Residential Capital LLC, the bankrupt mortgage unit of Ally Financial Inc. (ALLY), won temporary court approval to hire PricewaterhouseCoopers LLP to review its foreclosure practices as required under a settlement.
U.S. Bankruptcy Judge Martin Glenn in Manhattan today gave ResCap temporary permission to pay Pricewaterhouse to review more than 20,000 loan files for potential problems, a process that may cost more than $250 million, according to court papers.
The 90-day authority is a compromise with ResCap creditors allowing the company to comply with a settlement that mortgage servicers entered into with the U.S. and state attorneys general to resolve allegations their foreclosure practices were abusive to homeowners.
The review may yield $35 million to $60 million to homeowners who have been harmed, the official committee of ResCap creditors said in court papers. The committee agreed to the temporary hiring authority while opposing the review because of the cost, according to court papers.
Costs of the review are “disproportionate when compared to the expected remediation payments to borrowers,” ResCap said in court papers. The company said it will use the 90-day period to try to work out a permanent compromise with the creditors committee.
Earlier this year, in what the U.S. called the largest federal-state civil settlement in the nation’s history, the nation’s five largest mortgage servicers committed $20 billion in relief for borrowers plus payments of $5 billion to governments.
Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally negotiated the settlement with federal agencies, including the Justice Department, and 49 states. All 50 state attorneys general had announced a probe into foreclosure practices more than a year earlier, following disclosures that banks used faulty documents to seize homes.
ResCap, based in New York, filed for bankruptcy in May with plans to sell most of its assets and resolve legal claims related to residential mortgage-backed securities.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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