Goldman Sachs settles subprime case for $60M
Massachusetts says it has reached a deal with the bank over home loans given to buyers with poor credit.
BOSTON (Reuters) -- Goldman Sachs Group Inc. agreed to pay up to $60 million to settle Massachusetts' complaints about the investment bank's role in the subprime mortgage business, state officials said Monday.
The agreement includes up to $50 million for holders of the mortgages - which were made at often high rates to people with poor credit - and a $10 million payment to the state, a spokeswoman for state Attorney General Martha Coakley said.
The settlement follows an investigation into how Wall Street banks originated mortgages and then packaged them into bonds. It is the first such accord with a bank to focus on securitization of subprime mortgages, spokeswoman Amie Breton said.
Reworking the terms of securitized mortgages - which have been resold to other investors - has been a major sticking point for government officials looking to prevent foreclosure for homeowners.
Subprime mortgages played a major role in the creation of the U.S. housing bubble earlier this decade. The deflation of that bubble was a major contributor to the global recession.
Wall Street firms generated enormous profits during the boom years, but lawmakers and other critics have argued their pressure on mortgage brokers to generate loans needed to feed their securitization business helped lower standards and pumped up the bubble.
Goldman has long insisted they were a minor player in the mortgage-backed business, relative to rivals like Bear Stearns and Lehman Brothers.
Industry league tables showed they climbed to as high as No. 7 in issuing subprime mortgage-backed securities and sixth in underwriting in 2006, but quickly fell out of the top 10 by the following year.