Lending The Ticker

Here's why Goldman Sachs is snatching up delinquent mortgages

Bank dominates Fannie Mae non-performing loan sales

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Goldman Sachs’ purchase of a portfolio of non-performing loans from Fannie Mae earlier this week marked only the latest in a long string of purchases of severely delinquent home loans from the government-sponsored enterprise, according to an article in The Wall Street Journal by Liz Hoffman and Serena Ng.

Over the past year and a half, the article stated, Goldman Sachs acquired nearly two-thirds of $9.6 billion in loans Fannie Mae auctioned off.

While Goldman Sachs didn’t take the all the loan pools from Fannie Mae in the most recent sale, it did purchase three of the four non-performing loan pools, with a total of $1.43 billion in unpaid principal balance.

The purchases are completed by MTGLQ Investors, a "significant subsidiary" of Goldman Sachs.

Given its commitment to buying delinquent loans, MTGLQ Investors has cropped up in a lot of NPL sales from both Fannie Mae and Freddie Mac.

Last year, MTGLQ Investors bought billion-dollar pools of NPLs from Fannie and Freddie in several different sales.

 The Wall Street Journal explains why:

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.”

However, the article explained that Goldman Sachs’ problem is that is wasn’t a big originator of home loans, and it sold its mortgage-servicer in 2011. It didn’t have any mortgages to give loan modifications to borrowers to count as its consumer relief.

From the article:

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.

Eric Green, who serves as independent monitor of the Goldman Sachs settlement, gave a progress report on the consumer relief obligations under the $5 billion settlement back in February.

Green, at the time, noted that Goldman Sachs is “off to a good start.”

Green’s report showed that Goldman Sachs earned credit for $107,924,047 in consumer relief through the forgiveness of unsecured debt and other debt, more junior than second liens, in connection with 4,988 loans.

All total, adding in the “test sample” of 100 loan modifications considered in the Green’s initial report, Goldman Sachs received conditional approval for $113,698,926 worth of credit, Green’s office said.

Goldman Sachs reportedly won’t stop buying loans after it completes its consumer relief obligations.

From The Wall Street Journal:

The bank’s immediate goal is to get credit for the settlement, though the longer-term goal is to make money over time, the people said. That can happen by the firm collecting mortgage payments if it gets borrowers back on track, or by selling the loans once the borrowers are up-to-date again.

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