Why Is Goldman On A Buying Spree For Delinquent Mortgages

Tyler Durden's picture

Last year Goldman Sachs entered into a settlement with federal and state governments over its role in packaging and selling toxic mortgage-backed securities in the housing meltdown to unsuspecting buyers while subsequently turning around and shorting those very same securities.  As part of the settlement, Goldman agreed to provide $1.8 billion in homeowner debt relief to delinquent U.S. borrowers.

The only problem with the settlement is that Goldman doesn't actually own any mortgage debt, they prefer to package it up into pretty little bundles, slap a AAA rating on it and sell it to pension funds for a fee instead.

Of course, that's not a problem for Wall Street's vampire squid because they've found a whole other way to satisfy the entire $1.8 billion settlement without funding a single penny of that obligation in cash, in fact, they're making money on the scheme. 

So, how does it work?  Well, the first step is to buy up billions of dollars worth of non-performing loans (NPLs) at massive discounts of up to 50 cents on the dollar.  Then, you negotiate mortgage modifications with borrowers that reduces their principle balance, of course by less than Goldman's initial discount on the original purchase, and allows them to start making payments again.  That principle foregiveness then gets counted towards Goldman's $1.8 billion mortgage relief obligation even though it actually cost them absolutely nothing because they acquired the debt at an even larger discount.  Finally, and this is the real beauty of the scheme, when the loans are performing again they can be packaged up and resold as AAA paper once again...

Here's a quick example of how it might work on an individual mortgage:

Lets assume a borrow has a $200,000 mortgage outstanding but isn't making payments.  Goldman then comes along and buys that mortgage for $100,000 from Fannie Mae.  Goldman then goes to the borrower and offers to reduce his mortgage balance to $150,000 if, in return, he'll agree to start making payments again.  That $50,000 debt reduction then gets applied to Goldman's $1.8 billion settlement obligation. And the coup de gras, once the loan is performing again, Goldman can sell it for $150,000, thus pocketing a $50,000 cash profit plus settling $50,000 of their obligation to various government entities.



As the Wall Street Journal notes today, to our great 'shock' nonetheless, Goldman has suddenly become the largest buyer of Fannie Mae's NPLs, having purchased $5.7 billion worth of unpaid loans over the past several months.

Over the past year-and-a-half, the Wall Street giant has become the largest buyer of severely delinquent home loans from mortgage giant Fannie Mae. The firm has acquired nearly two-thirds of $9.6 billion in loans the agency has auctioned, representing unpaid loan balances of $5.7 billion, a Wall Street Journal review of government records shows.


In all, Goldman has spent roughly $4.5 billion on some 26,000 Fannie-owned loans, according to the government records. It has also been buying mortgages, in smaller size, from private sellers and Freddie Mac, Fannie’s sibling, according to county records, government filings and traders.


On Tuesday Goldman won the majority of loans at Fannie’s latest auction, its largest to date. The bank bought about 8,000 loans with unpaid balances of $1.4 billion.


Goldman has paid between 50 and 90 cents on the dollar for the loans, according to Fannie Mae records.

Meanwhile, because Goldman is getting credit toward fulfilling the terms of its settlement, it can afford to pay more for delinquent loans than other competing bidders, which essentially means they've cornered an entire market.

Just another beautiful Obama-era 'deal' for U.S. taxpayers...Obama gets to publicly take credit for 'punishing' the evil vampire squid of wall street all while privately tossing them a sweetheart deal...seems that Hillary isn't the only politician with conflicting 'public' and 'private' positions on key issues.

h/t @davidschawel

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Jäger's picture

The Swamp is full of Goldman Squids- like a bad case of the crabs they just keep coming back.

chunga's picture

Where's Steve Mnuchin at?

(obligatory - it's only been 50 days, keep your enemies close, Hillary is worse)

evoila's picture

you forgot the last part of this. Goldman goes on to short those now performing loans since it knows it is a matter of time before they default again.

Jim Sampson's picture

I hate to say this but damn are they good.

NidStyles's picture

Not hard to be good when you have the ability to access anyone's networks and tap any phone, and there is no one in the world that can stop you...


I'll be honest, if a few mid level Goldman Banksters were set on fire on the street in broad daylight, a lot of this BS would stop.

Rich Stoehner's picture

I bet they are planning to repackage them and make a buck before the shtf.

BullyBearish's picture

And when this goes to $hit and goldmansux is about to roll, again, I wonder if anyone in our government likes them enough to bail them out...


i looked up MORAL HAZARD in the dictionary and found a picture of goldmansux...

BuddyEffed's picture

Buyer of last resort?
QE can buy almost anything/everything.

VD's picture



GOLDMAN SHOULD BE BROKEN UP AND REGULATED TO NEAR DEATH, in order to return to true free markets with true competition vs this bullshit.

Paul Kersey's picture

Trump's Goldamites, Cohn and Mnuchin, got the Dodd-Frank Qualified Mortgage provision shit canned, so they can now sell and finance their Freddie/Fannie house repos to subprime buyers and sell the mortgage-backed securities to the muppets, all without government regulation or government reprisals. Gotta love revolving door politics.

consider me gone's picture

Sometimes capitalism makes me a bit choked up and misty. 

holdbuysell's picture

"I hate to say this but damn are they good."

So were the Harlem Globetrotters. 

When the game is rigged, everything is easy.

auricle's picture

Why is Fannie selling the loans for such deep discounts when they could actually be doing the same thing Goldman is doing while making the profits for the tax payer. In essence Fannie(the tax payer) is paying Goldman's $1.8B fine. Hey Jeff Sessions, get to work!

Joe Sichs Pach's picture

Exactly.  Why the fuck aren't they restructuing with the borrowers directly at 50-90 cents on the dollar?



We're not in that club.


The circle jerk continues.  

evoila's picture

Just let them stay and convert them to rental properties, package them up, and then IPO.

Cardinal Fang's picture

Do you think there are enough people who are all of a sudden gonna start paying their mortgage?

Gotta be another angle.

Maybe holding paper on property that will go up in value in a Trump economy and it won't be Fannie and Freddie booting people out of foreclosures. It'll be a bank doing God's work.

TeethVillage88s's picture

Every Contract has fees that go to the Bankers.

- Every Bank Deal has fees that could go to Goldman Sachs if they are at any end of it
- Package Derivatives, take Fees up front, plus a percent

- But hell you know this stuff better than I

Casey Jones's picture

When the loan ultimately defaults, which most of them will if they're not performing at this point, then The Squid picks up the foreclosure property (which in the fading era of the single-family home, is a pretty choice asset). Yes these homes can and will plummet in value, but look how fast they bounced back and beyond after 2008. It actually took about two years for things to fully crash out pricewise until 2010 and by 2013 prices were bubbling up again. This is a win-win-win for them with very little downside.

When that asshole first put the moniker square on those guys, it seems like maybe it hurt them a little bit. But now I bet they wear it like a badge of honor. That's how things have changed. I bet they've copyrighted and trademarked that. Squid(tm). And they're in the White House. It is a cynical fucking world we live in.

TeethVillage88s's picture

Excellent Point +1

5 years ago some were asking for Co-Op Banking.

- People in a community forming a bank group with or without Brick and Mortar store
- People were also saying Money should be managed as a Public Utility
- Public Banking is still being talked about, Bank of North Dakota is very Successful Example, Bank N.D. actually out performed Wall Street, TBTF, and other Banks in the 2009 Crisis period... making loans
- I would like to open a bank, but I know many banks are mismanaged, and are closed after short life

Jäger's picture

Crony Capitalism 101- privatize the gains, socialize the losses

xrxs's picture

Bonuses either way.  This is brilliant.  That blood funnel sure knows how to find the money.

chunga's picture

On the last big go round of foreclosures the loan modification biz was a huge scam. All it amounted to was making sure the borrowers were completely broke, and then they got froeclosed anyway. During the process, the bad titles get washed.

Joe Sichs Pach's picture

Any resources out there for those with MERS handled mortgages that legitimately speak to potentially cancelling it out?  

Do you have to force yourself into foreclosure by not paying to have any standing?  

chunga's picture

There are some legitimate theories on that but the score on litigation is 7,000,000 - 0 in favor of the banks.

LauraB's picture

And then collect the fine from Goldman to make up for some of the losses to the taxpayers.

consider me gone's picture

They are a GSA. Certainly you're not suggesting that they earn their money. Good gawd man, that's heresy.

TeethVillage88s's picture

GSE - Govt Sponsored Entity, right?

K_BX's picture

noone ever intends to make profits for the tax payer. The opposite is more common...

Singelguy's picture

The scum bags in Congress deliberately structured the legislation that prevents Fannie from doing what GS is doing so that GS can make big profits and fund the next election. Just follow the money.

mkkby's picture

Why do investment banks have EVEN ONE CLIENT LEFT?  Everybody knows about the deception and outright fraud at every turn.  Are these fuck tards just asking to be ass raped?

Guess your pension plans don't really care.  Not their money and they get paid regardless of performance.  Only morons let someone else touch their money.

PoasterToaster's picture

Because their one client is the Federal Reserve.

AGuy's picture

(obligatory - it's only been 50 days, keep your enemies close, Hillary is worse)

I am pretty sure that "by keeping your enemies" does include handing over your treasury to them.

chunga's picture

<- just being a wise guy, those 3 things are popular excuses for those who refuse to criticize Trump under any circumstance.

Blue Balls's picture

Whn does the rope go over the tree branch and these bastards hang?

Ignatius's picture

"Why Is Goldman On A Buying Spree For Delinquent Mortgages?"

'Cause they're syphalitic, dog-fucking pukes?

thesonandheir's picture

These cunts make me sick. 

1.21 jigawatts's picture

hmmmm... being Jew-wise: they're likely planning on writing it into their books as immediate profit at 100 cents on the shekel.

Long matzah.

Winston Churchill's picture

They capitalize part of the income streams when they sell those mortgages on.

So the buyers get charged a 40% premium over the mortgage loan.

Goldman are making money coming and going on this corrupt deal.

When does Obozo start getting his payoff in speaking fees ?

Smedley's picture

Buying it up for pennies on the Dollar!!!



venturen's picture

When are the criminals going to jail? Or will citizens have to perform their own justice?

Miffed Microbiologist's picture

Simple answer? Never. They fear nothing because there are no consequences and when you have so much moral hazard the jackals become more and more emboldened. Then a few are made into lampshades and the rest scurry back into the shadows and wait for the time to come out again to resume the game.

The pendulum will swing back at the same degree it has been pulled in the opposite direction. This is a physical law. Balance can never be achieved when such forces are in play.


NidStyles's picture

Eventually Jews will go extinct.

They aren't exactly reproducing at any rate that will ensure continuity of their race. Good thing they did the same to the Arabs, so tha tthe last of the ME scumbags will be nothing more than apes with low-IQ.


Not sure what it is about that area of the world, but it produced some really shitty humans. Don't get me started on the Khazar region either...

mkkby's picture

Wrong, fail.  Jews will rule the world.  Easily.

Everyone else is committing suicide by idiocracy (except maybe the japanese).  High IQ beats low IQ every time.  Numbers make no difference.  Just remember how a few hundred white europeans conquered africa and south america, taking their gold.

You and I may not like it, but 100/200 years from now the brown masses will be slaves again with nobody coming to the rescue.

hotrod's picture

Why doesn't Fannie just offer up the loan forgiveness to begin with?  Amazed that all this loan forgiving is still going on.  Housing market not that bad

Jäger's picture

The government does not belong in the mortgage business- PERIOD!

Logan 5's picture

You had me at:


"The government does not belong"

chunga's picture

They don't forgive, they foreclose.

AGuy's picture

"Housing market not that bad"

Actually it is pretty bad and getting worse now that mortgage rates are rising. In the Northeast its a completely dead market, I seen homes lists for more three years. To two most common signs in the Northeast is "Home for Sale", "Space available"

The West Coast may be a different matter because of the Chinese looking to leave China or just get capital out. Sooner or later that will come to a halt.

blueberry100's picture

“…little has changed in government, no matter that the ‘great disruptor’; and ‘ultimate outsider,’ Donald Trump, has been elected.  As amidst yesterday’s three-ring “Ides of March” circus, few saw that Trump’s nomination to work with former Goldman Sachs banker, and current Treasury Secretary Steve Mnuchin as Deputy Treasury Secretary, is former Goldman Sachs banker James Donovan.  Who, when officially appointed, will work with Mnuchin; former Goldman Sachs President Gary Cohn – Trump’s National Economic Advisor; former Goldman Sachs banker Steve Bannon – Trump’s White House Chief Strategist; former Goldman Sachs banker Dina Powell – Trump’s ‘Senior Counselor to the President for Economic Initiatives’; and, for the cherry on the cake, former Goldman Sachs lawyer Jay Clayton, who will oversee America’s historically rigged markets when his appointment as SEC Chairman is finalized.  In other words, if anyone believes Washington is working for the ‘99%’ that elected it; let alone, with a billionaire President surrounded by a billionaire cabinet and a virtual Goldman Sachs C-suite; I’ve got a bridge in Brooklyn to sell you.”