By Aruna Viswanatha
WASHINGTON Jan 16 Goldman Sachs Group Inc
and Morgan Stanley will pay a total of $557
million in cash and other assistance to troubled borrowers to
end a case-by-case review of past foreclosures required by U.S.
The U.S. Federal Reserve said on Wednesday that the two
banks will pay $232 million to eligible borrowers and $325
million in loan modifications and forgiveness.
The agreement is similar to an $8.5-billion deal agreed
between the Fed, the Office of the Comptroller of the Currency,
and 10 other bank servicers on Jan. 7.
The deals help the financial industry move a step closer to
ending the housing crisis-related problems that have dogged it
Morgan Stanley's portion of the settlement is $227 million,
according to a person familiar with the agreement, including $97
million in cash and $130 million in the other measures. Goldman
will pay $330 million, with $135 million in cash and $195
million from the other pot.
The Fed had previously ordered Goldman and Morgan Stanley to
review foreclosures conducted by mortgage servicing businesses
that the two investment banks bought in the run-up to the
subprime mortgage crisis and have since sold.
Goldman had owned Litton Loan Servicing LP and Morgan
Stanley owned Saxon Capital Inc.
In 2011 and 2012 the government required banks that collect
payments on mortgages, known as servicers, to review loan files
after widespread mistakes were discovered across the industry in
the way they had processed home seizures.
The reviews, initially expected to determine which borrowers
were harmed and to compensate them based on their individual
experiences, proved slow and expensive.
Instead, some 220,000 borrowers whose homes were in
foreclosure in 2009 and 2010 with Litton or Saxon will receive
compensation ranging from hundreds of dollars up to $125,000
depending on the type of possible error, the Fed said.
Also on Wednesday, Goldman reported fourth-quarter profit of
$5.60 per share, boosted by lower compensation combined with big
revenue gains. The bank's shares were up 2.8
percent at $139.35 on the New York Stock Exchange.
Regulators said last week the payouts will be based on
whether a borrower falls into one of 11 categories. The
categories include whether the person was eligible for
protections under the Servicemembers Civil Relief Act, whether
the borrower was not in default, or whether he or she was denied
a loan modification.
The Fed and the OCC are expected to reach similar agreements
with other servicers that had been asked to conduct the reviews,
including HSBC Holdings Inc, Ally Financial Inc
, EverBank Financial Corp and OneWest Bank FSB.
In separate statements, both Morgan Stanley and Goldman
Sachs said they were pleased to have settled the matter.
Eligible borrowers should be contacted by the end of March
with payment details, the Fed said.