Two financial giants, Goldman Sachs and Morgan Stanley, have agreed to ante up to stressed homeowners who were denied loan modifications or were eligible for government assistance and did not receive it.
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. regulators.
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 the $8.5 billion deal reached between the Fed, the Office of the Comptroller of the Currency, and 10 other bank servicers on January 7.
The deals help the financial industry move a step closer to ending the housing crisis-related problems that have dogged it for years.
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.