Goldman Sachs agrees $5bn settlement over RMBS mis-selling

Goldman Sachs has agreed to pay $5bn to the US Justice Department to settle claims that it mis-sold mortgage backed securities between 2005 and 2007. Of the $5bn, $2.4bn will be paid as a civil penalty and $1.8bn in relief to homeowners. $575m will also be paid to settle claims by the National Credit union Administration, and $190m will be paid to settle with the state of New York. 

Goldman Sachs agrees to pay $5bn to settle mortgage claims

Goldman Sachs has agreed to pay $5.06bn (£3.6bn) to settle claims that it mis-sold mortgage backed securities in the run-up to the financial crisis.

The settlement with the US Justice Department relates to residential mortgage backed securities (RMBS) sponsored or underwritten by the US investment bank between 2005 and 2007.

Goldman Sachs has agreed to pay a $2.4bn civil penalty and $1.8bn in relief to underwater homeowners – those whose mortgages exceeded the value of their property – and distressed borrowers. This includes Goldman Sachs forgiving loans and helping to finance affordable housing projects across the country.

It will also pay $875m to resolve claims by other federal entities – the biggest chunk of which is $575m to settle claims by the National Credit Union Administration and $190m to settle with the state of New York.

The agreement is the latest in a string of multi-billion dollar settlements US regulators has reached with banks including JP Morgan Chase, Citigroup and Barclays.

Read More: Barclays settles US mortgage claims for $325m

​Goldman already announced in January when the agreement was made in principal that fourth quarter earnings would be about $1.5bn lower after tax as a result.

“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 Mizer, head of the Justice Department’s Civil Division.

“Viewed in conjunction with the previous multi billion-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.”

A spokesperson for Goldman Sachs said: "We are pleased to put these legacy matters behind us. Since the financial crisis, we have taken significant steps to strengthen our culture, reinforce our commitment to our clients, and ensure our governance processes are robust."