New Yorkers struggling through the foreclosure process will experience even more difficulty modifying their loans after Ally Financial’s Residential Capital filed for bankruptcy last Monday, the New York Post reported. Declaring Chapter 11 bankruptcy put an automatic freeze on the government-backed lender’s loan negotiations with consumers. Of ResCap’s 2.4 million consumer mortgages, 120,000 are in New York and those attempting to alter their loans now must do so in court.
“Ally’s goal is to get out of the mortgage business and wash their hands of it,” said Guy Cecala, publisher of Inside Mortgage Finance. “The sooner Ally can do that, the better [for Ally], but that doesn’t necessarily benefit the borrower.”
The bank will continue to operate as it liquidates assets, but that also means that homeowners negotiating a foreclosure settlement deal or loan modification may be forced to start their application process over after Ally sells its servicing rights.
ResCap denies that bankruptcy will affect their ability to satisfy their trustees and creditors. “The Chapter 11 filings should have no impact on our ability to help keep families in their homes and assist borrowers in distress,” a ResCap spokesperson said. [Post]