Goldman Sachs Group Inc (NYSE:GS) agreed to settle with the Federal Housing Finance Agency (FHFA) on claims regarding private-label mortgage-backed securities the investment bank had sold to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) between 2005 and 2007. The FHFA is the conservator of the two housing mortgage companies.
Of the amount of $3.2 billion, Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), would receive $1 billion, while Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) would be paid $2.15 billion.
Dubious underlying securities
Goldman Sachs Group Inc (NYSE:GS) would take back the offending securities, which have a current value of about $2 billion, and make a net settlement payment of $1.2 billion.
“This settlement, worth approximately $1.2 billion, effectively makes Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) whole on their investments in the securities at issue,” said the FHFA in a statement. “As part of the settlement, FHFA, Fannie Mae and Freddie Mac will release certain claims against Goldman Sachs & Co. related to the securities involved.”
In its lawsuit (FHFA v. Goldman Sachs & Co., et al.,) the FHFA had complained that Goldman Sachs had misrepresented the true credit quality of the securities underlying the RBMS – “significant percentages of the underlying mortgage loans… had materially poorer credit quality than was represented in the registration statements,” it alleged.
Goldman Sachs covered, pleased to have settled
“The costs of resolving these matters are substantially covered by reserves as of the second quarter of 2014,” said Goldman Sachs in a statement. Gregory K. Palm, Executive Vice President and General Counsel of The Goldman Sachs Group, Inc., stated “We are pleased to have resolved these matters.”
Goldman Sachs Group Inc (NYSE:GS) is one of 18 financial corporations that the FHFA sued in 2011 on the issue of selling defective mortgage linked securities to Freddie Mac and Fannie Mae. According to the FHFA, it has reached settlement with 16 of these parties. Lawsuits are still pending opposite HSBC North America Holdings Inc., Nomura Holding America Inc. and RBS Securities Inc.