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Goldman Sachs agrees to $5B settlement over risky mortgages

  • ASSOCIATED PRESS

    A screen at a trading post on the floor of the New York Stock Exchange is juxtaposed with the Goldman Sachs booth in Oct. 2014. The Justice Department today announced a $5 billion settlement with Goldman Sachs over the sale of mortgage-backed securities leading up to the 2008 financial crisis.

WASHINGTON » The Justice Department today announced a roughly $5 billion settlement with Goldman Sachs over the sale of mortgage-backed securities leading up to the 2008 financial crisis. The government accused the bank of misleading investors about the quality of its loans.

The $5.06 billion deal resolves state and federal probes into the sale of shoddy mortgages in the run-up to the housing bubble and subsequent economic meltdown.

It requires the bank to pay a $2.39 billion civil penalty and an additional $1.8 billion in relief to underwater homeowners and distressed borrowers, along with $875 million in other claims.

“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,” Acting Associate Attorney General Stuart Delery said in a statement.

The agreement, smaller than deals reached with several of Goldman’s Wall Street counterparts, is the latest multi-billion-dollar civil settlement arising from the economic meltdown in which millions of Americans lost their homes to foreclosure or found themselves jobless. Other banks that settled in the last two years include Bank of America, Citigroup and JPMorgan Chase & Co.

The sums paid by some of the nation’s largest banks, intended to offer financial relief to some homeowners, aren’t nearly enough to reverse the damage of the worst financial crisis since the Great Depression. The deal, which includes no criminal sanctions or penalties, is likely to stir additional criticism about the department’s inability to hold bank executives personally responsible.

Attempting to address those concerns, Deputy Attorney General Sally Quillian Yates issued department-wide guidance last year aimed at encouraging more criminal prosecutions of individuals for corporate wrongdoing. It’s unclear how many additional prosecutions will be brought as a result of the guidelines, which among other things direct civil and criminal lawyers to work together on investigations from the outset and focus on individuals.

Goldman had disclosed the settlement in January. Federal officials laid out additional allegations Monday in a statement of facts that accused the bank of making serious misrepresentations about the quality of mortgage-backed securities it sold.

The securities, promoted as relatively safe, contained residential mortgages from borrowers who were unlikely to be able to repay their loans.

The poor quality of the loans led to huge losses for investors and a slew of foreclosures, kicking off the recession that began in late 2007 as the housing market collapsed and investors suffered billions in losses.

The bank admitted that it did not share with investors troubling information that it had received about the business practices of some loan originators, and that it falsely told investors that the loans had been checked to ensure that they met quality standards.

In reality, Goldman knew that significant percentages of the loans failed those standards, leaving investors likely to lose money on defaults, the Justice Department said.

Associated Press writers Jeff Horwitz and Josh Boak contributed to this report.

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  • Theses banks can make their money back in one year. I don’t think there are any laws to criminally indict the peoples behind these banks. I believe Wall St. and some of the Congress is involved in this greedy money making schemes.

  • Well, at least it is something that the big banks were held somewhat accountable for the housing bubble. But the amounts were just a slap on the wrist if the truth were known about the dollars gained by these cadres of crooks, in my opinion. The next step is to see that the amounts paid actually get to the people they should go to, which would take another layer of oversight. Then to make and enforce laws with penalties severe enough so as to deter this type of abuse. But these things are a long shot.

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