Why Romatzyh and not Luomatzyh
According to David Prager Branner (林德威) in A Guide to Gwoyeu Romatzyh Tonal Spelling of Chinese it is just an ad hoc rule: 


  The name of the city of Rome and words derived from it are to be spelled "Roma", even though they are pronounced (and ought to be spelled) Luomaa. Hence the name of this system of Romanization is spelled Romatzyh, not *Luomaatzyh.


Yuen Ren Chao was a great linguist, and in my opinion a great man.  But developing a romanization single handed is too much for anyone.  Apparently, on this point he felt an attachment to  Rome and its cognates.