The final details of an agreement with the largest U.S. mortgage servicers were released Thursday by the Federal Reserve and Office of the Comptroller of the Currency, who said that Rust was hired as the agent tasked with giving out $3.6 billion in cash payments to those foreclosed on in 2009 and 2010. Individual borrowers will receive as much as $125,000, depending on how their harm is categorized by the servicers.
The regulators reached the settlement last month for foreclosure faults after a U.S. housing-market collapse contributed to the worst financial crisis since the Great Depression. Another $5.7 billion is supposed to be used by the firms to prevent future foreclosures.
The deal, which has been criticized by lawmakers and consumer groups, is “several times the potential payout had the reviews run their course,” Comptroller of the Currency Thomas Curry said in a Feb. 13 speech in Washington.
Mortgage servicers including JPMorgan Chase & Co. and Bank of America Corp. were accused of engaging in improper foreclosure methods in 2009 and 2010, including so-called robo-signing of documents. Regulators in 2011 ordered servicers to hire independent consultants to review their foreclosures and determine how to compensate borrowers. That process was ended at those firms signing this year’s settlement.
Goldman Sachs Group Inc. and Morgan Stanley are responsible for $232 million in cash to borrowers and $325 million in mortgage help, though they no longer own mortgage servicers. The settlement allows the two firms instead to pay cash to the compensation fund and borrower-education efforts and—if approved by regulators—be given $7 to $10 credit for each dollar spent. That could mean the two banks pay between $32.5 million and $46.4 million for mortgage assistance.
Other firms in the settlement that no longer operate servicers include MetLife Inc. and Aurora Bank FSB.
Rust, the Minneapolis-based administrative-services firm, will begin sending payments to the borrowers by April after contacting all 4.2 million borrowers by the end of March, OCC Deputy Comptroller Morris Morgan told reporters in a conference call.
In studying the previous foreclosure reviews by consultants—104,000 of which finished before the process was canceled—Morgan said regulators found that fewer than 6.5% suffered errors that caused financial harm. The smallest payments will be a few hundred dollars and will go to all of those foreclosed on by the servicers, including those whose foreclosures were properly executed.
Among firms ordered in 2011 to have foreclosures reviewed, three haven’t yet settled with regulators: Ally Financial Inc., IndyMac Bancorp’s successor OneWest Bank FSB and EverBank Financial Corp. The 457,000 foreclosure those firms were involved in during this time period must still be reviewed in a process the regulators said should be completed in the coming year.