State reaches $60m subprime deal with Goldman Sachs

More than 700 Massachusetts homeowners struggling with subprime mortgages will have their monthly payments reduced - some by as much as 35 percent - as part of a $60 million settlement Attorney General Martha Coakley reached with Goldman Sachs Group Inc.

Goldman Sachs owns those homeowners' mortgages through subsidiaries and has agreed to rewrite the terms of their loans in order to stave off legal action by Coakley. The attorney general has been investigating the role investment banks played in promoting subprime mortgages that borrowers ultimately couldn't afford.

"We are pleased that Goldman cooperated during this investigation and that it has committed to working with our office to help Massachusetts borrowers who are struggling with unsustainable subprime loans,'' Coakley said at a news conference today.

(Coakley is shown at right in a Globe file photo.)

Goldman Sachs did not admit to any wrongdoing as part of the settlement. Company spokesman Michael DuVally said Goldman is "pleased to resolve this matter."

The bank was involved in packaging subprime loans into securities which were then sold to investors as part of a process known on Wall Street as "securitization." Goldman ended up owning 714 Massachusetts subprime loans from the pools of securities it had created.

As part of the settlement, Goldman Sachs will reduce the outstanding balances of subprime mortgages for those 714 homeowners, most of whom live in Boston, Brockton, Lawrence, Springfield, and Worcester. Homeowners seeking to refinance or sell their properties could see a reduction in their first mortgages of up to 35 percent as well as much as a 100 percent cut in second mortgages.

Reducing those loan amounts will cost Goldman Sachs $50 million. It has also agreed to have its subsidiary, Litton Loan Servicing LP, help qualified borrowers who are in trouble on their loans to avoid foreclosure. Goldman will also pay the state $10 million.

Coakley said her office is trying to determine if the financial companies that sold subprime loans as knew, or should have known some of the loans were unaffordable to the homeowners and either should not have been made in the first place, or not subsequently sold to investors.
(By Jenifer B. McKim, Globe staff)