SEC probes Goldman over mortgage securities sale

AP

(MoneyWatch) Federal securities regulators may be preparing to prosecute Goldman Sachs (GS) over its sale of mortgage securities during the housing boom.

Goldman disclosed in a February 24 10-K filing that the SEC had issued the company a "Wells notice," a notification that agency staff are recommending that the Commission take legal action. The notice relates to a $1.3 billion offering of subprime mortgage securities Goldman underwrote in late 2006. If the SEC proceeds with a civil case against the investment bank, it would mark the second time in two years that the agency has gone after the firm over securities it sold in the run-up to financial crisis.

According to Fortune magazine, SEC scrutiny of Goldman's bond sale likely centers on a bundle of more than 5,000 mortgages the company marketed called Fremont Home Loan Trust 2006-E (FHLT-2006E). Fortune reports that out of the nearly 100 mortgage investment deals made by Goldman in the second half of 2006, "only the Fremont deal was worth $1.3 billion and met other criteria, such being primarily made up of subprime residential loans." Mortgage guarantor Freddie Mac (FMCC) -- and ultimately U.S. taxpayers -- wound up paying an estimated $545 million to investors when borrowers defaulted on the Fremont loans.

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The Federal Housing Finance Authority, which oversees Freddie Mac and Fannie Mae (FNAM), is already suing Goldman over Fremont Home Loan Trust. The agency in November filed suit over this and a number of other residential mortgage-backed securities that the government-sponsored enterprises bought from Goldman for more than $11.1 billion.

In the prospectus for Fremont, Goldman told investors that out of the 5,012 home loans involved in the securities deal, only one homeowner had borrowed more than the house was worth. However, an audit conducted as part of the FHFA suit found at least 1,179 loans that were already "underwater" at the time Goldman was trying to sell the security to investors.

In 2010, Goldman paid a $550 million fine to settle SEC charges that it lied to investors when it sold a mortgage-backed security named Abacus.

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[FormerUSMCSergeant]

This wouldn't happen if Mitt were in the chair.......

[commenter777]

They are only going after the corporation. They may fine the corporation a little bit. They don't have the kahonies to got after the ultra-rich wall street sobs that cost all of us a lot of money. Watch "Inside Job", the 2010 Academy Award winner for Best Documentary to see what these wall street tigers did to you that cost you a lot of money. I wish these people a very long life. May you outlive everyone and everything you love. The sad thing is that these people only love money.

[commenter777]

Everything about this country is crooked. If you can't beat em, join um. Before this mortgage fraud I was an honest person. NOT NOW, AND NEVER AGAIN!!!

[commenter777]

When it's all over with the SOBs will have gotten a slap on the wrist and they will still have a lot of our money in their bank accounts.

[commenter777]

It's about time. Maybe there is a god. But, the sad thing is that in our country if you can afford it you can get away with ANYTHING. Just watch. If they even go to trial they will get a slap on the wrist. And judges don't have the kahonis to go against all that money.

[dj_chi]

And the repubs are still gonna say the housing crash was all the government's fault - for making the private sector give out bad loans! As if Goldman Sachs was forced to defraud the public by government agencies! Right. And I guess bank robbers were forced to do it by government over-regulation!

[Bryon_Evans]

So they finally stopped surfing porn and went after the obvious criminals? I suppose those orders from George W. Bush to "No matter what DO NOT DO YOUR JOB!" finally ended. Hmm. Imagine that!

[lfitts2]

Take away ALL of the money they stole, and I mean ALL OF IT and then throw them in jail!

[retm-w]

Jail are you kidding, those responsible will get a slap on the wrist and a big bonus from Goldman Sachs.