To amend its share of the housing market crash during the 2008 financial crisis, Goldman Sachs promised $ 1.8 billion in consumer relief for struggling homeowners.
That penance was also a business opportunity.
Four years after agreeing to help homeowners in a civil settlement with federal prosecutors, the Wall Street firm has become one of the largest buyers of distressed mortgages, an investment area that deals with loan modifications. and foreclosures for borrowers who cannot make their payments. .
And while Goldman has redesigned loans for thousands of homeowners to avoid foreclosure, it has also repossessed more than 10,000 homes – properties it has begun selling to help offset the cost of the assistance it provides, a data review shows. .
“They’re benefiting from this,” said George Daly, who nearly lost his Millville, NJ, home to Goldman after he bought his mortgage as part of the consumer assistance program.
Daly, a retired auto mechanic who has lived in the home for 22 years, said the company Goldman had hired to manage his mortgage, Shellpoint Mortgage Servicing, was not willing to consider a loan modification unless he made a payment of $ 14,000 in advance. Then, just a few months after his wife, Susan, died of complications from cancer, he heard the attorneys for Goldman’s mortgage subsidiary, MTGLQ Investors, short for mortgage settlement. They told him they were going ahead with the foreclosure.
Mr. Daly, 61, was able to keep his home only because his frantic online search found information about the New Jersey foreclosure relief fund, which awarded him a $ 49,000 grant to pay delinquent fees and resume. your monthly payments.
Goldman declined to discuss Daly’s case, but defended his handling of the mortgages he had bought, saying homeowners are doing better than other companies operating in the same market.
“Our overall goal is to make modifications and make the delinquent mortgages we buy work,” said Maeve DuVally, a Goldman spokeswoman.
Goldman became the owner of Mr. Daly’s loan due to the provision of consumer relief from a $ 5 billion settlement for the marketing and sale of defective mortgage securities to investors. Unlike other banks, Goldman originates few mortgages of its own and, to help struggling borrowers, had to buy their distressed mortgages. He has bought more than 30,000 of them, mostly from Fannie Mae and Freddie Mac, the mortgage finance firms backed by the federal government.
Investors in distressed mortgages buy them at a discount and look for ways to get money on bad loans. They can seize the property, either by foreclosing or by persuading the borrower to simply walk away, and sell it. Or they can modify the loan so that the borrower can begin to repay. Goldman has repackaged some of the modified loans in mortgage securities it has been sold to investors.
Although Goldman began purchasing those loans under the auspices of a program aimed at helping struggling borrowers, critics of public policy and homeowner advocates say the bank is getting credit for performance similar to any other. another distressed mortgage investor.
Jim Baker, chief executive of the Private Equity Stakeholder Project, an advocacy group, argues that the bank should be doing more, considering it is being penalized.
“You could assume that if Goldman’s primary goal is to satisfy the deal, its numbers would be better than its peers,” Baker said. “They don’t look much worse, but they don’t look much better either.”
In the market niche for buying distressed loans or foreclosed homes, Goldman ranks second in foreclosures for the past four years after the combined affiliates of Lone Star Funds. a Dallas private equity firm, according to an analysis compiled by Attom Data, a real estate information firm.
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In a statement, Goldman said it had foreclosed 10 percent fewer mortgages than other investors who had bought mortgages from Fannie and Freddie. And the bank said it had avoided foreclosure on 29 percent of the mortgages it acquired, about two percentage points better than the results achieved by those other investors.
More than a third of the $ 5 billion value of the settlement is added to the consumer assistance provision. The bank earns credit for its obligation for actions such as reducing what borrowers owe, modifying loans so they can start paying again, or letting them walk away with no further obligation to pay.
The bank has completed 86 percent of its relief obligation, according to a report published in January by Eric D. Green, the independent monitor who also oversaw the consumer relief component of Bank of America’s $ 16 billion civil mortgage settlement.
“We are clearly incentivized to make the loans work well because we both get consumer relief credit and benefit financially,” Ms. DuVally said.
The Goldman settlement was just one of several the Justice Department reached with large banks that sold faulty mortgage securities before the 2008 crash. Dennis Kelleher, president of Better Markets, a nonprofit group that supports strict regulation financial, said he believed the part of the Wall Street deals described as consumer relief was more for public relations than sanctioning bad business behavior.
“These were nice arrangements so that the Justice Department could claim a great victory and the banks could say they were paying for their sins,” Kelleher said.
The mortgages Goldman bought are not easy loans to rework, and a significant number were almost certain to end up in foreclosure. Nearly a quarter of the mortgages sold by Fannie and Freddie were for vacant and abandoned houses. Many borrowers have not made their payments for years, and some homeowners previously received a modification from another bank only to end up in financial trouble again.
Of the 30,000 loans Goldman bought, according to the monitor’s report, the bank had modified 7,800 mortgages and erased an average of $ 103,000 of debt owed to them. In some cases, according to the report, Goldman has obtained repeat credits for “multiple modifications to the same loan.”
But the bank has also foreclosed on more than 10,000 of the delinquent mortgages and has resold thousands of homes so far, at an average price of $ 170,000, according to Attom Data.
The bank said 27 percent of the loans had yet to be settled, so Goldman could still modify more mortgages or foreclose on more homes.
Distressed mortgage investors often face little opposition when taking homeowners to court, but some of the legal proceedings have not been easy for Goldman.
The court filings show that the bank has evicted dozens of tenants in New Jersey and New York who lived in the houses that Goldman acquired title to after a foreclosure. The bank resolved some of the disputes by offering tenants “cash for keys,” money to move to another location.
More recently, Goldman has had to delay some foreclosures due to moratoriums put in place in response to the coronavirus pandemic.
In Mr. Daly’s case, the time it takes to foreclose on a New Jersey home allowed him to scare off the bank. He got help from Renee Cadmus, an attorney for Legal Services of New Jersey, who noticed that Goldman had made a filing error and forced the bank to start over in 2018.
That bought Mr. Daly time, who used to apply to the state’s foreclosure relief fund. It was one of the last to receive money before the program ended in 2018, and the Goldman subsidiary dismissed the foreclosure action last summer.
Daly, who lives primarily on disability payments, said it was a grueling experience made more difficult by the death of his wife.
“It caused a lot of stress,” he said.