Goldman Slammed With $5.1 Billion Fine For "Serious Misconduct" In Mortgage Selling

Tyler Durden's picture

Hot on the heels of Wells Fargo's $1.2 billion settlement, Bloomberg reports that Goldman Sachs will pay $5.1 billion to settle a U.S. probe into its handling of mortgage-backed securities involving allegations that loans weren’t properly vetted before being sold to investors as high-quality bonds.

“This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail,” said Acting Associate Attorney General Stuart Delery.

As AP reports,

The Justice Department announced a $5 billion settlement with Goldman Sachs over the sale of mortgage-backed securities leading up to the 2008 financial crisis.

 

The deal announced Monday resolves state and federal probes into the sale of shoddy mortgages before the housing bubble and economic meltdown.

 

It requires the bank to pay a $2.4 billion civil penalty and an additional $1.8 billion in relief to underwater homeowners and distressed borrowers, along with $875 million in other claims.

 

The agreement is the latest multi-billion-dollar civil settlement reached with a major bank.

 

Other banks that settled in the last two years include Bank of America, Citigroup and JPMorgan Chase & Co.

 

Goldman had previously disclosed the settlement in January, but federal officials laid out additional allegations in a statement of facts.

As NY AG Schneiderman notes,

  • Settlement Includes $670 Million For New Yorkers, Including $190 Million In Cash And $480 Million In Consumer Relief Committed To Mortgage Assistance, Principal Forgiveness, And Affordable Housing Programs
  • New York Has Now Received $5.3 Billion In Cash And Consumer Relief From National Mortgage Settlement And Residential Mortgage-Backed Securities Working Group Settlements Combined Since 2012
  • Schneiderman: Since 2012, My Number One Priority Has Been Getting New York Families The Resources They Need To Help Rebuild

NEW YORK – Attorney General Eric T. Schneiderman today joined members of the state and federal working group he co-chairs to announce a $5 billion settlement with Goldman Sachs over the bank’s deceptive practices leading up to the financial crisis.  The settlement includes $670 million – $480 million worth of creditable consumer relief and $190 million in cash – that will be allocated to New York State. The resolution requires Goldman Sachs to provide significant community-level relief to New Yorkers, including resources that will facilitate a significant expansion of the New York State Mortgage Assistance Program enabling distressed homeowners to restructure their debt, as well as first-lien principal forgiveness, and funds to spur the construction of more affordable housing.  Additional resources will be dedicated to helping communities transform their code enforcement systems, and invest in land banks and land trusts.

The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal working group formed in 2012 to share resources and continue investigating wrongdoing in the mortgage-backed securities market prior to the financial crisis. 

New York has now received $5.33 billion in cash and consumer relief from the National Mortgage Settlement (NMS) and all five Residential Mortgage-Backed Securities Working Group settlements (RMBS). The combined $3.2 billion in cash and consumer relief from RMBS settlements is more than any other state. 

“Since 2012, my number one priority has been getting New Yorkers the resources they need to rebuild,” Attorney General Schneiderman said. “These dollars will immediately go to work funding proven programs and services to help New Yorkers keep their homes and rebuild their communities. We’ve witnessed the incredible impact these programs and services can have in helping communities recover from the financial crisis. This settlement, like those before it, ensures that these critical programs—such as mortgage assistance, principal forgiveness, and code enforcement—will continue to get funded well into the future, and will be paid for by the institutions responsible for the financial crisis.”

The settlement includes an agreed-upon statement of facts that describes how Goldman Sachs made multiple representations to RMBS investors about the quality of the mortgage loans it securitized and sold to investors, its process for screening out questionable loans, and its process for qualifying loan originators.  Contrary to those representations, Goldman Sachs securitized and sold RMBS backed by large numbers of loans from originators whose mortgage loans contained material defects.

In the statement of facts, Goldman Sachs acknowledges that it securitized thousands of Alt-A, and subprime mortgage loans and sold the resulting residential mortgage-backed securities (“RMBS”) to investors for tens of billions of dollars.  During the course of its due diligence process, Goldman Sachs received pertinent information indicating that significant percentages of the loans reviewed did not conform to the representations it made to investors.  Goldman also received and failed to disclose negative information that it obtained regarding the originators’ business practices.  Indeed, Goldman’s due diligence vendors provided Goldman with reports reflecting that the vendors had graded significant numbers and percentages of sampled loans as EV3s, i.e., not in compliance with originator underwriting guidelines.  In certain circumstances, Goldman reevaluated loan grades and directed that such loans be waived into the pools to be purchased or securitized.  

Even when the percentage of problematic loans in pools sampled by it vendors indicated that the unsampled portions of the pools likely contained additional such loans, Goldman typically did not increase the size of the sample or review the unsampled portions of the pools to identify and eliminate any additional such loans.   In many cases, 80 percent or more of the loans in the loan pools Goldman purchased and securitized were not sampled for credit and compliance due diligence.  Nevertheless, Goldman approved various offerings for securitization without requiring further due diligence to determine whether the remaining loans in the deal contained defects.  A Goldman employee overseeing due diligence for a particular loan pool noted that the pool included loans originated with “[e]xtremely aggressive underwriting” and “large program exceptions made without compensating factors.”  Despite this observation, Goldman did not review the remaining portion of the pool, and subsequently securitized thousands of loans from the pool. 

Goldman made statements to investors in offering documents and in certain other marketing materials regarding its process for reviewing and approving originators, yet it failed to disclose  to investors negative information it obtained about mortgage loan originators and its practice of securitizing loans from suspended originators.

Beginning in mid-2006, Goldman recognized that Fremont, a “key originator, was experiencing an increasing level of early payment defaults (“EPDs”) (i.e., loans for which the borrowers had failed to make one or more of their first payments).  Goldman was aware that EPDs were a sign of originators’ bad credit decisions and could be indicators of potential borrower fraud.  However, Goldman did not put Fremont on its “no bid” list and continued to purchase loan pools from Fremont during the period Fremont’s EPD claims remained unpaid.  Moreover, Goldman “[u]ndertook a significant marketing effort” to tell investors about what Goldman called Fremont’s “commitment to loan quality over volume” and “significant enhancements to Fremont underwriting guidelines.”    Likewise, Goldman identified issues with Countrywide’s origination practices.  Goldman’s head of due diligence, when presented with a “very bullish” equity report on Countrywide, another large originator, exclaimed “[i]f they only knew  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .”

Monday’s resolution is the fifth multibillion-dollar settlement reached with U.S. banks resulting from the government’s push to hold Wall Street firms to account for creating and selling subprime mortgage bonds that helped spur the 2008 financial crisis.

As Bloomberg notes, however, other banks, including Royal Bank of Scotland Group Plc and Deutsche Bank AG remain under investigation, people familiar with the matter have said.

 

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order66's picture

Serious misconduct? Fucking FRAUD is what it was.

J S Bach's picture

A mere slap on the wrists. Of course, no one will be jailed.

Killtruck's picture

No one will be executed either. Pity. 

bada boom's picture

Equilavent to parking meter violation when your robbing a bank!

Oh, wait a second, multiple meanings in this one...

Bumpo's picture

What was their net gain when considering this "cost of doing business"?

MillionDollarBonus_'s picture

I'm not sure I agree with the verdict here, but I'm glad that the proceeds of this fine are being distributed by the appropriate government officials, in order to ensure that victims of the alleged financial fraud are compensated. Compensating people for sophisticated financial fraud is no easy task, so the best solution is always to hand the money to dedicated government departments who specialize in distributing wealth fairly. This is a win for the people - we are now 5 billion dollars richer - and we will likely see this wealth trickle down over the next couple of years. 

https://accredited-times.com/2016/04/11/diversifying-americas-demographi...

Latina Lover's picture

So  how many GS executives are going to jail?

NidStyles's picture

The Tribe owns the prisons, they don't get sent to them.

NidStyles's picture

That people think the US still exists is far more amusing. The country called the United States of America died on 9/11. The Tribe killed it and took control of it.

mtl4's picture

Enough of this BS, time for a little viking justice on some fraudulent bankers don't you think?!

 

There's a reson why these banks are all of a sudden paying fines after nearly 10 years, it's because .gov knows the people are reaching a boiling point quickly.

HopefulCynical's picture

1.5 billion in FINES? How about giving that money back to the people they stole it from?

Protection money. Pfffft. Hang 'em all.

NidStyles's picture

It's always protection money. They think that they can buy enough protection without understanding that the protection they are paying for is from the same people they are screwing over.

 

The Tribe is always credited with it's cleverness in ripping people off. They are always mocked for their severe lack of foresight which gets them forcibly deported. Their eternal arrogance knows no bounds. They are eternally the low IQ inbreds they have always been.

Son of Loki's picture

Unless there's jail time for the Crooks it will not matter to them. The fines are all paid with OPM.

 

Number of Wall Street Bankers Holder Indicted = Zero

Number of Wall Street Bankers Low Retta Indicted = Zero

Number of Assault Rifles Sold to Drug Gangs = Hundreds

Number of Climate Change Deniers Indicted = Pending

Contrast:

Number of Wall Street Bankers Indicted by DOJ's Thornberg in the 1980's = over 750

JRobby's picture

$5.1 ??? Wow! They really did make well over $100 billion on that deal!

Just a little tax they pay at the end when the game is long over and thousands are still sick and crying over the damages done.

 

eatthebanksters's picture

Interesting how all these settlements are happening just before Obozo leaves office...I guess its a win win.  Obozo can say he actually went after the banks and the banks can settle favorably prior to a new president being elected who would kick their asses.  (Trump).

scraping_by's picture

Barry established the Obama Foundation a few years before leaving office, when he can still do favors for his patrons. Not to say the normal and expected system of holding bribes until leaving office wouldn't work for him. But let's face it, get too abject and they'll take you for granted. Hell, even their puppet doesn't trust these guys.

thesonandheir's picture

If you want to clean up the banking system you make a law that says when the banks break the law the top kiddy goes to jail - after all he is the head of the organisation and knows everything that goes on in it. If he doesn't then why the fuck not?

Theosebes Goodfellow's picture

So I'll ask you once again. With $5.1 BILLION fine for fraud, who goes to jail?

JRobby's picture

The only way to "actually go after the banks" is with weapons in the hands of a high number of fighters.

Thinking otherwise is folly 

boattrash's picture

If G.S. had donated Moar to the DNC they wouldn't have gotten this fucking fine. They'll learn to pay their "Crooked Banker Fee", one way or another.

UmbilicalMosqueSweeper's picture

In Mob parlance, it is known as "street tax."

UmbilicalMosqueSweeper's picture

Read Rep. Jame's Traficant's speech to the House concerning the Bankruptcy of the United States, March 17, 1993, Volume 33, Page H-1303.

OpenThePodBayDoorHAL's picture

I guess their headquarters building committed the crimes, since there was not a single perp walk.

Maybe I should rob the 7-11 then when the cops come to get me I can say my house did it.

 

pods's picture

5 Billion?  That is a lot of scrizz.  Not sure if someone should be executed, but at least some life sentences for that sort of thing.

That is war reparations type money.

pods

NidStyles's picture

It's hollowcost level moneis.

eclectic syncretist's picture

A $10B+ bailout will cover court costs, get out of jail time lawyer fees, and Christmas bonuses.

SpasticGramps's picture

Executions may work better in this situation. We will need to bring back 1790 and the guillotine to stop this usury.

eclectic syncretist's picture

How much you wanna bet this settlement is just another pre-emptive bullshit move by Goldman done just in time to set the US taxpayers up for another bailout (in one form or another, call QE and mark to fantasy what you like)? In other words, they're in trouble now, so they settled as part of a PR move in order to point back to it when the time comes and try to say that they've "done their best" to play fair, or some similar line of bullshit.

Agent P's picture

That's (almost) their entire petty cash fund! 

Blankenstein's picture

Pinto's link "Veneer of Justice in a Kindom of Crime" is worth the watch.  

It a revealing look at the failure of Obama's DOJ to prosecute Goldman and details how this treasonous Department of unJustice headed by Eric "Fast and Furious" Holder purposely didn't charge Goldman.

 Now the former DOJ syndicate members are at Goldman's law firm Covington & Burling.  It will be interesting to see where Loretta goes after she leaves the post.

bada boom's picture

It will be equal to the same number of downvotes you get for that comment!

83_vf_1100_c's picture

  I'd be happy if they threw Heidi Cruz under the bus.

JamaicaJim's picture

Jesus H. Sheeple...you are seriously drinking out of the truck stop toilet today, dickweed

mary mary's picture

Good, and I hope a few drops trickles down as far as the pension funds that got bankrupted in 2008.

True Blue's picture

Notice that NONE of this is going to the people Goldman and the other companies screwed by slapping an AAA+ rating on and selling these repackaged bad mortgages?

and an additional $1.8 billion in relief to underwater homeowners and distressed borrowers,

But the people who took out fraudulent mortgages and failed to repay -They get 1.8 billion?

The hard working muppets who bought your 'investments' get screwed; but the people who bought more than they could afford -then didn't pay for it, thus causing this in the first place... THEY get 1.8 billion in 'relief'????

And you think it is going to take negative rates to really piss people off?

Burning alive is too damn good for 'em.

Lock each and every one naked in a cell with 10 angry Honey Badgers and a hornet's nest the size of a Rugby ball; then put it on Pay-Per-View.

 

 

scraping_by's picture

And, as a civil judgement, it's negotiable. Whether or not there's a appeal. So the full Five Big won't have to paid in cash.

City_Of_Champyinz's picture

That is easy, Liberalism is a mental disorder.  Simple as that.  The guy is a clown who cannot use simple logic and deductive reasoning, just like all the Marxists that came before him.

mary mary's picture

1. B.F. Skinner, in Walden Two, wrote about the first idea in detail.  What Skinner wrote makes a lot of sense to me.

2. Private Propery, like every other thing, has been turned on its head by the oligarchs.  Though I believe in private property, it has long been perverted to include the ability of government to take YOUR private property via eminent domain and give it to a corporation, i.e., to give it to the oligarchs.

Both 1 and 2 relate to small tribes.  In a world of 7 billion humans, it's hard to have a small tribe.  But humans are genetically programmed to work in small tribes.

3. Mohammed was certainly not a warmonger.  His big battle was defending Medina from the oligarchs of Mecca.  By the time he entered Mecca, he justed walked in.  He had so many of the little people on his side that there was nothing the oligarchs could do.

IMHO, one of the most important reads in all of human history is the siege of Medina.

Biff Malibu's picture

MDB, you my friend are a genius!  hahaha

ersatz007's picture

"so the best solution is always to hand the money to dedicated government departments who specialize in distributing wealth fairly"

 

MDB - I'm not so sure.  I think it would be more efficient to let the banks hand out the money.  Now that they've learned their lesson and are being held to account for their actions, I'm sure we can trust them to do the right thing!  After all, this was probably just a tiny oversight on the part of the banks.  More importantly,  the banks are the real victims in all of this.  I'm certain, beyond a doubt, that Lloyd Blankfein runs a tight ship and to imply that his or his employees' actions were somehow criminal, as some here have done, is simply slanderous!  Slanderous, I tell you!

https://www.youtube.com/watch?v=eHgbRYgpGGs

 

rubiconsolutions's picture

Another day, another MDB post, another keyboard shot. And a damned waste of good coffee. +1 for ya. I'm hoping to see you break even one day. 

unrulian's picture

.gov is just making sure they get their share of the proceeds...in exchange for no one going to jail of course...same as it always was

Money Boo Boo's picture

MDB

 

you appear to be suffering from mission creep