Goldman Sachs Goes on Buying Binge for Delinquent Mortgages

Goldman Sachs Group Inc. has become the largest buyer of severely delinquent home loans from mortgage giant Fannie Mae over the past year and a half, acquiring nearly two-thirds of $9.6 billion in loans the agency has auctioned, government records show.

On Tuesday Goldman won the majority of loans at Fannie’s latest auction, its largest to date. The bank bought about 8,000 loans with unpaid balances of $1.4 billion.

The Wall Street giant’s loan-buying spree is one strange reverberation of the housing crisis. In ramping up a mortgage-buying operation that had lain low since the meltdown, Goldman is trying to make money even as it looks to fulfill terms of a government settlement that calls for it to help struggling homeowners.

Goldman was among the last of the big U.S. banks to agree to pay billions of dollars to federal and state governments for their roles packaging and selling securities in the mortgage meltdown. Its $5.1 billion pact, reached in April 2016, included $3.3 billion in fines and $1.8 billion in “consumer relief.”

That relief can include forgiving loan balances for struggling homeowners. To count toward Goldman’s $1.8 billion settlement obligation, the bank must make modifications to get the loan’s principal amount owed to be equal to or less than the value of the home itself.

Other banks can meet similar obligations by working through their own portfolio of loans or coordinating with their mortgage-servicing arms, which provide access to struggling homeowners.

Goldman’s problem: It wasn’t a big originator of home loans, and sold its mortgage-servicer in 2011. Without a ready supply of mortgages, the bank has gone into the market with the goal of restructuring the loans to receive credit under the settlement, according to people familiar with its purchases.

That relief reduced the amount of cash Goldman has to pay directly to the government. And the modifications can prove less costly to the firm over time. After borrowers resume monthly payments, the bank hopes to sell the loans at a profit, the people said. In some cases, though, Goldman is quickly recouping money by foreclosing on homes and selling them, government records show.

They are back in business…

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