Massachusetts Attorney General Martha Coakley’s Office announced that it has reached a settlement agreement with Goldman Sachs & Co stemming from the office’s investigation of subprime lending and securitization markets. The Attorney General’s Office has been investigating the role of investment banks in the origination and securitization of subprime loans in Massachusetts.
The Attorney General’s Office began its investigation into the securitization of subprime loans in December 2007, investigating whether securitizers may have:
- facilitated the origination of “unfair” loans under Massachusetts law;
- failed to ascertain whether loans purchased from originators complied with the originators’ stated underwriting guidelines;
- failed to take sufficient steps to avoid placing problem loans in securitization pools;
- been aware of allegedly unfair or problem loans;
- failed to correct inaccurate information in securitization trustee reports concerning repurchases of loans; and
- failed to make available to potential investors certain information concerning allegedly unfair or problem loans, including information obtained during loan diligence and the pre-securitization process, as well as information concerning their practices in making repurchase claims relating to loans both in and out of securitizations.
The settlement didn’t involve court action and Goldman didn’t acknowledge wrongdoing.
Under the agreement, Goldman will restructure loans for borrowers whose loans it holds. The Attorney General said there are about 714 of those borrowers. Goldman’s borrowers with first mortgages could see their principal reduced 25% to 35%, and those with second mortgages held could see principal reduced 50% or more. Reducing those loan amounts will cost Goldman $50 million. It has also agreed to have its subsidiary, Litton Loan Servicing LP, help qualified borrowers who are in trouble on their loans to avoid foreclosure. Goldman will also pay the state $10 million. Delinquent borrowers will be required to make a “reasonable monthly payment” while trying to sell or refinance their homes.
References:
- Settlement Agreement between Goldman Sachs and the Massachusetts Attorney General – hosted on JD Supra
- Attorney General Martha Coakley and Goldman Sachs Reach Settlement Regarding Subprime Lending Issues Press Release from Mass AGO
- State reaches $60m subprime deal with Goldman Sachs – Boston Globe
- Goldman Settles Subprime Inquiry by William M. Buckley for the Wall Street Journal