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Goldman Sachs Settles Toxic RMBS Claims

moneyInvestment banking firm Goldman Sachs announced Thursday afternoon that it has agreed to settle federal and state investigations probes concerning the alleged sale of toxic residential mortgage-backed securities (RMBS) in the time period leading up to the financial crisis.

In a press release on the firm's site, Goldman Sachs stated that it has come to an agreement in principle to resolve the investigation of the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force (RMBS Working Group).

According to the firm, the agreement in principle will resolve real claims and any allegations by the U.S. Department of Justice, the New York and Illinois Attorneys General, the National Credit Union Administration (NCUA), and the Federal Home Loan Banks of Chicago and Seattle, relating to the firm’s securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007.

"We are pleased to have reached an agreement in principle to resolve these matters," said Lloyd C. Blankfein, Chairman and CEO of Goldman Sachs

The firm said it will pay a total of $5.6 billion to end the investigation as part of the principle agreement. Additional terms include a $2.385 billion civil monetary penalty, $875 million in cash payments, and $1.8 billion in consumer relief.

Goldman Sachs stated that the consumer relief will be awarded in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, and land banks.

As a result, the principle agreement will lower Goldman's earnings for the fourth quarter of 2015 by approximately $1.5 billion on an after-tax basis.

Goldman Sachs has been involved in a number of RMBS settlements, and it is the latest of a group of banks to reach a settlement for RMBS matters. Other banks that have settled include JPMorgan Chase, Citigroup, Bank of America, and Morgan Stanley.

One of the firm's most notable cases occurred in August 2014, where Goldman Sachs agreed to pay $3.15 billion to settle a lawsuit filed by the Federal Housing Finance Agency (FHFA) alleging that Goldman Sachs sold faulty residential mortgage-backed securities (RMBS) to GSEs Fannie Mae and Freddie Mac, for which FHFA is conservator.

National Association of Federal Credit Unions (NAFCU) EVP of Government Affairs and General Counsel Carrie Hunt showed appreciation to the NCUA for filing claims against Goldman Sachs. “NAFCU appreciates the NCUA’s ongoing actions in seeking recoveries relative to faulty mortgage-backed securities,” Hunt stated. "We hope the monies ultimately recouped are significant enough to have a positive impact on consumers and our members."

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