Goldman nearing $1.1bn settlement with FHFA -- reports

by Ryan Smith25 Aug 2014
Goldman Sachs is reportedly preparing to pay $1.1 billion to settle government claims that it sold shoddy mortgage-backed securities to Fannie Mae and Freddie Mac.

Goldman is currently negotiating with the Federal Housing Finance Agency over the deal, which could be concluded this week, according to the Financial Times.

In 2011, the FHFA sued 18 banks, including Goldman, for sales of toxic mortgage bonds to Fannie and Freddie. The agency has already forced $20 billion out of other big banks, and Goldman is one of only four banks still being pursued in the lawsuits. The others are HSBC, Nomura and Royal Bank of Scotland, the Financial Times reported.

According to the Financial Times, Fannie and Freddie bought $11.1 billion worth of mortgage-backed securities from Goldman. However, “significant percentages of the underlying mortgage loans … had materially poorer credit quality than was represented in the registration statements,” the lawsuit claimed.

Under the terms of the reported deal with Goldman, the bank would pay about $1.1 billion to settle the matter. That’s double a 2010 settlement the bank made with the Securities and Exchange Commission over its mortgage bond sales. In 2010, the SEC settlement was considered a large penalty for behavior related to the financial meltdown, the Financial Times reported. However, even the current $1.1 billion number is a slap on the wrist compared to the multibillion-dollar settlements the government has wrung out of big banks in recent months – such as Bank of America’s record-setting $17 billion penalty.

Goldman’s legal woes won’t be over if the reported settlement comes through, however. The bank is currently preparing for similar negotiations with the Department of Justice.