Goldman Sachs has long been one of the largest buyers of severely delinquent home loans from Fannie Mae [1], and on Tuesday, the company purchased about 8,000 loans with unpaid balances of $1.4 billion. The Wall Street Journal reports that over the past year and a half, Goldman Sachs acquired nearly two-thirds of the $9.6 billion in loans the GSE auctioned off. Goldman Sachs makes most of its purchases through a subsidiary called MTGLQ Investors, LP.
Part of the reason for the massive buying binge from Goldman Sachs is to meet the terms of a government settlement that mandates that it must help struggling homeowners, though it does so while making money. Goldman was one of the last banks to agree to pay billions of dollars in to the federal and state governments for their role in packaging and selling securities in the mortgage crisis. Part of the way the bank meets its $1.8 billion in consumer relief settlement is by modifying loans so that their principal amount is equal to or less than the home value.
Goldman Sachs accomplishes this by buying and modifying loans, then reselling the loans at a profit when the borrowers resume monthly payments. If that can’t be the case, Goldman Sach’s profits instead by foreclosing on and selling homes.
The company has spent around $4.5 billion total on around 26,000 Fannie Mae -owned loans, and has additionally been buying mortgages from private sellers and Freddie Mac. Fannie Mae and Freddie Mac have been auctioning off non-performing mortgages in batches since 2015. Some of those loans have gone unpaid for as long as six years.
Fannie and Freddie help recoup their losses by selling loans, while simultaneously leaving the task of restructuring the loans to others. In total, Goldman Sachs has bought 59 percent of Fannie Mae’s auctioned-off mortgages since October 2015.
The bank’s short term goal is to acquire credit for their settlement, but in the long term, the goal is to make money, by either restructuring and acquiring loans payments, or by selling the loans once the borrowers are back on track. This process can take up to two years.
According to WSJ, however, many of the loans acquired by Goldman Sachs have gone into foreclosure. The bank plans on ramping up modifications in a recent batch of Fannie Mae loans, one whose borrowers better off financially.