Goldman to pay $5.1bn to resolve mortgage claims

Apr 11, 2016, 4:11 PM EDT
(Source: Luxorium luxury/flickr)
(Source: Luxorium luxury/flickr)

Goldman Sachs agreed to pay $5.1 billion to resolve misleading mortgage claims from the financial crisis.

Bloomberg reports:

Goldman Sachs Group Inc. will pay $5.1 billion to resolve US allegations that it failed to properly vet mortgage-backed securities before selling them to investors as high-quality debt. New York-based Goldman Sachs, which announced details of the accord in January, will pay a $2.39 billion civil penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief, according to a Justice Department statement. “This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail,” said Acting Associate Attorney General Stuart Delery. Monday’s resolution is the fifth multibillion-dollar settlement reached with U.S. banks resulting from the government’s push to hold Wall Street firms to account for creating and selling subprime mortgage bonds that helped spur the 2008 financial crisis. 

The Washington Post notes:

This is the fifth settlement reached by a panel President Obama put in place in 2012 to look into the lending practices of the country’s largest financial institutions. The Residential Mortgage-Backed Securities Working Group has already reached historic settlements with  JPMorgan Chase and Bank of America. They agreed to pay $13 billion and $16.6 billion respectively. Citibank settled for $7 billion and Morgan Stanley agreed to pay $3.2 billion. “This settlement, like those before it, ensures that these critical programs—such as mortgage assistance, principal forgiveness, and code enforcement—will continue to get funded well into the future, and will be paid for by the institutions responsible for the financial crisis,” New York Attorney General Eric Schneiderman, the co-chair of the working group, said in a statement. Between 2005 and 2007, Goldman Sachs repeatedly discovered problems with the mortgages it was selling to investors but didn’t tell investors, according to a statement of facts agreed to by the bank.

Reuters writes:

Goldman also acknowledged a Justice Department statement of facts describing how the firm misled investors. For example, Goldman's due diligence for one issue of 2006 mortgage-backed securities showed that some of the loan pools reflected an “unusually high” percentage of loans with credit and compliance programs, the Department said. "How do we know that we caught everything?" asked a Goldman committee tasked with reviewing and approving mortgage-backed securities, according to the Justice Department. "We don't," a Goldman manager said. "Depends on what you mean by everything? Because of the limited sampling... we don’t catch everything,” another Goldman manager said. Still, the committee approved the securities without requiring additional due diligence, said the Justice Department, which did not identify those involved.