Goldman Sachs agrees $3.15bn mortgage settlement

BY  Richard Summerfield

Goldman Sachs has agreed to settle its biggest financial crisis bill to date, agreeing a $1.2bn settlement with the Federal Housing Finance Agency (FHFA).

Under the terms of the deal, the bank has arranged to buy back $3.15bn in mortgage bonds from Fannie Mae and Freddie Mac, paying around $1bn to Fannie and $2.15bn to Freddie respectively. The move will bring about an end a lawsuit filed in 2011 by the FHFA in which the agency alleged that Goldman misled the two mortgage finance groups regarding the sale of over $11.1bn in mortgage-backed securities between 2005 and 2007. Although Goldman agreed to the settlement, the bank has continued to deny any allegations of wrongdoing; the bank’s settlement deal did not contain any admission of wrongdoing on Goldman’s behalf. The FHFA, which valued the settlement at $1.2bn, said the deal "effectively makes Fannie Mae and Freddie Mac whole on their investments in the securities at issue".

Goldman’s settlement is the latest in a string of deals related to the financial crisis, and is the largest legal penalty that the bank has paid in its 140-year history. The deal easily eclipsed the $550m settlement that the firm agreed in 2010 to conclude a complaint from the Securities and Exchange Commission regarding the bank’s handling of a complex mortgage-linked deal. The settlement with the FHFA comes shortly after Bank of America Corp agreed a separate mortgage deal with the Justice Department and a number of other government offices which totalled around $16.65bn. “We are pleased to have resolved these matters," said Gregory Palm, Goldman's general counsel, in a statement.

By reaching a settlement with the FHFA in August, Goldman has avoided the ignominy of a trial on 29 September. The trial would have been in relation to a pair of lawsuits that the FHFA filed against Goldman in 2011. The agency filed the suits hoping to recover damages from a number of financial institutions behind some $200bn in mortgage bonds bought by Fannie and Freddie that later experienced difficulty. The FHFA has concluded all but three of the 18 lawsuits it filed; to date the agency has recovered approximately $17.3bn from a cadre of banks including Bank of America Corp, Deutsche Bank AG and Morgan Stanley.

The Department of Justice will continue to investigate Goldman’s marketing of mortgage-backed securities. The FHFA is continuing to press ahead with its litigation against three other banks: HSBC Holdings Plc, Nomura Holdings Inc and Royal Bank of Scotland Group Plc.


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