Goldman Sachs and Morgan Stanley reached a $557 million settlement with the Federal Reserve Board over deficient practices in mortgage loan servicing and foreclosure processing.
As part of the agreement, both New York-based banks will pay $232 million in direct payments to eligible borrowers and $325 million for other assistance including loan modifications and forgiveness of deficiency judgments.
More than 220,000 borrowers whose homes were in foreclosure in 2009 and 2010 whose mortgages were serviced by the banks’ former subsidiaries, Litton Loan Servicing for Goldman Sachs and Saxon Mortgage Services for Morgan Stanley, will receive cash compensation under the agreements.
Eligible borrowers are expected to receive reimbursements ranging from hundreds of dollars up to $125,000, depending on the type of possible servicing error. A payment agent will be appointed to administer payments to borrowers on behalf the servicers.
Affected borrowers are expected to be contacted by the payment agent by the end of March, the Federal Reserve said.
“We’re pleased to have resolved this matter concerning Litton Loan Servicing, which we sold over a year ago,” Goldman Sachs said in a written statement.
Morgan Stanley, which sold its residential servicing division Saxon Mortgage in 2011, did not respond to NMN’s request for comment.
Both Morgan Stanley and Goldman Sachs are no longer in the mortgage servicing business.
This agreement comes more than a week after the Office of the Comptroller of the Currency and Federal Reserve settled a similar case with 10 other servicers regarding foreclosure abuses.
With the addition of Goldman Sachs and Morgan Stanley added to the previous settlement this month, more than 5 million borrowers will receive a total of $3.5 billion in cash compensation, while an additional $5.5 billion will be provided by the servicers for mortgage assistance.
“The Federal Reserve continues to work to reach similar agreements in principle with other servicers that are not yet parties to the agreements, but that are also subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing,” the Federal Reserve stated. “Federal Reserve examiners are continuing to closely monitor the servicers' implementation of plans required by the enforcement actions previously issued against the servicers to correct the unsafe and unsound mortgage servicing and foreclosure practices.”