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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Apr 9, 2013

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Thirteen of the mortgage loan companies investigated by federal regulators will begin sending compensation to borrowers on April 12. In a press release issued by the Office of the Comptroller of the Currency, the mortgage loan servicers will spend $9.3 billion to settle claims of foreclosure abuse.

The payments are the result of an agreement between the Office of the Comptroller, the Federal Reserve and the following companies and their affiliates or subsidiaries: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo.

If a borrower’s mortgage loan was serviced by the aforementioned companies, and if the loan went into any stage of the foreclosure process between January 1, 2009 and December 31, 2010, that borrower is eligible for compensation. Borrowers should have already been notified if their mortgage loan was included in the settlement agreement.

Of the $9.3 billion spent by loan providers, $3.6 billion will be sent through mid-July in waves to the 4.2 million borrowers involved in the settlement. The remaining $5.7 billion will go towards assistance to borrowers, such as loan modifications and forgiveness of deficiency judgments.

Payments to borrowers will range from $300 to $125,000, depending on the severity of the servicer’s error. The highest payment will go to active duty military officers who were foreclosed upon, whether or not the foreclosure was rescinded. Active duty officers are protected from foreclosures under the Servicemembers & Civil Relief Act. The act protects the families of active duty officers and covers interest rates for mortgage loans, foreclosures, life and health insurance, rental agreements and other similar financial obligations. 

The highest payout will also be issued to 53 other borrowers whose homes were foreclosed on even though their mortgage was not in default.

The first wave of payments sent on April 12 will include approximately 1.4 million checks, issued by eleven of the thirteen banks. Payment information for borrowers of loans issued by Morgan Stanley and Goldman Sachs will be available in the near future. For borrowers from the other 11 banks, 90 percent of the payments are expected to have been sent out by the end of the month.

The payment deal reached between federal regulators and the thirteen lenders followed a failed attempt by regulators to investigate mishandled loans individually. As reported by Dealbook, after spending billions in fees on consultants, the Office of the Comptroller found the process was not assisting borrowers.  In the end, only 104,000 out of over four million mortgage loans in foreclosure were examined. Regulators argue the settlement will provide more immediate assistance to borrowers.

Most payments will be issued through Rust Consulting, Inc. Borrowers can call Rust at 1-888-952-9105 to confirm their inclusion in the agreement and update their contact information. Mortgage loans serviced by EverBank/EverHome Mortgage Company, Financial Freedom (OneWest), GMAC Mortgage and IndyMac Mortgage Services (OneWest), however, are still under investigation by the Independent Foreclosure Review.