New York, September 27, 2010 -- Moody's has placed the ratings of 319 tranches of 114 deals of GMAC
serviced residential mortgage-backed securities (RMBS) on review
for possible downgrade due to specific servicing concerns. The
rating action impacts $7.6bn RMBS. In addition,
462 tranches of 80 other GMAC serviced deals that Moody's placed
on review for possible downgrade on March 4, 2010, continue
to be under review for possible downgrade.
Ratings Rationale:
The rating action is triggered by the irregularities in GMAC Mortgage,
LLC's (GMACM) foreclosure process that have recently come to light.
This month, the company provided direction to real estate brokers
to suspend evictions and REO property sales in 23 states. The suspension
is intended to give GMACM time "to address a potential issue that
was raised in a number of existing foreclosures challenging the internal
procedure" the company used for filing affidavits as required by
courts in certain states. Given that state attorneys general in
non-judicial states are also exploring GMACM's processes,
Moody's believes that the scope of the investigation might not just
be limited to the 23 judicial states. As a result, impacted
loans from all states were included in the analysis.
GMACM has stated that one or more of its employees had signed affidavits
without firsthand knowledge as to whether facts stated in the document
were accurate. Some states laws require that the person preparing
the affidavit have personal knowledge of the facts stated in the affidavit.
In addition, according to a deposition by an employee of the company,
a notary did not witness the signatures.
GMACM's improper affidavit preparation procedure could cause the
GMACM serviced RMBS securitization trusts to experience higher losses
due to (i) extended foreclosure and liquidation times, with some
foreclosures possibly having to be redone and (ii) litigation costs,
including class-action suits, that could result in legal
expense, damages and other court fees.
Questions also arise over the legality of earlier foreclosure proceedings
and the future process the courts may take to remedy the situation.
It is still uncertain how courts will view cases of borrowers who have
been evicted from their homes using the flawed foreclosure process.
While transaction documents might require GMACM to reimburse the trusts
for litigation and other costs arising from violation of servicing standards,
GMACM is a subsidiary of C rated Residential Capital, LLC (RFC).
In case of a default, the losses might have to be absorbed by the
trusts.
To determine the scope of the potential impact, Moody's reviewed
the balance of loans in GMACM serviced deals that have already been through
the foreclosure process. These include properties that are currently
held for sale (REO status) or have been liquidated in the last three years.
Moody's estimated the liquidated loan balances by adjusting the
cumulative losses to date by assumed loss severities of 40% for
jumbo, 50% for alt-A, and 70% for subprime
and scratch and dent pools. Deals are being placed on review for
possible downgrade if the exposure of such loans expressed as a percent
of current outstanding balance of the deals exceeds 1% for jumbo,
3% for alt-A and 5% for option ARM, subprime
and scratch and dent pools.
In addition, Moody's has placed on review for possible downgrade
the rating on the Class A notes (currently rated A2 (sf)) issued by GMACM
Mortgage Loan trust 2010-1 ("the FHA transaction").
The FHA transaction is backed by mortgage loans that are guaranteed by
the U.S. Department of Housing and Urban Development ("HUD")
under either the Federal Housing Authority ("FHA") or the
Veterans Administration ("VA") insurance programs.
However, in order to qualify for these insurance benefits,
HUD requires GMAC Mortgage to meet certain underwriting and servicing
standards as detailed in program guidelines. If GMAC Mortgage fails
to comply with these standards, HUD may deny its claim under the
insurance program, thus resulting in unreimbursed losses.
As the collateral consists of non-performing mortgage loans,
the FHA transaction has significant exposure to claim denials.
Based on our estimates, 11% of the original balance of the
FHA transaction consists of mortgage loans that have gone through the
foreclosure process in states that are subject to GMAC Mortgage's
self-imposed suspension of evictions and REO sales.
The heightened risk of claim denials on the insured loans in the transaction
and potential legal expenses in case of lawsuits against the trust are
the primary drivers for placing the rating on the class A notes of the
transaction on credit watch for possible downgrade.
March Actions:
In March, certain transactions were placed on review for possible
downgrade in response to certain servicing practices that created credit
concerns in the event of a servicer bankruptcy. Specifically,
GMACM utilized a limited number of trust custodial accounts shared by
multiple securitization trusts, rather than typical trust-specific
accounts. Also, netting of excess custodial account collections
against servicer advance obligations across trusts raised concerns in
bankruptcy.
GMACM addressed these issues by establishing trust-specific custodial
accounts and limiting netting to within individual trusts. In addition,
GMACM also addressed adverse sub-servicer practices involving the
use of ineligible trust custodial accounts and commingling of trust collections
with collections on mortgages owned by Ally Financial Inc.,
GMACM's corporate parent. GMAC-RFC, as master servicer,
established new accounts at highly rated financial institutions,
that segregate trust and corporate collections.
However, the ratings of the 462 tranches totaling $4.5
billion remain on review because of the foreclosure process issues disclosed
by Ally. Of these, some deals are also on watch for poor
performance of the underlying collateral.
For all the deals in this action, GMACM acts as the primary servicer
and GMAC-RFC as master servicer. RFC (rated C) wholly owns
its subsidiaries GMACM and GMAC-RFC. Ally Financial Inc.
(formerly GMAC, Inc) (rated B3) in turn owns RFC.
During the review period, Moody's will assess the extent of the
increase to foreclosure and REO timelines, effectiveness of new
procedures and any financial impact to the RMBS trusts. For the
FHA transaction, in addition to the above information, Moody's
will also seek to identify the affected mortgages in the pool and understand
HUD's position on these mortgages.
Other methodologies and factors that Moody's may have considered
in the process of rating this transaction are found in the Rating Methodologies
sub-directory on Moody's website. In addition, Moody's
publishes a weekly summary of structured finance credit, ratings
and methodologies, available to all registered users of Moody's
website, at www.moodys.com/SFQuickCheck.
A list of these actions including CUSIP identifiers may be found at:
Excel: http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF219903
San Francisco
Eric Fellows
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Debashish Chatterjee
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA
Moody's places $7.6 billion of GMAC serviced RMBS ratings on review for possible downgrade
