A labor union is calling for an inquiry into Goldman Sachs Group Inc.'s role in the subprime mortgage crisis.
Workers United, which represents 150,000 workers in the U.S. and Canada, sent letters this week to 10 state attorneys general urging officials to follow the example of Massachusetts Attorney General Martha Coakley. In May, Goldman Sachs agreed to a $60 million settlement to end an investigation by Coakley's office into how the New York financial company packaged securities containing home loans made to Massachusetts residents.
Workers United said its analysis of $23.2 billion Goldman Sachs mortgage bonds offered between August 2005 and February 2007 concluded that residents of the 10 states had 61% of the mortgages in Goldman Sachs' securities.
"It is clear from its response in Massachusetts that Goldman is prepared to respond to pressure from Attorneys General like yourself, which can translate to millions of dollars for hundreds of troubled homeowners," Bruce Raynor, Workers United's president, wrote in a letter to New York Attorney General Andrew Cuomo, which was obtained by Bloomberg News. "The people of New York deserve the same level of compensation for problem loans and access to affordable refinancing."
Goldman Sachs spokesman Michael DuVally said by e-mail that "we strongly take issue with the assertions the union makes. For example, Goldman Sachs was never one of the larger issuers of subprime securities."
During 2006, when the housing bubble started to burst, Goldman Sachs was the 13th-largest issuer and sixth-largest underwriter of securities backed by subprime or second mortgages, according to the newsletter Inside MBS & ABS. It was the seventh-largest issuer and sixth-largest underwriter of bonds backed by alternative-A loans, which are a step higher in credit quality. Issuers acquired and packaged the loans into securities, while underwriters sold the bonds that were created, including those created by others, to investors.
In addition to New York and California, Raynor sent letters to the attorneys general in Arizona, Florida, Georgia, Illinois, Maryland, New Jersey, Texas and Virginia, the union said.
In the settlement with Massachusetts, Goldman Sachs agreed to provide loan restructuring worth $50 million to homeowners in Massachusetts and made a $10 million payment to the state.
At the time of the announcement, Goldman Sachs directly held 714 Massachusetts mortgages, Coakley said.
For the "thousands" of Massachusetts homeowners whose mortgages were being serviced by Goldman Sachs' Litton Loan Servicing LP division, Goldman agreed to help refinance or modify the terms of qualified loans, Coakley said. For homeowners with mortgages held by Goldman Sachs entities, the bank agreed to reduce the principal of first mortgages by 25% to 30% and second mortgages by 50% or more, she said.
Investigations by state attorneys general could put pressure on banks to do more to modify mortgages, said Frank Pallotta, an executive vice president at Loan Value Group LLC, a Rumson, N.J., company that works with servicers and residential-mortgage holders.
"I'm not saying the AG of any state should force Goldman or anyone else to make more modifications, but there should be more modifications getting done," said Pallotta, who worked in Goldman Sachs' mortgage division through 1995 and at Morgan Stanley through last year. "As a result of any attorney general inquiry, what's going to happen is it moves up much higher in the pecking order as something they have to address."
