Goldman Sachs Pays For Predatory Ways

by Chris Sturr | May 12, 2009

Investment firm and recipient of government largess Goldman Sachs has just settled an investigation by the Attorney General of Massachusetts for $60 million that it engaged in predatory lending during the housing boom.

From the NY Times:

In the heyday of subprime mortgage lending, Goldman Sachs both issued mortgage-backed securities and underwrote them, too. From 2005 through 2007, Goldman issued more than $33 billion in mortgage-backed securities, creating tradable securities from packages of individual subprime mortgages. In 2005 and 2006, it also underwrote $53 billion of securitized loans made by others.

While not the largest financier of subprime mortgages, Goldman consistently ranked in the top 20, sometimes in the top 10. It also added to the housing bubble by providing financing to other leading subprime lenders, including New Century Financial Corporation and Option One mortgage.

Goldman agreed to work with Ms. Coakley’s office to find the 714 Massachusetts residents holding mortgages directly with Goldman and the thousands of others whose loans are serviced by Goldman’s affiliated mortgage servicing company, Litton Loan Servicing LP. Most of the homeowners are in the Boston area. Others are in Worcester, Lawrence and the North Shore.

The program requires Goldman to reduce the principal on first mortgages by up to 30 percent and on second mortgages by up to 50 percent. It would be one of several such programs throughout the country. But the complications involved in changing the terms of securitized mortgage packages, resistance by some lenders and controversy in Washington have slowed the start of many of these programs. Of the $60 million settlement, $50 million will go to reworking loans in Massachusetts, with the rest going to the state.

According to the Attorney General’s office:

The Attorney General’s Office began its investigation into the securitization of subprime loans in December 2007, and has focused on a variety of industry practices involved in the issuance and securitization of subprime loans to Massachusetts consumers. The Office is investigating whether securitizers may have:

* facilitated the origination of “unfair” loans under Massachusetts law;
* failed to ascertain whether loans purchased from originators complied with the originators’ stated underwriting guidelines;
* failed to take sufficient steps to avoid placing problem loans in securitization pools;
* been aware of allegedly unfair or problem loans;
* failed to correct inaccurate information in securitization trustee reports concerning repurchases of loans; and
* failed to make available to potential investors certain information concerning allegedly unfair or problem loans, including information obtained during loan diligence and the pre-securitization process, as well as information concerning their practices in making repurchase claims relating to loans both in and out of securitizations.

–d.f.

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