WASHINGTON – The Federal Reserve said on Friday that GMAC Mortgage will make $230 million in cash payments to borrowers, in a move that will end an independent, case-by-case review of potentially flawed foreclosures.
Under the agreement, more than 232,000 borrowers who were in the foreclosure process between 2009 and 2010 will receive compensation.
The agreement is similar to deals that bank regulators struck with other major U.S. lenders and mortgage servicers earlier this year.
GMAC Mortgage is a unit of Residential Capital LLC (ResCap), which housed most of the mortgage business of troubled U.S. auto lender Ally Financial Inc and which filed for bankruptcy last year.
ResCap Chief Business Officer Tammy Hamzehpour said the company is relieved to be able to direct the settlement funds to borrowers, rather than continuing the expensive file review process.
The Fed said a bankruptcy judge on Friday signed off on the amended enforcement action.
The action stems from the "robo-signing" scandal that emerged in 2010 involving allegations banks pursued faulty foreclosures by using defective or fraudulent documents.
In April 2011, the government required the mortgage servicers to review foreclosure actions from 2009 and 2010 to determine whether borrowers had been unlawfully foreclosed on or suffered some other financial harm due to errors in the foreclosure process.
But the independent review proved to be inefficient, with millions of dollars flowing to consultants before payments went out to borrowers.
Earlier this year, the Federal Reserve and the Office of the Comptroller of the Currency announced that banks would instead pay a lump sum to borrowers, based on categories of harm.
The Fed said on Friday that with the addition of GMAC Mortgage, roughly 4.4 million borrowers will receive more than $3.8 billion in cash.
The servicers will provide an additional $5.8 billion in other relief, including loan modifications and the forgiveness of deficiency judgments.
(Reporting by Timothy Ahmann and Karey Van Hall; Additional reporting by Nick Brown in New York; Editing by Gerald E. McCormick and Chris Reese)