Residential Capital LLC, the bankrupt lender that signed a deal with creditors last month, reached a tentative accord with the Federal Reserve to end a review of the firm’s foreclosure practices, according to a person involved with the talks.
The agreement would have ResCap contribute a payment of about $200 million to be split among borrowers, said the person, who requested anonymity because the deal isn’t public. U.S. Bankruptcy Judge Martin Glenn in Manhattan must approve the accord, which would end ResCap’s obligation to have borrowers’ files examined for damages, the person said.
ResCap, which estimates a full review could cost $300 million, told Glenn it would be a waste of money because a federal policy allows it to make a one-time payment. Glenn told ResCap during a hearing in March to negotiate a revamped foreclosure-review process with regulators before seeking a court order to halt the program.
ResCap, a unit of Detroit-based Ally Financial Inc., would join at least 10 of the largest mortgage servicers who agreed in January to pay $8.5 billion to end similar reviews. The firms were among 14 servicers ordered in 2011 to hire independent consultants to help clean up foreclosure practices amid claims they improperly seized homes in the wake of the subprime mortgage crisis.
In reaching a deal with major creditors and Ally last month, ResCap agreed to assume all responsibility for the costs tied to the foreclosure review as well as a separate settlement with the U.S. and state attorneys general, according to a May 23 statement from Ally.
Eric Kollig, a Fed spokesman, and Ally’s Gina Proia declined to comment. Tammy Hamzehpour at ResCap didn’t respond to an e-mail seeking comment. The Wall Street Journal reported on the agreement earlier today.
The case is In re Residential Capital LLC, 12-bk-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).