"Goldman Pays to End State Inquiry Into Loans
In the first major settlement involving Wall Street’s role in the subprime mortgage business, the Goldman Sachs Group agreed on Monday to pay up to $60 million to end an investigation by the Massachusetts attorney general’s office into whether the firm helped promote unfair home loans in the state.
The money will be used for a loan modification program that would allow Massachusetts homeowners with mortgages from Goldman entities to write down their principal balances by as much as 50 percent.
The settlement resulted from a continuing investigation by Attorney General Martha Coakley into subprime lending practices and the role of investment banks that acted as middlemen in loans that have resulted in foreclosure or contained terms so onerous that they were destined to fail.
At a news conference, she said that the problem was industrywide and that the Goldman settlement would provide “much needed relief for many in Massachusetts.” Even so, she also criticized what she called predatory lending that was encouraged by Wall Street firms that bought individual subprime mortgages and repackaged them into securitized loans for investors.
“Our office has sought accountability at all levels of the subprime lending crisis,” Ms. Coakley said in a statement. “We will continue to investigate the deceptive marketing of unfair loans and the companies that facilitated the sale of those loans to consumers in the Commonwealth.”
Michael DuVally, a spokesman for Goldman said it was “pleased to have resolved this matter,” and declined to comment further.
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."