Goldman Sachs 2012 Annual Report Download - page 179

Notes to Consolidated Financial Statements
‰Foreclosure and Other Mortgage Loan Servicing
Practices and Procedures. The firm had received a
number of requests for information from regulators and
other agencies, including state attorneys general and
banking regulators, as part of an industry-wide focus on
the practices of lenders and servicers in connection with
foreclosure proceedings and other aspects of mortgage
loan servicing practices and procedures. The requests
sought information about the foreclosure and servicing
protocols and activities of Litton, a residential mortgage
servicing subsidiary sold by the firm to Ocwen Financial
Corporation (Ocwen) in the third quarter of 2011. The
firm is cooperating with the requests and these inquiries
may result in the imposition of fines or other regulatory
action. In the third quarter of 2010, prior to the firm’s
sale of Litton, Litton had temporarily suspended evictions
and foreclosure and real estate owned sales in a number
of states, including those with judicial foreclosure
procedures. Litton resumed these activities beginning in
the fourth quarter of 2010.
In connection with the sale of Litton, the firm provided
customary representations and warranties, and
indemnities for breaches of these representations and
warranties, to Ocwen. These indemnities are subject to
various limitations, and are capped at approximately
$50 million. The firm has not yet received any claims
relating to these indemnities. The firm also agreed to
provide specific indemnities to Ocwen related to claims
made by third parties with respect to servicing activities
during the period that Litton was owned by the firm and
which are in excess of the related reserves accrued for
such matters by Litton at the time of the sale. These
indemnities are capped at approximately $125 million.
The firm has recorded a reserve for the portion of these
potential losses that it believes is probable and can be
reasonably estimated. As of December 2012, the firm had
not received material claims with respect to these
indemnities and had not made material payments in
connection with these claims.
The firm further agreed to provide indemnities to Ocwen
not subject to a cap, which primarily relate to potential
liabilities constituting fines or civil monetary penalties
which could be imposed in settlements with certain terms
with U.S. states’ attorneys general or in consent orders
with certain terms with the Federal Reserve, the Office of
Thrift Supervision, the Office of the Comptroller of the
Currency, the FDIC or the New York State Department
of Financial Services, in each case relating to Litton’s
foreclosure and servicing practices while it was owned by
the firm. The firm has entered into a settlement in
principle with the Board of Governors of the Federal
Reserve System (Federal Reserve Board) relating to
foreclosure and servicing matters as described below.
Under the Litton sale agreement the firm also retained
liabilities associated with claims related to Litton’s failure
to maintain lender-placed mortgage insurance,
obligations to repurchase certain loans from government-
sponsored enterprises, subpoenas from one of Litton’s
regulators, and fines or civil penalties imposed by the
Federal Reserve or the New York State Department of
Financial Services in connection with certain compliance
matters. Management is unable to develop an estimate of
the maximum potential amount of future payments under
these indemnities because the firm has received no claims
under these indemnities other than an immaterial amount
with respect to government-sponsored enterprises.
However, management does not believe, based on
currently available information, that any payments under
these indemnities will have a material adverse effect on
the firm’s financial condition.
On September 1, 2011, Group Inc. and GS Bank USA
entered into a Consent Order (the Order) with the Federal
Reserve Board relating to the servicing of residential
mortgage loans. The terms of the Order were
substantially similar and, in many respects, identical to
the orders entered into with the Federal Reserve Board by
other large U.S. financial institutions. The Order set forth
various allegations of improper conduct in servicing by
Litton, requires that Group Inc. and GS Bank USA cease
and desist such conduct, and required that Group Inc. and
GS Bank USA, and their boards of directors, take various
affirmative steps. The Order required (i) Group Inc. and
GS Bank USA to engage a third-party consultant to
conduct a review of certain foreclosure actions or
proceedings that occurred or were pending between
January 1, 2009 and December 31, 2010; (ii) the
adoption of policies and procedures related to
management of third parties used to outsource residential
mortgage servicing, loss mitigation or foreclosure; (iii) a
“validation report” from an independent third-party
consultant regarding compliance with the Order for the
first year; and (iv) submission of quarterly progress
reports as to compliance with the Order by the boards of
directors (or committees thereof) of Group Inc. and
GS Bank USA.
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