Goldman Sachs Latest to Settle
The Justice Department has reached a settlement with Goldman Sachs related to Goldman’s behavior in packaging, securitization, marketing and sale of Residential Mortgage Backed Securities (RMBS) between 2005 and 2007. Goldman has agreed to pay $5.06 billion to settle the case. The settlement requires Goldman to pay a $2.385 billion civil penalty under the Financial Institution Reform, Recovery and Enforcement Act (FIRREA) and to provide $1.8 billion in relief to under water homeowners and distressed borrowers in the form of loan forgiveness and financing for affordable housing. In addition, Goldman will pay $875 million to resolve other claims brought by federal and state agencies including the New York and Illinois attorneys general and he national Credit Union Association.
In its Statement of Facts, Goldman admitted that, although it told investors that loans in RMBS pools were generally in accordance with underwriting guidelines, in fact, Goldman was aware of information that for certain pools, significant percentages of reviewed loans did not conform with representations. Samples of reviewed loan documents indicated potential problems and that larger samplings should be taken but never were. Further, Goldman approved every RMBS pool it reviewed between 2005 and 2007 notwithstanding knowledge of high numbers of loans that had been dropped from many pools and knowledge of “high risk” underwritten pools.
The Goldman settlement marks the fifth institution that the Justice Department and its team have settled with since 2012. Though the amount is high, it only ranks 4th on the list following Bank of America ($16.6 billion), JP Morgan Chase ($13 billion) and Citibank ($7 billion). Only Morgan Stanley has settled for a smaller amount than Goldman ($3.2 billion).