U.S. banking regulators announced that they have reached agreements in principle with Goldman Sachs and Morgan Stanley that would require the banks to make US$557 million in cash payments, and other assistance, to help mortgage borrowers.

The U.S. Federal Reserve Board says that the agreements are similar to those announced earlier this year between 10 mortgage servicing companies, the Fed, and the Office of the Comptroller of the Currency (OCC). As with those other institutions, Goldman Sachs and Morgan Stanley were subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing, the Fed notes.

The payments from Goldman Sachs and Morgan Stanley includes US$232 million in direct payments to eligible borrowers, and US$325 million in other assistance, such as loan modifications and forgiveness of deficiency judgments.

The Fed reports that, more than 220,000 borrowers whose homes were in foreclosure in 2009 and 2010 with the former subsidiaries of Goldman Sachs (Litton Loan Servicing LP) and Morgan Stanley (Saxon Mortgage Services, Inc.) will receive cash compensation under the agreements. Eligible borrowers are expected to receive compensation ranging from hundreds of dollars up to US$125,000, depending on the type of servicer error.

Including these latest deals, the Fed says that more than four million borrowers will receive a total of US$3.5 billion in cash compensation, and an additional US$5.5 billion will be provided for mortgage assistance.

An agent will be appointed to administer payments to borrowers on behalf of the servicers. It is expected to contact eligible borrowers by the end of March with payment details. Borrowers will not be required to execute a waiver of any legal claims they may have against their servicer as a condition for receiving payment; and, the servicers’ internal complaint process will remain available to borrowers too.

The Fed says that it is continuing to work to reach similar agreements with other servicers that are also subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing.