Goldman Sachs Group Inc. and Morgan Stanley agreed to offer a $557 million package of cash and other assistance for mortgage borrowers to settle a federal probe into allegations that the banks improperly seized homes.
The sum includes $232 million in direct payments to more than 220,000 borrowers and $325 million in assistance such as loan modifications, the Federal Reserve said in a statement. Eric Kollig, a Fed spokesman, declined to say how much each of the New York-based firms will pay.
The deal adds to the $8.5 billion settlement announced last week among the Fed, the Office of the Comptroller of the Currency and 10 of the biggest U.S. lenders, including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. Regulators probed allegations that lenders rushed home foreclosures by using flawed documents.
“With the addition of Goldman Sachs and Morgan Stanley, more than 4 million borrowers will receive a total of $3.5 billion in cash compensation while an additional $5.5 billion will be provided by the servicers for mortgage assistance,” the Fed said in the statement.
Morgan Stanley’s share of the accord totals $227 million, consisting of $97 million in cash and $130 million in other relief, according to two people briefed on the matter. Goldman Sachs will pay $135 million in cash plus $195 million in relief, said the people, who asked for anonymity because terms weren’t publicly announced.
Cash payments in today’s deal range as high as $125,000 and cover borrowers whose homes were in foreclosure in 2009 and 2010, the Fed said. The loans were handled by Litton Loan Servicing LP, which formerly was owned by Goldman Sachs, and Saxon Mortgage Services Inc., which was a unit of Morgan Stanley, according to the Fed.
Michael DuVally, a spokesman for Goldman Sachs, and Mark Lake of Morgan Stanley both said their firms were pleased to have resolved the probe. Lake declined to say whether the accord will result in a charge against fourth-quarter earnings, which are scheduled to be released Jan. 18.
Goldman Sachs set aside $260 million in the fourth quarter to cover litigation and regulatory proceedings including today’s settlement, according to a statement today released with the firm’s earnings.
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