monday, 11 april of 2016

Goldman Sachs to Pay $5.1 Billion in Mortgage Settlement

Goldman is the last of the big American banks to reach a settlement with the national working group that was set up in 2012 to investigate how Wall Street exacerbated the mortgage bubble and ensuing financial crisis. Goldman said in January that it had put aside money to cover a $5 billion settlement.

The final bill for Goldman is less than the settlements of mortgage giants like JPMorgan Chase, which paid $13.3 billion, and Bank of America, which paid $16.6 billion, but more than the $3.2 billion paid by Goldman’s closest competitor, Morgan Stanley. A number of foreign banks are still under investigation.

As in previous settlements, the authorities did not name any particular bad actors at Goldman. The working group has been criticized for not punishing individual bankers.

But the legal documents released on Monday do provide some details on Goldman’s operations leading up to the financial crisis, and its awareness of significant problems in the mortgage market.

Like other banks, Goldman purchased loans that had been issued by subprime mortgage specialists like Countrywide Financial. Goldman then packaged these loans into bonds that were able to get the highest rating from credit rating agencies. The loans were sold to investors, who sustained losses when the loans went sour.

Over the course of 2006, Goldman employees took note of the decreasing quality of loans that it was buying, according to a statement of fact released along with the settlement. When an outside analyst wrote a positive report about Countrywide in April 2006, the head of due diligence at Goldman wrote, in an email: “If they only knew.”

Despite the worrying signs, Goldman did not alert investors who were buying the bonds it was packaging, officials said on Monday.

“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,” the head of the Justice Department’s civil division, Benjamin C. Mizer, said in a statement.

The settlement is divided into a $2.4 billion civil penalty, $1.8 billion for consumer relief and $875 million in cash.

The cash payments will be divided among some of the members of the working group that negotiated the settlement, including the National Credit Union Administration, the Federal Home Loan Banks and the States of California, Illinois and New York.

(Published by The New York Times - April 11, 2016)

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