Residential Capital has won court permission to set aside $230 million for payments to homeowners whom the company may have foreclosed on improperly.
The former subprime mortgage unit of Ally Financial has received approval to enter into an agreement with the Federal Reserve Board that would end regulatory review of its foreclosure practices, Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan ruled on Wednesday.
The ruling means that ResCap, which has operated under bankruptcy protection since last year, would join 10 mortgage servicers that agreed in January to pay a combined $8.5 billion to end similar reviews.
The servicers, which include JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (NYSE:C) and Wells Fargo (WFC), promised to pay $3.3 billion and extend $5.2 billion worth of loan modifications and other assistance to more than 3.8 million borrowers whose homes were foreclosed on in 2009 and 2010.
ResCap in February asked the court to allow the company to end its participation in the foreclosure reviews, which the company said was costing $300,000 per day with the potential to empty as much as $459 million from the bankruptcy estate.
In May the company agreed with creditors and Ally to assume responsibility for costs tied to the reviews.
A ResCap spokeswoman did not immediately comment on the ruling, which was first reported by the Wall Street Journal.