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.