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.
Killerecho- I guess you didn't bother reading the article. The "socialist" that agreed to the bailout of this corporation was Bush- not Obama. Because contrary to popular opinion, bailouts began before Obama was elected. But I guess those kinds of facts don't fit your agenda.
And for the record- those bailout funds did not hit the deficit numbers until 2009, so they are artificially given to Obama. Much the way the war spending was omitted from Bush budgets but then added in when Obama took office to allow for full disclosure and openess.
Although I keep making my mortgage payments, I stopped, 5 years ago, making credit card payments, and I encourag EVERYONE to do the same.
They stole from us...take it back.
and Yet, the usual "capitalist" people on this board will say "Cheers to Capitalism."
Keep on cheering for capitalism. Good luck. Wall Street just loves to have capitalist American people root for them.
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.
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!!!!
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
ABOUT SMART SPENDING
Editor Bev O'Shea lives and works in the foothills of the Appalachians. A former copy editor for The Atlanta Journal-Constitution and the Orlando Sentinel, she joined MSN Money in 2007. She's a fan of sunsets, college football and free shipping, among other things.
Having worked as a writer, reporter and editor for more than 25 years, Editor Julie Tilsner is the sort of person who can't help but correct grammar in Facebook postings and on billboards. She's written for BusinessWeek, the Los Angeles Times, Parenting, Redbook, AOL and others. She lives in Los Angeles County with her family and loves to drink wine and practice yoga, although not generally at the same time.
A writer for MSN Money since January 2007, Donna Freedman won regional and national prizes during an 18-year newspaper career and earned a college degree in midlife without taking out student loans. She also writes about smart money tactics for magazines and on her own site, Surviving and Thriving.
Mitch Lipka has been warning people about scams and shining light on questionable business practices for more than 20 years. Mitch, the consumer columnist for The Boston Globe, has also been a reporter and editor at The Philadelphia Inquirer, Consumer Reports, South Florida Sun-Sentinel and AOL. He won the 2010 New York Press Club award for best consumer reporting online and was honored in 2011 for his reporting on child product safety.
Marilyn Lewis is an award-winning writer with a passion for getting readers clear, straight information that helps them stay out of financial trouble. A former reporter for The San Jose Mercury News, she works from her home in Port Townsend, Wash. Contact her at MarilynLewis@Outlook.com.
LATEST BLOG POSTS
Children from lower income families are at greater risk of suffering accidental injuries and being sickened by food, according to a Consumer Federation of America study.