Goldman Sachs to pay $3.15 bn to buy back toxic bonds sold to Fannie Mae, Freddie Mac

23 Aug 2014

Goldman Sachs Group Inc yesterday said that it would pay $3.15 billion to buy back low-quality mortgage bonds it had sold to Fannie Mae and Freddie Mac in the run-up to the 2008 financial crisis.

The Federal Housing Finance Agency, (FHFA), the conservator for the two government-controlled mortgage finance companies, said in a statement that the bank would pay approximately $2.15 billion to Freddie Mac and $1 billion to Fannie Mae.

The settlement, valued at $1.2 billion after deduction of the current estimated value of the securities being bought back, ''effectively makes Fannie Mae and Freddie Mac whole on their investments in the securities at issue,'' FHFA said.

''The settlement addresses claims alleging violations of federal and state securities laws in connection with private-label mortgage-backed securities (PLS) purchased by Fannie Mae and Freddie Mac between 2005 and 2007.''

This comes as the 16th settlement reached in the 18 lawsuits filed by the FHFA in 2011 against various financial institutions as it seeks to recover nearly $200 billion in low-quality mortgage bonds bought by Fannie Mae and Freddie Mac.

According to Gregory K Palm, executive vice president and general counsel of Goldman Sachs, the bank was ''pleased to have resolved these matters.''

The government bailed out Fannie and Freddie at the height of the crisis in September 2008 as the companies teetered on the brink of collapse, pouring in taxpayer aid totaling $187 billion. The companies are now profitable with the bailouts fully repaid.

The FHFA sued 18 financial institutions in 2011 over their sales of mortgage securities to Fannie and Freddie, with the total price for the securities at $196 billion.

A number of big banks, including Goldman, JPMorgan, Bank of America and Citigroup, had earlier been accused in sales of securities linked to mortgages in the years leading up to the crisis.

They had between them, paid hundreds of millions in penalties to settle civil charges brought by the Securities and Exchange Commission, which accused them of deceiving investors about the quality of the bonds they sold.

Goldman agreed to a payment of $550 million to settle the SEC's charges, the largest penalty against a Wall Street firm in the agency's history.