Popular Inc. said Wednesday that it could incur "significant" additional losses on the sale of $1.2 billion of subprime mortgage assets to Goldman Sachs Group Inc., beyond the $450 million pretax loss it previously estimated.

Further losses would arise if the sale forces Popular to recognize a valuation allowance for its deferred-tax assets, the San Juan, Puerto Rico, company said in a Securities and Exchange Commission filing.

The estimated purchase price for the mortgage assets is $760 million, though the ultimate price may change once the deal closes in the fourth quarter, Popular said.

The company said it plans to set aside a liability reserve for "potential future claims" related to breaches of representations and warranties, general litigation, and compliance with obligations under pooling and servicing agreements.

Popular said in the filing that it has agreed to restrict $10 million in cash for a year to cover such obligations.

In addition, before the deal closes, Goldman has the right to exclude any loans with breaches of representations and warranties unless Popular can cure the loan's defects, the filing said.

For 30 days after the deal has closed, both companies are to cooperate on mitigating any problem loans, and if the issues cannot be resolved, Goldman can solicit a third-party bid to buy such loans, the filing said. Popular also has the right to either repurchase any problem loan at its original price or pay the difference between the third-party bid and the original purchase price.

Goldman is to begin servicing certain loans on Oct. 1, and loan securitizations now serviced by Popular Mortgage Servicing Inc. are to be transferred to Goldman's Litton Loan Servicing LP unit on Nov. 1, according to the SEC filing.

The deal was announced last week.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.