Tom Marano’s Testimony for a House Financial Services Subcommittee Hearing
Nov 18, 2010
Mr. Thomas Marano Chief Executive Officer, Mortgage Operations Ally Financial Inc.
Subcommittee on Housing and Community Opportunity, Committee on Financial Services, U.S. House of Representatives
November 18, 2010
Chairwoman Waters, Congresswoman Capito, and members of the subcommittee, I am Tom Marano, the chief executive officer of mortgage operations for Ally Financial. I appreciate the opportunity to appear before you today.
Ally’s mortgage business is conducted through GMAC Mortgage. Founded in 1985, GMAC Mortgage is currently the fifth largest residential mortgage servicer in the United States, servicing 2.4 million loans, about 96% of which are owned by others. Since 2008, we have provided more than $176 billion in funding to U.S. homeowners each year, and we provide more than $2 billion each month in short-term credit to mortgage loan originators.
Madam Chairwoman, I want to address specifically the issues that bring us here today. Our company’s process for preparing foreclosure affidavits was flawed. There were affidavits signed outside the immediate physical presence of a notary and without direct personal knowledge of the information in the affidavit. These flaws are entirely unacceptable to me. I directed my management team to devote whatever resources are required to correct these flaws and bring integrity back to the foreclosure process.
We understand the pain caused by foreclosures. In foreclosures, everybody loses – the homeowner, the servicer, the investor, and the community. We therefore do everything that we can to avoid foreclosures. When a homeowner faces difficulty in a mortgage, we strive to find a solution that is affordable and sustainable for the borrower, while balancing the contractual rights of the investor on whose behalf we service. Since 2008, GMAC Mortgage has achieved approximately 565,000 workout solutions for customers. In each of the last two years, GMAC Mortgage has successfully instituted more alternatives to foreclosure, such as forbearance, repayment plans, modifications, short sales, and deeds-in-lieu of foreclosure, than we have had foreclosure sales.* Based on our review to date, no loan was foreclosed unless the borrower was in default.
The errors we found in the affidavits of indebtedness should not have occurred. We are investigating and remediating the errors. We reformed our internal foreclosure processes to increase the training that we provide to employees responsible for signing foreclosure documents; we strengthened our internal affidavit signing policies; and we substantially increased the number of employees handling foreclosure documentation. Moreover, in an effort to minimize the risk that even a single foreclosure might go forward inappropriately during our review, we took steps to suspend foreclosure sales in 23 judicial foreclosure states.
We have resumed foreclosure sales only after an individualized review of each case. Our individualized review encompasses all loans in the foreclosure process, as well as loans that have completed the foreclosure process but which GMAC Mortgage could still address if there were deficiencies in the affidavit.
For any case that is still in process and has not yet received a judgment, we are filing a new and properly verified affidavit with the court, as appropriate, and where there was no prior affidavit, we are processing any necessary affidavits under our new procedures.
For any matter that has proceeded to a judgment in favor of foreclosure but the foreclosure sale has not yet been confirmed to have occurred, we are filing a new and proper affidavit with the court, as appropriate. Where the original affidavit was substantively correct, we are generally seeking the court’s permission to proceed with the prior judgment. In some jurisdictions, we are filing motions to vacate prior judgments and will refile a subsequent foreclosure proceeding with a new and proper affidavit.
We have taken additional measures in all states to review foreclosure sales. Across the United States, we have implemented a new process that reviews all pending foreclosure sales going forward within seven days of the scheduled sale by an internal quality control team independent of our foreclosure department. We have also engaged national mortgage counsel and PricewaterhouseCoopers to conduct a comprehensive review of our foreclosure policies and procedures across the United States.
Madam Chairwoman, I want to stress that foreclosure is a painful last resort where everyone loses. By the time a loan goes to foreclosure sale, the borrower is, on average, 413 days behind in payments and in many cases taxes and insurance obligations have not been met. GMAC Mortgage strives to find alternate solutions that avoid foreclosure and keep families in their homes, and we are proud of the 565,000 workout solutions we have found for customers since 2008. In addition, our rate of conversion from HAMP-trial to HAMP-permanent loan modifications is 71%. Moreover, for the last eight months, only about 15% of customers in permanent HAMP loan modifications have failed to make their payment six months after the loan modification. This is below the average for the industry. As this subcommittee examines issues related to foreclosures, I urge you to make sure that alternatives to foreclosure are also robust and available.
Attached to my written testimony is a chart that illustrates the foreclosure process and shows GMAC Mortgage’s commitment to seeking alternative solutions that preserve homeownership. Throughout the foreclosure process, GMAC Mortgage reaches out to customers about alternatives to foreclosure that may preserve homeownership. Even as the process is ongoing, borrowers are able to remain in the home, on average, about 15 months. At GMAC Mortgage, we believe that foreclosure should only occur after all home preservation efforts have failed.
Preserving homeownership is in the best interest of all parties. In addition to the benefits to families, it is beneficial to GMAC Mortgage. We are paid fees and are able to recover advances and expenses more rapidly after a successful modification. In contrast, during a foreclosure, we must make servicing advances until the sale of the property and we lose the servicing fee income. Therefore, it is in our best interest to strive to place the borrower in a loan modification.
Finally, Madam Chairwoman, I have personally been a longstanding advocate of loan modification. I brought that perspective to GMAC Mortgage, and I strive to ensure that no American loses a home without a thorough and complete opportunity to obtain loan modification or an alternative to foreclosure. For example, I often communicate with homeowners directly. From these conversations, it is clear to me that everyone in the industry needs to do more to help homeowners in this difficult environment. As one example, we are working closely with state officials to launch Hardest Hit Fund programs as quickly as possible.
Thank you for the opportunity to appear before you today, and I would be happy to answer any questions that you may have for me.
* Statistics for this year are as of September 30, 2010.
Foreclosure Process (pdf)