Ally Financial Inc.’s handling of documents used to seize homes from delinquent borrowers was flawed and “unacceptable,” the bank’s top mortgage executive said in testimony prepared for a congressional hearing.

Affidavits were signed “outside the immediate physical presence of a notary and without direct personal knowledge of the information in the affidavit,” Thomas Marano, Ally’s chief executive officer for mortgage operations, said in comments to be delivered at a House Financial Services Committee hearing on foreclosures tomorrow.

“Our company’s process for preparing foreclosure affidavits was flawed,” Marano said in the statement. “These flaws are entirely unacceptable to me.”

Ally’s GMAC Mortgage unit halted evictions in 23 states in September and is reviewing foreclosures nationwide in response to questions over the handling of legal documents. Attorneys general from all 50 states are investigating mortgage lenders and servicers after revelations that banks may have acted illegally in using so-called robo-signers to validate documents without reviewing the underlying facts.

Marano said Detroit-based Ally has “resumed foreclosure sales only after an individualized review of each case.”

Lawmakers are questioning regulators and banking officials about what actions they have taken to ensure that foreclosures were fair and legal. Executives from Bank of America Corp. and JMPorgan Chase & Co. were questioned by the Senate Banking Committee yesterday. Regulators, including officials from the U.S. Treasury Department and the Federal Reserve, are scheduled to testify at tomorrow’s hearing.

Routine Examinations

The Office of the Comptroller of the Currency, the Treasury unit that regulates national banks, didn’t discover flaws in mortgage foreclosure documents before they were disclosed in September because its routine examinations don’t include reviews of paperwork until there are warning signs, Acting Director John Walsh said in prepared remarks.

“Examiners generally do not directly test standard business process or practices, such as the validity of signed contracts, or the processes used to notarize documents or the actual physical presence of notes with document custodians, unless there is evidence of a material weakness or breakdown in governance and internal controls,” Walsh said.

Regulators including the OCC are now conducting on-site examinations of foreclosure practices and documents, he said.

The review, a joint effort of the OCC, the Federal Reserve, the Office of Thrift Supervision, and the Federal Deposit Insurance Corp., will be completed in January, Federal Reserve Governor Elizabeth Duke said.

“We are prepared to take supervisory action where necessary and appropriate to hold institutions accountable for poor practices,” Duke said in her prepared remarks.

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Clea Benson in Washington at Cbenson20@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.