Goldman Sachs and Morgan Stanley will shell out a combined $557 million to settle the federal government’s allegations that the banks foreclosed on homeowners who should have been allowed to stay in their homes, the Associated Press reported. The deal, announced today with the Federal Reserve, could compensate hundreds of thousands of homeowners who fell victim to “robo-signing,” when banks signed off on foreclosures without proper review.
About $232 million of the settlement funds will go to homeowners who faced foreclosure in 2009 and 2010; about 220,000 are eligible. The rest will be directed toward reducing mortgage balances and pardoning outstanding principal owed on houses that were sold for less than what mortgage borrowers owed.
Today’s deal is similar to one struck last week to the tune of $8.5 billion with Bank of America, JPMorgan, Wells Fargo and others. This group of banks will shell out $3.3 billion to nearly 4 million homeowners to end foreclosure review, with the remainder directed to mortgage modifications and principal forgiveness. [AP via Crain’s] –Zachary Kussin