Goldman Sachs and Morgan Stanley will pay a combined $557 million to settle federal complaints that they wrongfully foreclosed on homeowners who should have been allowed to stay in their homes. The agreements, announced on January 17th with the Federal Reserve, were similar to the settlements with the ten major banks and mortgage lenders mentioned above. In this settlement, Goldman will pay $330 million and Morgan Stanley will pay $227 million. The settlements could compensate hundreds of thousands of Americans whose homes were seized because of abuses such as “robo-signing.” The agreement will also help eliminate huge potential liabilities for the banks.
Several consumer advocates believe the regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families. Under the settlement, Goldman and Morgan Stanley will pay a combined $232 million in cash compensation to homeowners to end an independent review of loan files required under a 2011 action by the Fed and the Office of the Comptroller of the Currency. The remaining $325 million will be used to reduce mortgage balances and to forgive outstanding principal on home sales that generated less than borrowers owed on their mortgages.
About 220,000 people whose homes were in foreclosure in 2009 and 2010 are eligible for payments under the settlement with the two banks, according to the Fed. The payments could range from hundreds of dollars up to $125,000, depending on the type of error. The structure of the settlement is nearly identical to the $8.5 billion settlement by the ten banks mentioned above. Those banks are paying about $3.3 billion to 3.8 million homeowners to end the review of foreclosures. The rest — $5.2 billion — is going toward mortgage modifications and principal forgiveness.
Two other banks were subject to the 2011 independent reviews. HSBC and Ally Financial have been in discussions with regulators on similar settlements, but have not yet reached agreements. Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time-consuming and costly and didn’t reach many homeowners. Banks were paying large amounts to consultants to review the files. Some questioned the independence of those consultants, who often ruled against homeowners.
The settlements don’t close the book on the housing crisis, which brought more than 4 million foreclosures. Only borrowers who were in foreclosure in 2009 and 2010 are covered in the settlement. Resolving millions of claims involving multiple banks and mortgage companies is complicated and time-consuming. The settlements announced last month are separate from a $25 billion settlement agreed to last February with five major banks by the federal government and 49 states. Those banks are Ally, Bank of America, Citigroup, JPMorgan and Wells Fargo.
Source: Atlanta Journal Constitution
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