GMAC and the Sad State of the Economy
When the economy began its steep downturn in 2007, many companies all over the world were affected in different ways. Manufacturing companies were influenced by the drop of the value of the dollar and rising labor and materials costs, causing outsourcing, layoffs, downsizing, and in some cases outright closure. The everyday working person found their dollar buying less, the costs of goods and services increasing, and that their jobs weren’t safe. Banks and lending institutions were affected by the decreasing of property values that their mortgage portfolios were based on, rising inflation, and a general conservative attitude toward investing. Many jobs have been lost, many loans have been defaulted on, and many companies have had go out of business. It has been a hard three years, with little hope in sight.
GMAC has not been unscathed by the economic crisis; in fact, it has contributed greatly to many of the factors causing the financial crisis. Along with other large mortgage lenders, GMAC mortgage was far too fast to make unwise loans to unqualified buyers in the last part of the 1990s and the early 2000s. They gave mortgages at adjustable interest rates, which would change upon economic fluctuations. When the housing bubble burst in late 2006, these ARMs reset, usually to payments far too high for the buyer to afford. Many thousands of buyers went into foreclosure. This further worsened the financial crisis.
The company has been very adversely affected by this series of events. As the actual value of the property backing their mortgages lessened and the loans were being defaulted on at record numbers, GMAC saw huge losses in 2007 and 2008, and has had to receive more than $25 billion in federal financial aid to keep them afloat. Also, the company has been very quick to begin foreclosing on properties, rushing through the procedures using what were determined by investigators to be unqualified employees, rubberstamp tactics, and often avoided required legal measures. Many homeowners have brought suit in state and federal court regarding GMAC foreclosures as well as with the other major lenders, as often the banks have insufficient evidence and missing documentation, rendering the foreclosure null. Currently, GMAC and the other Big Four lenders (Bank of America, Wells Fargo, and JP Morgan Chase Bank) are all under federal injunction to suspend these foreclosures, although GMAC has proceeded with theirs.
When Ally Bank bought GMAC out in late 2009, it was with the hopes that Ally’s better name would aid in the restoration of GMAC’s reputation, but only time will tell if that will prove correct.
