' (strong) to 'SQ5' (weak). Where appropriate, a "+" or "-" modifier will be added to the relevant rating to show a servicer's relative servicing quality within a particular category.