Bank: We're defaulting, but don't you dare
Ally Financial is shedding its risky mortgages in bankruptcy court, and it doesn't want its mortgage customers to get any funny ideas.
This post comes from Al Lewis at partner site MarketWatch.
"Dear Homeowner," it begins. (That's me, homeowner.)
As you may have read or heard, Residential Capital LLC recently announced that it and its subsidiaries, including GMAC Mortgage, are restructuring under Chapter 11 . . . The restructuring . . . does not change your obligations as a mortgage borrower . . . You must continue to make your scheduled mortgage payments on time and in full.
I can only guess why he sent me this letter. Maybe he's afraid I'm going to do what he's doing.
ResCap is a subsidiary of Ally Financial, which was founded in Detroit as General Motors Acceptance Corp., or GMAC, in 1919. It nearly collapsed in the 2008 financial crisis after it had made a bold expansion into "liar loans" and other subprime mortgage products.
Additionally, the U.S. auto industry it serviced was near death.
To keep GMAC alive, the Federal Reserve allowed it to become a bank holding company -- giving it the ability to borrow from the Fed at nearly 0%. The U.S. government, beginning with the Bush administration, also gave it a $17.2 billion bailout, of which it still owes nearly $12 billion. (Post continues below.)The bailout for GMAC was also a bailout for private-equity giant Cerberus Capital Management, which acquired 51% of the company from General Motors Corp. in 2006. It was also a bailout for General Motors, which required another bailout on top of that.
GMAC was apparently so embarrassed as it became a ward of a state that it began re-branding itself as Ally. GMAC Bank became Ally Bank in 2009, and then its parent company became Ally Financial in 2010.
In a stroke of marketing genius, Ally began running a series of commercials to distract consumers from its extraordinary bailout. The ads suggested that the other banks were the cheaters, taking advantage of customers in ways that are amply apparent, even to children. A slick-talking banker conned children out of toys using treacherous contract language, and then a voiceover declared: "Even kids know it's wrong to hide behind fine print. Why don't banks?" (Watch the ad.)
Today, Ally is 74% owned by the taxpayers. And it has suffered the same problems every major mortgage lender has faced, from allegations that it fraudulently foreclosed on homes to lawsuits from investors who claimed it misrepresented the quality of its mortgage pools.
Last year, Ally attempted an initial public stock offering to help pay back the taxpayers, but the IPO was withdrawn because of market conditions, and, of course, Ally's legacy mortgage issues.
Now, Ally has come up with a plan to launder its bad mortgages and related liabilities by taking a subsidiary through the bankruptcy cycle. This is a novel way for a commercial bank to shed bad loans, but I suppose Ally has to do something after failing a financial "stress test" from the Fed in March.
If only I could restructure my finances the way Marano is restructuring his.
The property I mortgaged through GMAC is a rental house, and it would be immensely more profitable if I did not have those pesky monthly payments. If only I could form a subsidiary to hold my GMAC mortgage and then have that subsidiary file bankruptcy.
Of course, as Marano wrote to me, I'd have to write to my tenant, so that he didn't get the wrong idea:
Dear Renter: I am restructuring my GMAC mortgage. My unusual financial shell game does not change your obligations as a tenant. You must continue to make your rent payments on time and in full. Yes, I know. GMAC is not making its payments. And I am not making my payments. So you must be asking why you should be making your payments? Well, to borrow a line from an Ally commercial, "It's just the right thing to do."
Hey, even kids know a bad example when they see one. Why don't banks?
More from MSN Money:
For the love of all that is right, please stop with the REPUB/DEM finger pointing!! WE THE PEOPLE have let our government overrun this country. Both left and right are to blame and neither should be talking unless its to apologize to America and her citizens!! Throw them ALL out and start fresh next year.
Great Article!!! The way we have allowed these banks to deceive the American public, and allowed our government to hand out my money to bail these crooks out of their self made mess is criminal!
Not one of these sleaze bags has gone to jail for the illegal practices and that's because the people responsible for holding them accountable are crooks themselves.
What a complete joke our banking system, the financial system, Wall Street, and our so called leaders have become. How the American public sits by and allows this to continue is mind boggeling!!
If Ally is 74% owned by taxpayers, then why should we keep paying our mortgage? That just means that, every month, we are contributing money to our faltering/failing company, which no executive anywhere would continue to do. So I say, we do the same as stockholders do everyday... pull our money out (stop making payments) and invest in something else.
Sounds stupid, doesn't it? But that's exactly what is being done to us, only, the politicians and corporate execs don't get punished/penalized for it.
Banks can screw up, make a mistake, get in over there heads and then ask for a bailout and/or fill chapter 11 to get time to fix there mistake But, people who screw up, make a mistake, get in over there heads are crucified and left for dead. That sucks, because the banks are the ones telling the people what they can do.
it's all BS people....we are and have been completely taken advantage of as usual in this country...what erks me the most is that the little guy(me & just about everyone else) is just gonna have to take it without vaseline.....fair...not even close!!!!
So, it's okay for banks to behave recklessly, AND get tax payer bailouts when their risky actions put them in danger (they are of course, too big to fail)....but it's not okay if you lose your job to stop paying your mortgage.....just pull yourself up by your bootstraps, foreclose and lose any investment you've made (you are of course, of little consequence to fail). Your credit rating will drop. The bank will profit from your loss. And you, as a tax payer will be held accountable for future bank risks.
If you don't fight to save your home, no one is going to rescue you if you don't at least try. Do your homework.
"I can only guess why he sent me this letter. Maybe he's afraid I'm going to do what he's doing."
More along the lines of just smirking is my guess. He knows you can't do what he's doing.
Of course, if you could you might well "do what he's doing." That's why the people who make the rules exclude their use by - how did Leona Helmsley put it? Ah, yes - "the little people."
The whole congress need to be replaced,anyone currently there cant run.Term limits also.
The bankers need to be strung up.Eric holder is a disgrace,he dosent even have the decency to step down.
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