Goldman said the agreement will cut its fourth-quarter earnings by $US1.5bn on an after-tax basis.
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Goldman will pay a $2.385 billion civil monetary penalty and a $875 million cash payment.
According to a release from Goldman Sachs, the consumer relief will be in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks.
Rumors of a massive settlement between Goldman Sachs and the federal government over faulty mortgage bonds first began circulating in June 2015.
Generally speaking, many such loans proved to be riskier than advertised to buyers, and ultimately helped spark the 2008 financial crisis.
The U.S. Department of Justice and state officials have already extracted multi-billion dollar settlements from a number of large U.S. banks including JP Morgan (JPM.N), Bank of America (BAC.N) and Citigroup (C.N) over the sale of mortgage-backed securities.
Today’s agreement-officially reached with RMBS Working Group, a division of the US Financial Fraud Enforcement Task Force-will settle any existing or potential civil lawsuits regarding Goldman Sachs’ involvement in the RMBS market during the time in question.
The agreement still needs to be finalized, but if it is, it would be the latest in a series of eye-popping settlements between the government and big banks. JPMorgan Chase agreed to a record $13 billion settlement in 2013 for its role in underwriting and selling such securities. The firm earned $1.33 billion in its third quarter.
Goldman joins other banks that have paid massive settlements around similar claims.
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A spokesman from the Department of Justice declined to comment on Goldman’s announcement.
