A Minneapolis company accused of fouling up settlement payments to thousands of homeowners owned up to the glitches this week, but it defended its track record and said it is working to fix recent problems.

Rust Consulting Inc., a leading administrator for class-action lawsuits, has been in the national spotlight for its handling of checks going out to 4.2 million homeowners as compensation for foreclosure abuses. It's in charge of the payments in a $9.3 billion independent foreclosure review settlement announced in January.

First, after checks started going out April 12, there were reports that some recipients were unable to cash their checks. Then, on May 3, Rust goofed and sent checks to about 96,000 homeowners for the wrong amounts, less than what should have been paid.

In an interview with the Star Tribune on Thursday, Rust Consulting executive David Holland acknowledged that a clerical error led to the incorrect amounts. "We own it," Holland said. "We are going to be making supplemental payments to those 96,000 borrowers to make them whole, and those payments will be made within the next week and a half."

The 96,000 recipients had mortgages serviced by former subsidiaries of Morgan Stanley or Goldman Sachs Group Inc. The checks were part of a batch mailed out May 3 to more than 217,000 borrowers, according to the Federal Reserve, one of the regulators supervising the effort.

A Federal Reserve spokesman said Friday that it has worked with the Office of the Comptroller of the Currency to "strengthen oversight of Rust Consulting's execution of the payment process." That included double-checking all the check amounts going out to Goldman Sachs and Morgan Stanley borrowers, he said.

Holland said his company used the wrong payment chart. Morgan Stanley and Goldman Sachs have a different payment chart, he said, because they were not part of the original foreclosure review process that involved 11 other mortgage servicers, and are making larger payments than the others. Rust accidentally applied to Morgan Stanley and Goldman Sachs borrowers the payment chart amounts meant for the other 11 mortgage servicers.

In a snafu in April, some early recipients reported being unable to cash their checks, a problem the Federal Reserve said involved the Huntington National Bank and that Rust fixed. The company said it was not a case of checks bouncing due to insufficient funds.

"The funds were deposited and they were in the account several days before the first check being issued," Holland said. "A small number of check recipients had a problem where they went to a check-cashing store, or some other financial institution, and were unable to cash their check." The stores refused to cash the checks "for whatever reason," he said.

Holland said that "less than 20" people reported problems with rejected checks to the company. He said he doesn't know how many people were affected.

The problems have exacerbated frustrations with the settlement. The payments themselves are largely seen as inadequate and the glitches appear to rub salt in the wounds of homeowners hurt, even wrongfully left homeless, in the country's foreclosure crisis.

The settlement, which is distinct from the $25 billion national mortgage settlement announced in early 2012, involves 4.2 million borrowers in some stage of foreclosure in 2009 and 2010. More than half are getting around $300 and most less than $1,000.

The New York Times on Wednesday published an article highly critical of Rust, citing unnamed sources questioning the hiring of Rust for the job. A homeowner whose home was sold in foreclosure in Indiana complained about being unable to get Rust to correct her address so she could get correspondence, despite contacting the company at least six times.

Ed Nelson, a manager at the St. Paul-based Minnesota Homeownership Center, which oversees a network of 100 foreclosure prevention counselors statewide, said he has not heard of such problems in Minnesota. He said he recently did an informal poll of the counselors, and none reported clients mentioning problems with Rust.

Several Twin Cities lawyers who handle class-action lawsuits and who have worked with Rust said they haven't had any performance problems with the company.

In the interview, Holland defended Rust's track record. The company has handled private class-action settlements involving up to 50 million people and handled 4,000 projects of a similar nature.

"It's a large, complex case, but it's not the largest we've ever done," Holland said.

Rust has done about 40 jobs for the federal government in the last five years under various contracts, government documents show.

Holland characterized Rust as a "neutral third party" in the settlement. He said it is administering a complicated settlement whose terms were set in negotiations between the mortgage servicers and federal regulators.

Rust has been on the foreclosure review job since October 2011, and was hired under individual contracts with the 13 mortgage servicers. According to OCC spokesman Bryan Hubbard, Rust was chosen to handle the payments "in large part, because Rust already had the borrower data information from their work as the [Independent Foreclosure Review] administrator."

Regulators and the 13 mortgage servicers reached the settlement in January, largely ending a slow case-by-case review of foreclosure paperwork, a process widely regarded as a costly fiasco. The settlement includes $3.6 billion in payments and $5.7 billion in additional foreclosure prevention help. (Three mortgage servicers did not enter the payments agreement.)

The foreclosure settlement is distinct from the landmark $25 billion national mortgage settlement the state attorneys general and regulators struck with five major servicers in early 2012. Rust is handling claims administration for both settlements.

So far, more than 3.9 million checks totaling $3.4 billion have been mailed in the foreclosure settlement, and more than 2.2 million have been cashed or deposited. Rust has set up a call center dedicated to handling questions about the payments that alone employs 1,100 people in Minneapolis and Faribault, Holland said.

The center has fielded more than 600,000 calls since the settlement. "It's as many as we've ever put on a project," he said.

Jennifer Bjorhus • 612-673-4683