Fed Admits Mistakes in Mortgage Settlement

signing a check
signing a check

By Martin Crutsinger

WASHINGTON -- Some 96,000 borrowers who received checks to compensate them for wrongful foreclosures on their mortgages will be getting an additional check to correct for errors in the initial payment, the Federal Reserve announced Wednesday.

The Fed said the affected borrowers received initial compensation amounts that were too low because of errors made by Rust Consulting, the company handling the payments.

The new checks will make up the difference between the amounts that should have been paid and the lower amount paid by Rust. Borrowers are being told to cash both the original check and the new checks, which will be mailed around May 17. The borrowers affected had loans serviced by former subsidiaries of Goldman Sachs and Morgan Stanley.

The Fed said that about 96,000 of the 217,000 checks that were mailed to Goldman Sachs and Morgan Stanley borrowers had incorrect amounts.

The payments were part of a settlement that 13 of the nation's largest banks reached with the government in January. Under the terms of that agreement, the financial institutions agreed to pay a total of $9.3 billion in cash and reductions of mortgage balances to borrowers who either lost their homes or were at risk of foreclosure.

The banks settled regulators' complaints that they wrongfully foreclosed on borrowers with abuses such as "robo-signing," automatically signing off on foreclosures without properly reviewing documents.

The settlement covers borrowers whose homes were in various stages of the foreclosure process in 2009 or 2010.

The Fed said that borrowers with questions should call Rust at 1-888-952-9105 to confirm eligibility, update their contact information or get answers to other questions.

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See more on the foreclosure settlement:
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Foreclosure Settlement Money: Are States Using It the Right Way?

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Foreclosure Settlement Checks Much Smaller Than Regulators Forecasted
Foreclosure Settlement Checks Much Smaller Than Regulators Forecasted