A Brief Historical Summary of GMAC
GMAC had its beginning in 1919, when the General Motors Automobile Corporation decided to begin offering in-house financing to prospective purchasers of its cars. Christening the new corporation General Motors Acceptance Corporation, GMAC began processing auto loans and establishing itself as a premium lender. Over the past 90 years, GMAC has gone through many evolutions and expansions. It began offering home mortgages in 1985, and has since added private banking, corporate financing, insurance, and other items to its portfolio of services. In 2008, the company was granted permission to form a private bank holding company. At this time, GMAC Financial is the fourth-largest financial holding company in the United States, behind Bank of America, Wells Fargo, and JP Morgan Chase Bank. As of the end of 2009, the company held more than $225 billion in mortgage portfolio assets alone.
GMAC began to encounter problems in 2006, when the economy began a downturn that is still being dealt with today. The resetting of adjustable rate sub-prime mortgages (ARMs) to much higher interest rates, causing mortgage payments to skyrocket, send a wave of panic through the country as people were unable to afford their payments. Property values bottomed out in 2007, decreasing the value of properties while the loan became more vulnerable to foreclosure. GMAC foreclosures shot through the roof, with the bank hastily foreclosing on properties as the loans went into default. GMAC was not alone in this, as all the other large lenders also were hit the same by the economic crisis.
In 2009, GMAC Mortgage was purchased by Ally Bank, the private banking arm of GMAC Financial. This name change was directly attributable to the lamentable sub-prime mortgage lending crisis, which was one of the main causes of the ARM resetting. GMAC Mortgage had been (like other lenders) too quick in approving prospective homebuyers for mortgage loans back in the late 1990s and early 2000s, allowing these “sub-prime” borrowers to engage in a loan but at an adjustable interest rate. The inability of these homebuyers to make their payments led to the crash of foreclosures, a domino effect that devastated the entire economy. Once the wave of GMAC foreclosures were investigated beginning in the beginning of 2009 (all four Big Four banks were investigated, as well as other smaller institutions), consumers found the brand name unpalatable. Because Ally Bank had been operating in the black and with a good reputation, it was felt that by rebranding GMAC as Ally it would help alleviate some of the distrust caused by GMACs previous history. Only time will tell if this succeeds.
