Litton gave Goldman the needed cues that it was time to get out of the loan modification business and into pushing for foreclosures before a moratorium on mortgages took place in 2009. Those wily Goldmanites, of course, ignored the usual conflicts of interest found in their work with Navigant Consulting which was hired to audit Goldman's foreclosure procedures.
The full sordid story of how Goldman disentangled itself from its fraudulent practices with Litton is told in a Huffington Post article by writer Joel Sucher:
Goldman Sachs and Litton Loan Servicing: A Very Uncomfortable Divorce
By Joel Sucher - Huffington Post
Prior to the 2008 when Wall Street was laying on big bets on the housing market, mortgage servicing was the equivalent of blackjack; the odds for a player who knew the rules were very good and having a company that collected monthly mortgage payments from homeowners provided a reliable revenue stream. Even better were the companies that operated in the sub-prime space -- "default servicers" -- because if you couldn't shake the shekels out of the homeowners pocket, you could always seize the property in foreclosure and make back your nut and then some. In the colorful vernacular of the industry these mortgage loans are referred to as "S&D" (scratch and dent).
Now Goldman Sachs isn't the place you'd think would want to make paltry and piddling sums off the backs of individual homeowners, but, then again, recent history has proven this notion incorrect. Goldman, for most observers, is a company that operates in hedge fund heaven, a financial stratosphere full of qualified investors and high rollers with lots of coin to spread around. But when it comes to trolling for revenue Goldman will bait its hooks for anything that might prove profitable, and back in 2007 the Wall Street giant had its eye on a relatively small Houston based company by the name of Litton Loan Servicing run by a father and son team, Larry Litton Sr. and Larry "Blake" Litton Jr. The company had a portfolio of "non-performing" sub-prime loans which they attempted to turn around by pursuing a variety of options including loan modifications. Whatever Goldman wants Goldman gets and in late 2007 the financial giant muscled out the competition to acquire Litton at auction. However, according to Suzanne Kapner, writing for the Financial Times in a March 16th 2011 article, Goldman's interest wasn't simply distressed mortgages. The ever cagey financial giant "also wanted to use the data that Litton collects from delinquent borrowers to help it make bets on the housing market, said people familiar with the strategy."
When the casino melted down in the summer of 2008 all bets were off and you didn't need Mata Hari to tell you that the housing market was taking a nose dive. According to ex-Litton executive, Chris Wyatt, Goldman quickly sent down word to abandon loan modifications altogether and push homeowners into foreclosure before a moratorium negotiated with several major banks was to go into effect in early 2009. This was followed by the Obama administration's much touted but weak-kneed attempt to help struggling homeowners through the Home Affordable Mortgage Program ("HAMP"), which Litton signed on to after its introduction in 2009. According to Wyatt, HAMP opened up a floodgate with thousands of homeowners swamping the staff at Litton with a tsunami of loan mod requests. In response Goldman's micro-managers sent down some commandments: deny, deny and deny. For Wyatt, whose job put him in direct contact with homeowners seeking modifications, Goldman was trying to get what it could out of foreclosures without having to be bothered by the muss and fuss of labor intensive and less profitable loan mods. An anonymous letter sent to the NY Fed and obtained by Suzanne Kapner summed up the scheme. In a May 25th, 2011 article for the Financial Times she writes that "loans were denied without the proper review under a 'denial sweep' strategy devised to clear a backlog of applications."
Read the entire article here