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Goldman Sachs to pay $272 million in toxic mortgage lawsuit

housingwire.com | August 14, 2015

by Ben Lane

Goldman Sachs (GS) will pay $272 million to settle a lawsuit over losses suffered due to alleged misrepresentations of the quality of mortgage loans that backed crisis-era mortgage-backed securities.

According to a Reuters report, the settlement is with investors led by NECA-IBEW Health & Welfare Fund, an electrical workers' pension fund in Decatur, Illinois.

The lawsuit stretches back to 2008, when NECA-IBEW sued Goldman Sachs, arguing that Goldman made false statements or omitted key information regarding the nature of the mortgages it sold into 17 different trusts during 2007.

From the Reuters report:

NECA-IBEW accused Goldman of misleading investors about the underwriting of home loans backing the securities, including the quality of appraisals and whether borrowers were capable of repaying their loans.

The fund said the securities' prices collapsed during and after the financial crisis, while their credit ratings fell to low, "triple-C" junk grades from "triple-A."

HousingWire covered the lawsuit when it was originally filed.

Here’s HousingWire Publisher Paul Jackson writing about the lawsuit in 2008:

In the Goldman case, NECA-IBEW alleges that Goldman misled investors on the underwriting standards used by various originators, including -- who else? -- Countrywide Financial; other claims center on the use of inflated appraisals by originating entities for the trusts. Many of the loans in the trusts named in the lawsuit are of the reduced-doc, no-doc, stated-income variety, which NECA-IBEW says are rife with fraud.

Goldman challenged NECA-IBEW’s ability to sue over the toxic mortgages, with the case making it all the way to the Supreme Court’s doorstep.

In 2013, the Supreme Court decided not to hear the case after the Second Circuit held that NECA-IBEW can claim standing to sue Goldman over the mortgage bonds, even if some of those claims relate to offerings that parties other than the plaintiff were involved in.

In its petition, Goldman argued that there was great risk in allowing the case to continue.

"In the context of mortgage-backed securities litigation in which this case arises, the decision will effectively increase by tens of billions of dollars the potential liability that financial institutions face in this and similar class actions," Goldman said at the time in its petition for Supreme Court review.

"Moreover, the new standard threatens to expand the scope of class actions in many other areas of the law."

And now, seven years later, Goldman Sachs is settling the lawsuit, although the Reuters report stated that Goldman denied liability as part of the settlement agreement.

 

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