Multiple reports surfaced over the weekend that Goldman Sachs may be nearing a deal with the federal government to settle claims that it sold faulty mortgage backed securities to Fannie Mae and Freddie Mac, according to people with familiar with the negotiations. If a deal is reached it is expected to come in between $800 million and $1.25 billion. The talks were first reported by the Wall Street Journal.
The Federal Housing Finance Agency (FHFA) filed 18 lawsuits in 2011 against Goldman and other banks regarding about $200 billion in mortgage backed securities that later went collapsed in the lead up to the financial crisis.
Goldman is one of four banks that have yet to settle with FHFA. HSBC Holdings, Nomura Holdings, and Royal Bank of Scotland Group are the others. To date, FHFA has recovered 16.1 billion from the first 14 settlements.
The settlement would be the firm’s largest legal penalty to date, easily eclipsing the $500 million it paid to the Securities and Exchange Commission over its handling of its marketing for mortgage linked product. That settlement required Goldman to admit that it had made a mistake with the marketing of the security, titled abacus. It remains Goldman’s largest penalty to date. It is unclear at this moment if this settlement will also require some admission of fault.
Still, it looks like the decision to wait to settle with the government until the case was further along may turn out to have been the right move. The bank may end up paying far less than its counterparts.
In the original suit brought by the government in the case at hand, FHFA says that Fannie Mae and Freddie Mac bought a total of $11.1 billion dollars worth of securities from Goldman Sachs. An $800 million dollar settlement would represent 7.2 percent of that total. Some banks that have settled earlier with the FHFA have ended up paying 12 to 20 percent of the total securities that they sold.
The case is currently scheduled for a September 29, 2014 trial if negotiations fail.