The Federal Reserve said some mortgage borrowers who were insufficiently paid as part of a settlement will be sent supplemental checks next week.
The borrowers, whose home loans were serviced by Goldman Sachs Group Inc. (GS) and Morgan Stanley, will be sent an additional payment around May 17, the Fed said today in a statement in Washington. They were sent erroneous payments as part of the Independent Foreclosure Review agreement, the Fed said, citing an announcement by Rust Consulting Inc., which processed payments.
Rust said today some borrowers were sent checks for less than the amount directed by the Fed and the Office of the Comptroller of the Currency. The Minneapolis-based company is distributing $3.6 billion that servicers agreed to pay to settle claims they improperly seized homes amid the subprime mortgage crisis.
“The new checks will make up the difference between what was in the original check sent by Rust and what should have been paid,” the Fed said in the statement. “Borrowers should cash both the original checks and the supplemental checks.”
A settlement with regulators in January deemed Goldman Sachs and Morgan Stanley (MS) responsible for $232 million in cash to borrowers and $325 million to help avert foreclosures, though the New York-based companies no longer own mortgage servicers. In all, the broader settlement compensated about 4.2 million borrowers with loans from 13 mortgage servicers.
About 96,000 borrowers whose loans were serviced by former Goldman Sachs subsidiary Litton Loan Servicing LP and Morgan Stanley’s Saxon Mortgage Services Inc. unit were sent checks for less than the amount that the Fed directed Rust to pay, Rust and the central bank both said in statements today.
The Fed said it learned of a possible discrepancy yesterday and contacted Rust to assess the problem. Rust was hired as the agent to distribute in payments to borrowers who faced foreclosure in 2009 and 2010.
Rust is a wholly-owned subsidiary of SourceHOV LLC, a Dallas-based company that provides business consulting services in areas such as health care, publishing, retail and government. On March 19, SourceHOV announced that Citi Venture Capital International, a unit of Citigroup Inc. (C), would purchase the stake that Apollo Global Management LLC (APO) and unspecified other minority shareholders held in the company.
Rust has had contracts with other federal agencies, including the Department of Justice, the Department of Homeland Security and the Equal Employment Opportunity Commission, according to USAspending.gov. The company also has a political action committee that made $54,500 in contributions in the 2011-2012 election cycle, according to the Center for Responsive Politics.
Bryan Hubbard, a spokesman for the Office of the Comptroller of the Currency said that Rust’s selection was “a product of negotiation” between the government and the mortgage servicers. “Thirteen servicers used the dominant player in the space,” Hubbard said in an interview.
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