Foreclosure settlement checks shorted Goldman Sachs and Morgan Stanley borrowers, Fed says

Foreclosure-mediation.jpg

A settlement over foreclosure abuses in 2009 and 2010 has seen a series of missteps.

(The Associated Press)

Homeowners foreclosed upon by Goldman Sachs and Morgan Stanley may have been underpaid in recently issued settlement checks, the Federal Reserve said Thursday.

Help our reporting

Did you receive a settlement check for less than you were expecting?

A second round of checks is being issued to correct the latest misstep in regulators' response to mortgage abuse at 13 major banks. The Fed said 96,000 settlement checks issued by its agent, Rust Consulting Inc., were written for amounts less than the two mortgage servicers owed the homeowners.

The settlement stems from the "robo-signing" practices of 2009 and 2008, in which low-level bank agents fraudulently signed a foreclosure affidavits without reviewing the borrowers' case.

The settlement started as a case-by-case review intended to uncover the extent of the abuses and compensate people who wrongfully lost their homes.

But regulators at first struggled with low participation rates and repeatedly pushed back the deadline to allow more homeowners to apply. At the same time, investigators were finding it took hours to review each file for errors, much longer than planned.

Reports

in determining whether the banks erred, even at times using electronic forms pre-filled in by a bank employee.

By January, regulators had decided the foreclosure review was more time consuming and costly than they anticipated. They

and provide $3.6 billion compensate everyone who applied for a review or whose foreclosure was flagged as suspect by investigators.

Then, as the first checks were sent out last month, some borrowers reported

when they tried to deposit or cash them. The Fed said a problem between Rust and the bank, The Huntington National Bank, has since been cleared up.

As of Thursday, 2.1 million checks have been cashed, totaling nearly $2 billion in compensation.

Most borrowers will receive the minimum payment of $300, and a select few will receive $125,000 or more. Borrower's aren't told how they've been categorized for compensation, but some who complained they were miscategorized were told the payment amounts are final.

-- Elliot Njus

If you purchase a product or register for an account through a link on our site, we may receive compensation. By using this site, you consent to our User Agreement and agree that your clicks, interactions, and personal information may be collected, recorded, and/or stored by us and social media and other third-party partners in accordance with our Privacy Policy.