(Adds background )
By Nate Raymond and Jonathan Stempel
Aug 22 Goldman Sachs Group Inc has agreed
to a settlement worth $1.2 billion to resolve a U.S. regulator's
claims the bank sold Fannie Mae and Freddie Mac
faulty mortgage bonds, the regulator announced Friday.
Under the settlement with the Federal Housing Finance
Agency, the conservator for the two government-controlled
mortgage finance companies, Goldman Sachs said it agreed to pay
$3.15 billion to repurchase mortgage-backed securities from
Fannie and Freddie.
The FHFA, which valued the settlement at $1.2 billion, said
the accord "effectively makes Fannie Mae and Freddie Mac whole
on their investments in the securities at issue."
The $1.2 billion reflects the amount that Goldman will pay,
minus the estimated current value of the securities being bought
back from Fannie and Freddie.
The deal averts a Sept. 29 trial in a pair of lawsuits
against Goldman that the FHFA filed in 2011 as it sought to
recover damages from various financial institutions behind some
$200 billion in mortgage bonds bought by Fannie and Freddie that
later went sour.
To date, the FHFA has resolved all but three of the 18
lawsuits it filed, recovering $17.3 billion through cases
against banks including Bank of America Corp, Deutsche
Bank AG and Morgan Stanley.
The FHFA's primary case against Goldman Sachs accused the
bank of misleading the two mortgage finance giants in the sale
of over $11.1 billion in mortgage-backed securities sold to
Fannie and Freddie from 2005 to 2007.
Goldman Sachs denied the allegations, and in the settlement
did not admit wrongdoing. Under the settlement, Goldman Sachs
will pay about $1 billion to Fannie Mae and $2.15 billion to
Freddie Mac, the FHFA said.
Goldman Sachs in a statement said the costs of the deal were
substantially covered by its litigation reserves as of the
second quarter of this year.
"We are pleased to have resolved these matters," Gregory
Palm, Goldman's general counsel, said in a statement.
The deal tops a $550 million settlement that Goldman Sachs
reached with the U.S. Securities and Exchange Commission to
resolve charges over how it marketed a subprime mortgage product
The U.S. Department of Justice continues to investigate
Goldman Sachs over its marketing of mortgage-backed securities.
The Justice Department on Thursday announced a $16.65 billion
settlement with Bank of America over mortgage
The FHFA continues to litigate against three other banks:
HSBC Holdings Plc, Nomura Holdings Inc and
Royal Bank of Scotland Group Plc.
HSBC continues to face its own trial Sept. 29, while
Nomura's case would go to a jury Jan. 26.
The case is Federal Housing Finance Agency v. Goldman, Sachs
& Co. et al, U.S. District Court, Southern District of New York,
(Editing by Leslie Adler)