January 15, 2016
Goldman Sachs announced on January 14, 2016 that it will pay approximately $5 billion to settle federal and state investigations of its mortgage-related practices in the years before the financial crisis of 2008. Goldman will pay $2.39 billion in civil monetary penalties, $875 million in cash payments and provide $1.8 billion in consumer relief in the form of mortgage forgiveness and refinancing. Goldman, like other Wall Street banks, has been under investigation for allegedly misleading investors on the safety of the securities they created by bundling and selling mortgages.
Goldman Sachs was one of the financial giants that was most responsible for the financial crisis of 2008 and the collapse of the housing market.
In July 2015, Goldman Sachs Group agreed to pay $270 million to settle a lawsuit by investors. Pension funds led by NECA-IBEW Health & Welfare Fund of Illinois accused the bank of misleading investors about the risks associated with mortgage securities offerings.
Also in July 2015, Goldman Sachs was among a group of banks, including Citigroup and UBS AG, that agreed to settle similar litigation led by the New Jersey Carpenters Health Fund.
Goldman created nearly100 mortgage-backed trusts, often with mortgages totaling over $1 billion per trust. The trusts included GS Mortgage Securities Trusts, GSAA Trusts, GSAMP Trusts, GSR Trusts and GSMPS Trusts.
In August 2014, the Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, reached a settlement with Goldman Sachs, and certain of its related companies and individuals. Under the settlement, Goldman Sachs agreed to pay $3.15 billion to repurchase mortgage-backed securities from Fannie and Freddie. The settlement addressed claims alleging violations of federal and state securities laws in connection with private-label mortgage-backed securities purchased by Fannie Mae and Freddie Mac between 2005 and 2007.
Goldman Sachs had its own mortgage servicing company, Litton Loan Servicing LP, in Houston, Texas. In January 2013, Goldman Sachs Group and Morgan Stanley reached an agreement with the Federal Reserve to pay a combined $560 million to settle allegations of foreclosure abuses. Litton Loan Servicing made documents, especially mortgage assignments, for Goldman’s mortgage-backed trusts to expedite foreclosures whenever the originals were missing. No disclosure was made to the homeowners or courts that the mortgage assignments were “replacements” for the originals.
In 2010, in one of the largest penalties in Wall Street history, Goldman Sachs agreed to pay $550 million to settle civil charges by the Securities and Exchange Commission that it duped clients by selling mortgage securities that were secretly designed by a hedge-fund firm to cash in on the housing market’s collapse.
The $5 billion settlement includes a $935.25 million tax windfall for Goldman Sachs.