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A judge signed off Friday on Residential Capital LLC’s deal with the Federal Reserve Board to set aside $230 million for borrowers who may have had their homes improperly foreclosed upon.
The deal, approved by Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan, replaces a costly and drawn-out review process that sent millions to the professionals investigating the foreclosed loans and little or nothing to most borrowers who may have been wronged.
“This settlement puts more money in the pockets of more borrowers,” said Morrison & Foerster LLP’s Lorenzo Marinuzzi, a ResCap lawyer.
Mr. Marinuzzi said in court that the review, which stemmed from an April 2011 decree from federal banking regulators for several top mortgage servicers to hire independent consultants to look for improper foreclosures, had become the costliest piece of ResCap’s already expensive bankruptcy. In court papers last month, ResCap said the review was costing $300,000 a day and could reach $459 million. While professionals still will be needed, the cost will go down substantially.
Originally, the company had estimated it would pay about $50 million for the foreclosures, to which Judge Glenn said at a March hearing, “It’s costing you $350 million to figure out who you…might pay $50 million to. That makes no sense.”
The $230 million, which is separate from another fund that also will put money in borrowers’ pockets, will be distributed among about 232,000 borrowers, regardless of whether they were improperly foreclosed upon. If they are found to have been harmed, they will get more in accordance with a so-called “waterfall” payment system.
“This settlement was a long time coming,” Mr. Marinuzzi said in court.
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