Verdicts & Settlements

Another bank settles with DOJ over sales of risky mortgages; did it get a better deal than others?

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Goldman Sachs Group has agreed to pay $5.06 billion to settle government claims that it sold risky mortgage securities to investors without disclosing the problems.

The settlement includes $1.8 billion for consumer relief, nearly $2.39 billion in federal civil penalties, and $875 million to settle other federal and state claims, Corporate Counsel reports. The consumer relief includes loan modifications, loan forgiveness and loan forbearance to distressed and underwater homeowners. It also includes financing for affordable housing. A press release is here.

The agreement is the fifth by a major financial institution accused by the government of wrongdoing before the mortgage crisis, report the Washington Post and New York Times DealBook. JPMorgan Chase settled for $13 billion, Bank of America for $16.6 billion, Citibank for $7 billion, and Morgan Stanley for $3.2 billion.

According to DealBook, “Goldman appears to have negotiated an even sweeter deal” than other banks with regard to incentives that will allow reductions in the payout. One example: The settlement credits Goldman $1.50 for each dollar of loan forgiveness it offers within the first six months of the settlement. JPMorgan Chase, on the other hand, received a $1.15 credit for each dollar of loan forgiveness in the first year after the settlement.

A Justice Department official told DealBook that JPMorgan and Goldman were accused of different wrongdoing, and that affected the settlement agreements.

In an interview with DealBook, Dennis Kelleher, the founder of the advocacy organization Better Markets, criticized the government’s portrayal of the agreement. “They appear to have grossly inflated the settlement amount for P.R. purposes to mislead the public, while in the fine print, enabling Goldman Sachs to pay 50 to 75 percent less,” Kelleher said.

See also:

ABA Journal: “Will those who led the financial system into crisis ever face charges?”

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