WASHINGTON May 8 A multi-bank settlement with
regulators over past foreclosure abuses ran into new problems
when some borrowers received smaller checks than they should
have, the Federal Reserve said on Wednesday.
Some 4.2 million people are receiving checks as part of the
deal mortgage servicers reached with the Office of the
Comptroller of the Currency (OCC) and the Fed to settle
allegations they improperly foreclosed on borrowers and made
other processing mistakes during the U.S. housing crisis.
The amounts of the checks were determined based on rubrics
approved by regulators. But the Fed said it became aware on
Tuesday that some consumers whose loans were serviced by units
of Goldman Sachs or Morgan Stanley had received checks for less
than they amount they should have received.
About 96,000 people received the wrong amounts, the Fed
Rust Consulting, the firm chosen to manage the checks, will
send an additional payment to those borrowers on May 17, the Fed
said. The error was first reported by the New York Times.
"This is the worst settlement I have seen in my life, and it
should be reopened," Representative Elijah Cummings, a Maryland
Democrat, said in a statement.
He and other lawmakers have severely criticized the
settlement, which they say is not transparent and has been
plagued with errors.
Regulators ordered the servicers to conduct case-by-case
reviews of loan files for borrowers whose homes were in
foreclosure in 2009 and 2010 after banks admitted to
"robosigning" documents and other servicing mistakes that led
them to improperly seize some people's homes.
But that process proved time-consuming and expensive, with
the banks paying about $2 billion in fees to outside consultants
that were hired to conduct the reviews.
So regulators called off the reviews and reached a $9.3
billion settlement with servicers including units of Bank of
America Corp, Citigroup Inc, JPMorgan Chase & Co
, and Wells Fargo & Co. About $3.6 billion was to
go toward cash payments to borrowers.
Borrowers are supposed to be compensated based on a dozen
categories meant to assess where they were in the foreclosure
Two banks, Morgan Stanley and Goldman Sachs,
entered into separate settlements and agreed to pay more to some
borrowers whose loans were serviced by units those two banks
used to own but have since sold.
New checks from Rust Consulting will make up the difference
between what those people should have received and what was in
their original checks, the Fed said.
"The Federal Reserve will continue to closely monitor the
payment agreement and Rust's work in distributing checks under
the agreement," the regulator said.
In a statement, Rust Consulting blamed the problem on a
clerical error and said it had corrected the mistake and plans
to mail The supplemental checks soon.
This is not the first mistake reported in connection with
the foreclosure review checks. The Fed said in April that some
borrowers had trouble cashing their checks, but those problems
were said to be fixed.
As of the close of business on Tuesday, about 2.1 million
checks had been cashed totaling $1.9 billion, the OCC said.