The two investment banks agreed to pay $557 million in cash payments and other assistance to borrowers in exchange for ending costly and inefficient foreclosure reviews, according to the Federal Reserve.
Regulators signed similar agreements with ten other mortgage servicers this month.
As part of a deal reached with the Office of the Comptroller of the Currency and the Federal Reserve, Goldman Sachs and Morgan Stanley will make $232 million in direct payments to eligible borrowers and provide $323 million in loan modifications, principal forgiveness and other assistance.
"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 in principle," the Federal Reserve added.
Borrowers who are eligible for relief could receive anywhere from hundreds of dollars up to $125,000, depending on what type of servicing errors were raised.