GMAC’s Foreclosure Woes

GMAC's Foreclosure Woes

Evidence of sloppy mortgage servicing practices should come as no surprise to anyone who has paid attention to the industry during the foreclosure crisis.

But GMAC Mortgage's admission this week that certain foreclosure-related documents were not verified or signed in the presence of a witness has thrust the issue of inadequate documentation back into the spotlight.

Consumer advocates are using GMAC's problems as evidence that homeowners are being wrongly foreclosed on.

One reason GMAC may be getting so much attention is its close relationship with the government. The lender's parent company, the $177 billion-asset Ally Financial has received about $17 billion in bailout funds, giving the government a 56% stake in the auto finance company (once a unit of General Motors Corp).

But it's widely believed that GMAC is far from alone in having such procedural problems.

The buzz around GMAC could lead some servicers to beef up internal oversight. News reports surfaced Monday saying GMAC had halted all residential foreclosures in 23 states, citing a leaked memo the company had sent to its foreclosure vendors last week.

Those reports prompted GMAC to issue a statement clarifying that it had told vendors to halt evictions of homeowners and sales of seized properties

— not initiation of foreclosures — while it addresses "a potential issue that was raised in a number of existing foreclosures challenging the internal procedure we used for executing one or more judicially required forms."