Missing funds, pointed fingers, and troubled borrowers being swindled out of government financial relief… hidden scandal… Hollywood movie or just a bureaucratic nightmare?
Approximately 96,000 troubled borrowers were shortchanged on compensation from the most recent foreclosure settlement reached between the Federal Reserve and Goldman Sachs Group and Morgan Stanley & Co.
The company hired to distribute the money, Rust Consulting, sent checks to about 96,000 borrowers on May 3 that “were smaller than the amounts that the Federal Reserve had specifically instructed Rust to send,” the central bank said Wednesday.
Rust Consulting diffused the blame, attributing the mistake to a clerical error, saying in a statement that the remainder of the 217,000 checks sent May 3 on behalf of Morgan Stanley and Goldman Sachs were for the correct amount.
Rust Consulting and The Federal Reserve did not provide details on the amount missing or how the error occurred. Rust stated it was sending supplemental checks to shortchanged borrowers to make up the difference. Coming under further scrutiny is the Independent Foreclosure Review program. The troubled program was officiated by the Federal Reserve and the Office of the Controller of Currency, who regulates national banks.
Initially, the government entities planned to require banks to hire consultants to review all foreclosure documents and abuses such as “robo-signing” which occurred in 2009 & 2010. The review proved too costly and time-consuming, and was discarded for a $3.6 billion relief fund for all borrowers affected. Amounts varied depending on likelihood of damages caused by improperly handled foreclosures.
The program launched last month and borrowers were left high and dry, unable to cash checks, because Rust Consulting had not insured they would clear. The NSF checks were distributed to borrowers of former Goldman Sachs subsidiary, Litton Loan Servicing, and former Morgan Stanley subsidiary, Saxon Mortgage Services. Both have been sold and now are owned by specialty loan servicer, Ocwen Financial Corp.
The 13 large mortgage servicers covered by the agreement include the giant banks Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Citibank Inc.
More information is available at the Independent Foreclosure Review website. Borrowers may also call Rust Consulting at (888) 952-9105.
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