GMAC stops purchasing mortgage loans in Mass
Apparent reaction to AG's lawsuit
GMAC Mortgage, one of the nation’s leading lenders, said yesterday that it will end most of its mortgage business in Massachusetts, a day after Attorney General Martha Coakley sued the company and four other major financial firms over their role in the foreclosure crisis.
A spokeswoman for GMAC's parent, Ally Financial Inc., said GMAC will no longer buy loans that originated with other lenders and mortgage brokers in Massachusetts, but will honor all commitments made through Monday. She said GMAC will also continue to loan money to individual homeowners in the state, but that accounts for a small percentage of its business
"Recent developments have led mortgage lending in Massachusetts to no longer be viable when you add litigation costs," Ally’s Gina Proia said in an apparent reference to Coakley’s legal action.
Typically, GMAC buys mortgage loans from other entities, such as community banks, and then collects payments from those borrowers.
On Thursday, Coakley filed a suit in Suffolk Superior Court against GMAC, Bank of America Corp., Wells Fargo & Co., Citigroup Inc., and JPMorgan Chase & Co., alleging that they committed mortgage fraud and failed to reduce loan payments for struggling homeowners.
It marked the first major legal step taken against the five banks, which for months have been in settlement talks with a multistate alliance of attorneys general about how to make restitution for their part in the widespread mortgage fraud that led to a wave of foreclosures and depressed the housing market. Coakley said she decided to sue after the negotiations failed to yield significant progress.
Yesterday, she said GMAC's pullback in Massachusetts amounts to an admission of wrongdoing.
"To do business in Massachusetts, GMAC has to follow the law before foreclosing on homeowners," Coakley said. By deciding to halt most of its mortgage operations here, she said, "GMAC has acknowledged it has a problem following those laws and being held accountable for doing so."
The company said Coakley is wrong to assert that it admits to improperly conducting foreclosures.
"GMAC Mortgage is currently operating in full compliance with the law," Proia said. "Any suggestion related to past activity will be heard before the court, and we are confident in our ability to prevail."
A Wells Fargo official said yesterday that the bank will keep doing business in the state. The other companies named in Coakley's suit declined to comment on GMAC's decision.
But local mortgage lenders and brokers said they are worried that the others will follow GMAC and also stop purchasing mortgages that originate with other lenders. That could limit consumers' borrowing options, they said, and put upward pressure on mortgage rates, which have been at historic lows.
Elizabeth Phelan, chair of the Massachusetts Mortgage Bankers Association, said GMAC's diminished presence will have an "adverse impact" on borrowing. If other major lenders do the same thing, she said, "it would have a significant impact."
GMAC is the state’s seventh-largest originator of consumer mortgage loans, according to 2010 federal data, accounting for only about 2.3 percent of the market. The size of the company’s overall market share in Massachusetts is unclear because of the way mortgages are bought and sold.
Earlier this year, Bank of America said it would stop buying mortgage loans from other lenders nationwide by Dec. 15. Terry Francisco, a Bank of America spokesman, said yesterday that it decided months ago to concentrate more on courting borrowers who want to deal with the company directly.
"We'd rather focus our energies on people who choose to come to Bank of America," Francisco said.
A robust secondary loan market is considered important because it provides primary lenders -- such as community banks and mortgage companies -- with capital so they can keep loaning money.
Amy Tierce, regional vice president of Fairway Independent Mortgage in Needham, said GMAC is one of a handful of national lenders that purchase mortgages her company originates with individual homeowners.
"The biggest concern that anybody has on the street is if other lenders are going to follow suit," Tierce said. "For us, GMAC hasn't been a significant player."
Ally, GMAC’s parent, also said recently that it plans to limit its purchases of mortgages from lenders across the country. The firm received a taxpayer-funded bailout of about $17 billion during the 2008 financial crisis, and is now mostly owned by the US government.
GMAC officials Thursday said they were disappointed by Coakley's choice to pursue litigation rather than continue negotiations. They said the lender has been a leader in helping homeowners and that GMAC has not found any examples of borrowers being foreclosed on without being significantly behind on their mortgage payments.
"GMAC Mortgage believes it has strong legal and factual defenses against these claims and will vigorously defend its position in court," Proia said. "The company is confident in its ability to prevail."