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Goldman Sachs (GS) to Reach MBS Settlement with FHFA

Zacks Equity Research

Goldman Sachs Group, Inc. (GS) has been attempting mediation with the Federal Housing Finance Agency (:FHFA) – the conservator of government-sponsored enterprises (GSEs) Freddie Mac (FMCC) and Fannie Mae (FNMA), per a Wall Street Journal report.

According to the settlement talks, the bank will pay between $800 million and $1.25 billion to FHFA, in order to compensate its faulty mortgage-practices in 2005–2007. The settlement will exonerate Goldman Sachs from the accusation of selling flawed mortgage-backed securities (MBS.V) to Freddie Mac and Fannie Mae during the pre-crisis period.

Notably, the upper range of $1.25 billion meets the amount which Morgan Stanley (MS) recently agreed to pay for settling the claims made against it by the FHFA. Following suit, several other big banks entered into similar types of settlements with the FHFA.

Amid the housing-market collapse, the FHFA was established as an independent regulator to oversee the housing-finance market. It aims at safeguarding investors’ interest and providing a secured investment environment. Back in 2011, the FHFA had accused 18 banks of selling faulty mortgage securities to Fannie Mae and Freddie Mac. As of now, FHFA has been successful in reaching 15 settlements, totaling about $16.1 billion, with the lenders.

The latest settlement will come as a breather for Goldman Sachs, resolving a major legal hassle which has been troubling it for quite some time.

Currently, Goldman Sachs holds a Zacks Rank #2 (Buy).

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Read the Full Research Report on MS

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