Mortgage fraud: More multi-billion dollar settlements, including Goldman Sachs’ $5 billion

Rick Steves

Following the announcement of a $1.2 billion settlement to civil mortgage fraud claims against Wells Fargo, now the US Department of Justice has announced a $5 billion settlement with Goldman Sachs in connection with its sale of residential mortgage-backed securities (RMBS). Goldman Sachs agrees to pay $5.06 billion for its Residential MBS fraud case The […]

Mortgage fraud: More multi-billion dollar settlements

Following the announcement of a $1.2 billion settlement to civil mortgage fraud claims against Wells Fargo, now the US Department of Justice has announced a $5 billion settlement with Goldman Sachs in connection with its sale of residential mortgage-backed securities (RMBS).

Goldman Sachs agrees to pay $5.06 billion for its Residential MBS fraud case

The case centered on the method by which Goldman Sachs engaged in the packaging, securitization, marketing, sale and issuance of RMBS between 2005 and 2007, resulting in investors including federally-insured financial institutions being affected with billions of dollars in losses from investing in RMBS issued and underwritten by the firm between 2005 and 2007.

“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,” said Acting Associate Attorney General Stuart F. Delery.

“This $5 billion settlement includes a $1.8 billion commitment to help repair the damage to homeowners and communities that Goldman acknowledges resulted from its conduct, and it makes clear that no institution may inflict this type of harm on investors and the American public without serious consequences” – Acting Associate Attorney General Stuart F. Delery

Adding to the $1.8 billion in reparations is a $2.385 billion in a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), and a $875 million to resolve claims by other federal entities and state claims.

“Today’s settlement is another example of the department’s resolve to hold accountable those whose illegal conduct resulted in the financial crisis of 2008,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.

Viewed in conjunction with the previous multibillion-dollar recoveries that the department has obtained for similar conduct, this settlement demonstrates the pervasiveness of the banking industry’s fraudulent practices in selling RMBS, and the power of the Financial Institutions Reform, Recovery and Enforcement Act as a tool for combatting this type of wrongdoing.”, Mr. Mizer added.

Goldman Sachs agreed to a detailed statement of facts describing how the company made false and misleading representations to prospective investors about the characteristics of the loans it securitized and the ways in which Goldman would protect investors in its RMBS from harm.

Goldman Sachs took $10 billion in TARP bailout funds following the Financial Crisis, which means that “many of these toxic securities were traded in a taxpayer funded bailout program”, according to Special Inspector General Christy Goldsmith Romero for TARP. This was the fifth multibillion-dollar RMBS settlement announced by the working group. The statement can be read here.

Wells Fargo $1.2 billion settlement is largest in FHA’s history

The $1.2 billion settlement to civil mortgage fraud claims in the Southern District of New York against Wells Fargo Bank is a result of investigations by the U.S. Attorney’s Office for the Southern District of New York and the U.S. Attorney’s Office for the Northern District of California that found, besides of Wells Fargo malpractices, that American Mortgage Network, LLC (AMNET), a mortgage lender acquired by Wells Fargo in 2009, guilty of falsely certifying and submitting ineligible residential mortgage loans for FHA insurance.

Wells Fargo will now pay the bill for improper mortgage lending practices such as certifying to the Department of Housing and Urban Development (HUD), between 2001 and 2008, that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, which resulted in the Government having to pay FHA insurance claims when some of those loans defaulted.

“This Administration remains committed to holding lenders accountable for their lending practices,” said Secretary Julián Castro for HUD.  “The $1.2 billion settlement with Wells Fargo is the largest recovery for loan origination violations in FHA’s history.  Yet, this monetary figure can never truly make up for the countless families that lost homes as a result of poor lending practices.”

“Today, Wells Fargo, one of the biggest mortgage lenders in the world, has been held responsible for years of reckless underwriting, while relying on government insurance to deal with the damage,” said U.S. Attorney Preet Bharara for the Southern District of New York., he concluded.

“Wells Fargo has long taken advantage of the FHA mortgage insurance program, designed to help millions of Americans realize the dream of home ownership, to write thousands and thousands of faulty loans.  Driven to maximize profits, Wells Fargo employed shoddy underwriting practices to drive up loan volume, at the expense of loan quality. ”

“Even though Wells Fargo identified through internal quality assurance reviews thousands of problematic loans, the bank decided not to report them to HUD.  As a result, while Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust.  With today’s settlement, Wells Fargo has finally resolved the years-long litigation, adding to the list of large financial institutions against which this office has successfully pursued civil fraud prosecutions.”

According to the official statement, Wells Fargo, the largest HUD-approved residential mortgage lender, not only regularly and recklessly underwrote ineligible FHA retail loans, but also hired temporary staff with no proper training and applied pressure to approve an ever increasing quantity of FHA loans in order to maximize profit.

“The bank also imposed short turnaround times for deciding whether to approve the loans, employed lax underwriting standards and controls and paid bonuses to underwriters and other staff based on the number of loans approved.  Predictably, as a result, Wells Fargo’s loan volume and profits soared, but the quality of its loans declined significantly”, the statement said.

The US Department of Housing and Urban Development (HUD) was left to pay hundreds of millions of dollars in claims for defaulted loans. During the nine year period, Wells Fargo internally identified thousands of defective FHA loans that it was required to self-report to HUD, but decided not to report except for a minimal self-reporting after 2005.

101 banks in Spain required to pay back fees to 4 million mortages potentially

Meanwhile in Europe, Better Finance’s Spanish member organization ADICAE is celebrating the victory in the biggest class action ever in Spain, on behalf of 15.000 mortgage borrowers against 101 banks, as a Madrid commercial court considered that the fixed minimum rate mortgages in question lacked in transparency and declared them null and void, potentially applying the decision to 4 million mortgages altogether.

101 banks in Spain were condemned to pay back quantities improperly charged under clauses declared null by the Supreme Court, reimbursing claimants retroactively, including interest, to May 2013. However, an expected ruling at European level may push payments back to the date the mortgage was signed.

Read this next

Digital Assets

USDC sees massive $10.4 billion outflows in March

Cryptocurrency traders have withdrawn more than $10 billion from the world’s second largest stablecoin, USDC, in less than three weeks even as concerns over the fallout from the Silicon Valley collapse have receded.


OSTTRA’s Joanna Davies goes beyond 30-30-30 data standard at FIA Boca 2023

FinanceFeeds Editor-in-Chief Nikolai Isayev spoke with Joanna Davies about OSTTRA.


CloudMargin’s Stuart Connolly on how to manage collateral amid high rates at FIA Boca 2023

FinanceFeeds Editor-in-Chief Nikolai Isayev spoke with Stuart Connolly about CloudMargin’s SaaS platform, said to be the only cloud-native collateral and margin management system in the industry, at a time of stress due to rising interest rates.


Baton Systems’ Alex Knight on solving post-trade with DLT at FIA Boca 2023

FinanceFeeds Editor-in-Chief Nikolai Isayev spoke with Alex Knight about Baton Systems’ about rising settlement fails, collateral management, and the profile of DLT beyond cryptocurrencies.

Industry News

Wise claims 92% of banks hide or inflate FX fees despite Cross-Border Payments Regulation 2

“Banks continue to exploit loopholes in EU regulation to mislead their customers and overcharge them through fees hidden in inflated exchange rates.”

Industry News

Goliath Partners opens Miami headquarters to recruit C++ developers for fintech and trading

I’m extremely excited to be pursuing this venture and having the backing of such knowledgeable entrepreneurs who have seen success time and time again. We’ve already made brilliant headway working with leading investment houses and trading exchanges. It’s just the start, but we’re already making a huge difference with our work.”

Industry News

IOSCO calls for cooperation against cross-border scams, greenwashing, misconduct, and fraud

“Regulators need effective resources, practices, tools, and techniques to promote consumer protection and market integrity, which is supported through participation in critical multilateral forums such as IOSCO.”

Institutional FX

Archax rolls out tokenization engine as LawtechUK confirms legal standing of tokens

“As the UK’s first FCA regulated digital securities exchange, we are now building on this to pave the way to make traditional assets interoperate with Web 3.0.”


Broadridge migrates bond e-trading platform LTX to AWS

“LTX is committed to offering innovative e-trading technology that facilitates transparency and liquidity discovery. By migrating to AWS, LTX can leverage the scalability of the cloud to continue to deliver enhanced data and execution capabilities to our clients.”