WASHINGTON (AP) — Mortgage lender Residential Capital LLC is paying about $198 million to settle federal complaints that it wrongfully foreclosed on homeowners.
The Federal Reserve announced the agreement Friday with the company, known as ResCap. The settlement is similar to accords between federal regulators and 13 other financial firms that ended a review of loan files required under a 2011 government action. The lenders included JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, MetLife Bank, Goldman Sachs and Morgan Stanley. Altogether, they are paying roughly $9.3 billion.
ResCap filed for bankruptcy protection in May 2012 after being hobbled by payments on debt taken out to finance soured home mortgages. The settlement with the Fed was worked out as part of the bankruptcy proceeding.
The settlements could compensate hundreds of thousands of Americans. Many had their homes seized because of abuses such as “robo-signing,” when banks automatically signed off on foreclosures without properly reviewing documents. The agreement will also help eliminate huge potential liabilities for the banks.
Consumer advocates say regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families.
The settlements cover borrowers whose homes were in any stage of the foreclosure process in 2009 or 2010.
ResCap is a subsidiary of Ally Financial, the former auto lending arm of General Motors.
Ally was among the five major banks that struck a separate $25 billion agreement in February 2012 over alleged foreclosure abuses with the federal government and 49 states. The others were Bank of America, Citigroup, JPMorgan and Wells Fargo.
Ally, formerly known as GMAC, received a $17.2 billion bailout during the 2008 financial crisis. The government still owns 74 percent of the company.