Ally Financial Inc.'s chief executive said the company "screwed up on robo-signing affidavits," but has changed its foreclosure processes and will complete a review of about 25,000 affidavits by yearend.
"We had a robo-signer problem, no question about it. We're embarrassed about it and we've fixed it going forward," Ally CEO Michael Carpenter said Wednesday on a conference call to discuss third-quarter results. "We are confident that we did not foreclose on anybody inappropriately and it's up to us to prove that."
Carpenter said Ally is taking "a second and third look" before foreclosure sales in all 50 states and has hired three law firms and an accounting firm to look at "what went wrong" and to oversee changes to its processes. "We have reworked, replaced the affidavits and done it properly even if we thought it was done properly in the first place," he said.
For the first time since Sept. 23 — when Ally's GMAC Mortgage became the first major mortgage servicer to halt all residential foreclosures in the 23 states where they are handled in the courts — the company quantified the number of affidavits that will be reviewed and resubmitted to local courts. So far, 9,523 affidavits have been reviewed with "no evidence" of improper foreclosures, Carpenter said, leaving about 15,500 to go.
(By comparison, JPMorgan Chase & Co. is reviewing 115,000 affidavits, Bank of America Corp., 102,000 and Wells Fargo & Co., 55,000. The problem was that the affidavits were signed by employees who were not familiar with the information in the loan files, or were not signed in the presence of a notary.)
Ally has increased the education and training of employees who sign documents and created a quality control team to review every foreclosure case. Carpenter said inquiries by federal regulators, a group of 50 state attorneys general and by Congress — which expects to hold hearings on the issue sometime this month — likely will take much longer than the review of affidavits.
On Wednesday's call, an analyst asked whether Ally had quantified the risk of further exposure from investors who might try to force it to buy back securitized mortgages.
"We are very aware of speculation in the marketplace," said Tom Marano, Ally's head of mortgage operations and capital markets. "The situation is extremely complex and unique to each individual transaction and firm. We will promptly and proactively bolster any reserves if necessary."
Ally increased its reserve for mortgage repurchases to $1.1 billion, which resulted in a $344 million pretax third-quarter expense. All told, the $177 billion-asset Ally reported a third-quarter profit of $269 million, its third consecutive quarter in the black, compared with a loss of $767 million a year earlier. Ally's core business, which finances sales of vehicles made by former parent General Motors Corp. and other manufacturers, reported its seventh consecutive profitable quarter.
Even Ally's mortgage operations, which include Residential Capital LLC (which in turn is the direct parent of GMAC Mortgage), posted pretax income of $154 million, compared with a loss of $652 million a year earlier. The mortgage operations had strong production margins, a lower loan-loss provision and gains on the sale of legacy mortgage assets. Mortgage production jumped 29% from a year earlier, to $20.5 billion.
When Carpenter was named CEO a year ago, he said his top priority was to stop ResCap from dragging down the rest of the company. Then known as GMAC, it had received $17 billion in bailout funds, giving the government a 56% stake. But Ally has been busy selling its legacy mortgage assets. Moreover, ResCap reported third-quarter income of $38 million, its third consecutive profitable quarter, compared with a loss of $646 million a year earlier.
"Today we believe we have effectively de-risked the mortgage business and we are declaring victory," Carpenter said. Asked whether ResCap was still for sale, Carpenter replied: "With regard to the business of origination and servicing, there is no intention of selling that business." But, he said, "there are other mortgage assets that are for sale at the right price."
