As a condition of selling its mortgage servicing subsidiary, Goldman Sachs has entered an agreement that requires it to write down principal on New York mortgages. The agreement also calls for the subsidiary to stop using faulty foreclosure affidavits and compensate borrowers who have been harmed by the affidavits.
The agreement was reached between New York’s Department of Financial Services and Banking Department and Goldman Sachs Bank, The Goldman Sachs Group Inc.-subsidiary Litton Loan Servicing LP, and Ocwen Financial Corp., a news release Thursday indicated.
New York-based Goldman acquired Litton in 2007 from Credit-Based Asset Servicing and Securitization LLC.
In June, Ocwen disclosed that it would acquire Litton from Goldman in a $264 million all-cash transaction. The deal, expected to close by Nov. 1, will boost Ocwen’s $74 billion servicing portfolio by around $41 billion and make it the 12th largest U.S. servicer.
The agreement with New York is required as a condition of the Litton sale.
The three firms will adhere to new “mortgage servicing practices,” according to the state.
Among “troublesome and unlawful practices” expected to be prevented through the agreement is robo-signing, where foreclosure affidavits are “executed by servicer staff without personal review of the borrower’s loan documents and were not notarized in accordance with state law.”
Any pending foreclosures where the faulty affidavits were used will be withdrawn, based on the agreement.
Other provisions of the agreement include the use of a single point of contact, reasonable pricing on any forced-placed insurance and the prohibition of using affiliated insurers where forced-placed insurance is used.
In addition, any borrowers who faced a wrongful foreclosure will be adequately compensated, while the application of loan payments will be adjusted to avoid the layering of late fees and the uses of suspense accounts will be restricted.
Goldman has also agreed to write down around $53 million in principal, which works out to around 25 percent of all 60-day delinquent home loans in New York serviced by Litton and owned by Goldman as of Aug. 1.
“Ocwen and Litton are immediately taking steps to implement these servicing practices,” the statement said. “Goldman, which is exiting the mortgage servicing business with the sale of Litton, has agreed to adopt these servicing practices if it should ever reenter the servicing industry.”