Ally Financial Inc.’s GMAC Mortgage unit stopped buying home loans in Massachusetts after the state accused the five biggest providers of conducting illegal foreclosures.
The halt, which affects loans originated by correspondent lenders and wholesale brokers, is “because recent developments have led mortgage lending in Massachusetts to no longer be viable,” the Detroit-based company said in a statement. Ally, owned mostly by the U.S. government after being bailed out during the 2008 financial crisis, is ranked fifth this year among the nation’s mortgage lenders.
Massachusetts Attorney General Martha Coakley sued Ally and four other mortgage lenders yesterday for allegedly trying to seize homes when they didn’t hold the mortgage on the properties. Failure to obtain valid mortgage assignments before foreclosure has affected titles to “hundreds, if not thousands, of properties” in the state, she said.
“The company is disappointed that it can no longer participate in offering certain financing options in Massachusetts,” Ally said in its statement. “However, it has an obligation to manage risks and deploy capital in an appropriate manner and in a way that protects the investment of the US taxpayer.”
Ally will continue making direct loans in the state, according to Gina Proia, a spokeswoman for Ally. The lender will honor any commitments through Dec. 5 and continue servicing existing customers, the statement said. Mortgage servicers send out and collect bills, and handle foreclosures if borrowers don’t pay.
Ally was once one of the largest subprime lenders through its ownership of its Residential Capital unit, which gave loans to borrowers who were most prone to default. The firm has since sought to limit its mortgage-market risk and last month said it would begin reducing its correspondent mortgage channel, which buys home loans made by other lenders. Those previously accounted for 84 percent of the firm’s originations.
“The costs related to the mortgage business overall have increased and when additional litigation costs are added to the equation, the business case in certain channels is no longer viable,” Proia said. GMAC Mortgage will fight the state’s claims and has worked “in good faith” with Coakley’s office during the past year to discuss mortgage servicing and ways to assist borrowers, she said yesterday.
Coakley’s lawsuit also named Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co.