MN Co. Issuing 4.2M Mortgage-Relief Checks Errs Again

A “clerical error” on the part of Minneapolis-based Rust Consulting led to 96,000 borrowers across the country being sent checks for less than the amount they were owed; this is the second error that the company has made as part of the national check distribution—and both have received national attention.

Less than a month after acknowledging one blunder involving mortgage relief checks it distributed nationwide, Minneapolis-based Rust Consulting on Wednesday revealed a second error that it made related to payments it is sending to more than 4 million borrowers across the country.
Rust Consulting was chosen by federal regulators to distribute checks to 4.2 million homeowners who lost their homes to foreclosure in 2009 and 2010 and are entitled to a cut of a $3.6 billion settlement with 13 companies that service home loans—lenders accused of wrongful evictions and other infractions related to improper foreclosures. The payments reportedly range from $300 to $125,000 and they will be distributed through July.
Rust said late Wednesday that a “clerical error” led to 96,000 borrowers who received checks in the May 3 round of payments being sent less than the amount they were owed. All of the borrowers who received incorrect payments had loans serviced by Goldman Sachs and Morgan Stanley. (The Federal Reserve said that more than 217,000 checks were sent out on May 3.)
“Rust has corrected the error and plans to mail supplemental checks to affected borrowers as soon as May 17, 2013 for the additional amounts they were to be paid,” the company said in a statement, adding that the supplemental checks will be accompanied by a letter explaining the reason they were sent.
The Federal Reserve issued its own statement about Rust’s error, adding that it became aware on Tuesday of “a possible discrepancy” and contacted Rust to assess the problem. It directed Rust to distribute the supplemental payments to affected borrowers as soon as possible.
“The Federal Reserve will continue to closely monitor the payment agreement and Rust’s work in distributing checks under the agreement,” the Federal Reserve said in a statement.
Rust’s latest error is the second one it has made related to the mortgage relief check distribution. Mid-last month, Rust sent approximately 1.4 million checks in a first round of payments covered under the foreclosure settlement. Several days later, when recipients began to try to cash their checks, they bounced because of “insufficient funds.”
The mortgage relief payment issues have reportedly alarmed federal legislators and prompted Representative Elijah E. Cummings, a Democrat from Maryland, to open an investigation into the problems with the settlement, including the use of Rust.
“This is the worst settlement I have seen in my life,” Cummings told The New York Times, which noted that the continued problems with Rust raise questions about the government’s oversight of the firm and the wisdom of hiring it in the first place.
Citing unnamed “officials,” the newspaper pointed to additional problems that occurred before the mortgage checks were even mailed out: Soon after the settlement was announced in January, Rust was reportedly slow to alert borrowers about the payments they could expect—then the firm delayed the checks for weeks as it struggled to gear up for the payments.
The New York Times report pointed out that the latest problem could prove difficult to correct. Unlike other banks involved in the settlement, Goldman Sachs’ and Morgan Stanley’s foreclosures weren’t subjected to a thorough assessment by outside auditors. Because of that, those two banks agreed to pay some of their customers an extra sum. But according to “officials briefed on the matter,” Rust failed to follow the payout plan and instead issued checks to Goldman Sachs and Morgan Stanley customers based on a metric adopted by the 11 other banks—a misstep that deprived some homeowners of thousands of dollars, the newspaper reported.
Rust representatives didn’t return phone calls last month—and a member of a public relations firm working with the company, reached Thursday morning, declined to provide comment about the problems beyond the information in Rust’s Wednesday announcement and couldn’t immediately arrange a phone interview with a Rust executive. After last month’s check-bouncing incident, the company was directing all media to a recorded phone message, which said that “employees are not authorized to speak with the press concerning this matter.”
Rust has been a middleman in a number of class-action lawsuits and government settlements, and this isn’t the first time that concerns about it have been raised. The New York Times said that in 2006, when it helped distribute payments from a class-action case involving title insurance costs, some consumers complained that the checks bounced.
Rust Consulting handles class-action settlement administration for clients in the legal, public, and business sectors. According to The New York Times, it has more than 50 federal contracts, and its political action committee spreads campaign donations across Washington. Its services include project management, notification, claims processing, contact center services, fund distribution, and tax reporting. It claims to have experience working on more than 4,000 cases that together involve billions of dollars. In addition to its Minneapolis headquarters, it has offices in Faribault; Los Angeles; Melville, New York; Palm Beach Gardens, Florida; San Francisco; and Washington, D.C.