Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) agreed to offer a $557 million package of cash and other assistance for mortgage borrowers to settle a federal probe into allegations that the banks improperly seized homes.
The sum includes $232 million in direct payments to more than 220,000 borrowers and $325 million in assistance such as loan modifications, the Federal Reserve said in a statement. Eric Kollig, a Fed spokesman, declined to say how much each of the New York-based firms will pay.
The deal adds to the $8.5 billion settlement announced last week among the Fed, the Office of the Comptroller of the Currency and 10 of the biggest U.S. lenders, including JPMorgan Chase & Co. (JPM), Bank of America Corp. and Citigroup Inc. Regulators probed allegations that lenders rushed home foreclosures by using flawed documents.
“With the addition of Goldman Sachs and Morgan Stanley, more than 4 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 Fed said in the statement.
Morgan Stanley’s share of the accord totals $227 million, consisting of $97 million in cash and $130 million in other relief, according to two people briefed on the matter. Goldman Sachs will pay $135 million in cash plus $195 million in relief, said the people, who asked for anonymity because terms weren’t publicly announced.
Cash payments in today’s deal range as high as $125,000 and cover borrowers whose homes were in foreclosure in 2009 and 2010, the Fed said. The loans were handled by Litton Loan Servicing LP, which formerly was owned by Goldman Sachs, and Saxon Mortgage Services Inc., which was a unit of Morgan Stanley, according to the Fed.
Michael DuVally, a spokesman for Goldman Sachs, and Mark Lake of Morgan Stanley both said their firms were pleased to have resolved the probe. Lake declined to say whether the accord will result in a charge against fourth-quarter earnings, which are scheduled to be released Jan. 18.
Goldman Sachs set aside $260 million in the fourth quarter to cover litigation and regulatory proceedings including today’s settlement, according to a statement today released with the firm’s earnings.
Goldman Sachs bought Litton in 2007 to get into mortgage servicing, and Morgan Stanley bought Saxon in 2006, before a housing market collapse that led to the worst financial crisis since the Great Depression. Litton started 135,586 foreclosures in 2009 and 2010, and Saxon initiated at least 60,313 actions in the same period, according to the Fed. Both banks later sold the servicers to Ocwen Financial Corp. (OCN)
The settlement with Goldman Sachs and Morgan Stanley expands the industry payouts beyond the initial 14 firms that agreed in 2011 to hire outside consultants to review their foreclosures for errors.
HSBC Holdings Inc. (HBC) and Ally Financial Inc. (ALLY) are also preparing to sign on to the deal, two people briefed on the matter have said. Neil Brazil, a U.S. spokesman for HSBC, said the bank is still in discussions with regulators. Its mortgage- servicing operations were regulated by both the Fed and OCC.
“The OCC continues conversations with the remaining servicers,” said Bryan Hubbard, an OCC spokesman.
IndyMac Bancorp’s successor OneWest Bank FSB and EverBank Financial Corp. (EVER) also haven’t reached an accord with regulators.
Ally, with all its mortgage-servicing affiliates, represented the fifth-largest U.S. servicer with 2.5 million loans during the crisis, according to the Fed.
Residential Capital LLC, the unit of Detroit-based Ally involved in the settlement, supports the idea that bank funds “should go toward consumers rather than consultants,” and has been delayed in considering the settlement because of its bankruptcy, said Susan Fitzpatrick, a bank spokeswoman.
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