Goldman Mortgage Settlement Is Much Less Than Meets the Eye – New York Times

Like other banks, Goldman bought loans issued by subprime mortgage specialists like Countrywide Financial. Goldman then packaged these loans into bonds that were able to get the highest rating from credit rating agencies. The loans were sold to investors, who sustained losses when the loans went sour.

Over the course of 2006, Goldman employees took note of the decreasing quality of loans that it was buying, according to a statement of fact released along with the settlement. When an outside analyst wrote a positive report about Countrywide's stock in April 2006, the head of due diligence at Goldman wrote in an email: "If they only knew."

Despite the worrying signs, Goldman did not alert investors who were buying the bonds it was packaging, officials said on Monday.

"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," Stuart F. Delery, the acting associate attorney general, said in a statement. The bank agreed to a statement of facts outlining its wrongdoing.

Goldman said in a statement on Monday: "We are pleased to put these legacy matters behind us. Since the financial crisis, we have taken significant steps to strengthen our culture, reinforce our commitment to our clients and ensure our governance processes are robust."

Nearly half of Goldman's settlement — $ 2.4 billion — will be paid in a civil penalty. Most of the rest will go to provide relief to consumers who were hurt by the financial crisis.

Goldman will benefit from considerable concessions when it comes to consumer relief.

On the broadest level, any money that Goldman spends on consumer relief will be deductible from its corporate tax bill. If Goldman spends $ 2.5 billion on consumer relief, and pays the maximum United States corporate tax rate of 35 percent, it could, in theory, reap $ 875 million in tax savings.

But Goldman could easily pay less than $ 2.5 billion in consumer relief because of the sections of the settlement that give it extra credit for certain types of activity.

For every $ 1 that the bank spends on affordable housing developments, the bank will get a $ 3.25 credit toward the $ 240 million, with the possibility of getting 15 percent more credit if it pays early.

Eric T. Schneiderman, the New York attorney general, announced that Goldman would pay $ 280 million for community reinvestment and neighborhood stabilization in New York. But an annex to the agreement with New York explains that Goldman will get $ 2 of credit for every dollar it spends in this area, meaning that it will ultimately have to pay only $ 140 million to meet the terms of the deal.

In sum, the details in the various annexes suggest that Goldman could end up paying over $ 1 billion less than the $ 5 billion than was announced on Monday.

In January, Goldman said that it put aside $ 3.4 billion in 2015 to cover the costs of what would become its $ 5 billion settlement.

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