Goldman Sachs to Pay $5 Billion for Deceptive Mortgage Practices Linked to 2008 Financial Crisis

Goldman Sachs to Pay $5 Billion for Deceptive Mortgage Practices Linked to 2008 Financial Crisis
Image: Pixabay
April 13, 2016

The U.S. Department of Justice (USDOJ) announced this week that banking giant Goldman Sachs has agreed to a $5.06 billion settlement following its conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007.

The resolution requires Goldman to pay $2.385 billion in a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and also requires the bank to provide $1.8 billion in other relief, including relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan forgiveness and financing for affordable housing.

Goldman will also pay $875 million to resolve claims by other federal entities and state claims. Investors, including federally-insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued and underwritten by Goldman between 2005 and 2007.

"This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail," said Acting Associate Attorney General Stuart F. Delery. "This $5 billion settlement includes a $1.8 billion commitment to help repair the damage to homeowners and communities that Goldman acknowledges resulted from its conduct, and it makes clear that no institution may inflict this type of harm on investors and the American public without serious consequences."

"Today's settlement is another example of the department's resolve to hold accountable those whose illegal conduct resulted in the financial crisis of 2008," said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department's Civil Division. "Viewed in conjunction with the previous multibillion-dollar recoveries that the department has obtained for similar conduct, this settlement demonstrates the pervasiveness of the banking industry's fraudulent practices in selling RMBS, and the power of the Financial Institutions Reform, Recovery and Enforcement Act as a tool for combatting this type of wrongdoing."

The Department of Justice says that the settlement with Goldman Sachs is part of the ongoing efforts of President Obama's Financial Fraud Enforcement Task Force's RMBS Working Group, which has recovered tens of billions of dollars on behalf of American consumers and investors for claims against large financial institutions arising from misconduct related to the financial crisis.

Learn more about the RMBS Working Group and the Financial Fraud Enforcement Task Force at