About 700 Massachusetts homeowners will see the principal on their subprime loans slashed and thousands of others will get help refinancing under the terms of settlement between the state attorney general and Goldman Sachs & Co.

Massachusetts Attorney General Martha Coakley launched an investigation into the origination and securitization of subprime loans in December 2007.

The investigation is aimed at discovering whether companies that bundled mortgages into securities for sale to Wall Street investors failed to determine whether the loans complied with loan originators’ stated underwriting guidelines, and whether investors had access to information about allegedly unfair or problem loans.

The attorney general’s office has also sued Fremont Investment & Loan and Option One alleging unfair, deceptive and predatory lending practices, and obtained preliminary injunctions against those companies.

To resolve any potential claims stemming from the attorney general’s investigation, Goldman has agreed to provide an estimated $50 million to restructure loans in order to help borrowers refinance or sell their homes, and pay an additional $10 million to the state.

For homeowners with loans held by Goldman entities, Goldman has agreed to reduce the principal of first mortgages by up to 35 percent, and second mortgages by 50 percent or more. The loan restructuring program is designed to enable borrowers to replace problem loans with more affordable loans that take into account the current value of their properties.

Borrowers whose first mortgage is significantly delinquent will be required to make a "reasonable" monthly loan payment while seeking refinancing or until they sell their home, the attorney general’s office said in a press release.

For loans not held by Goldman but serviced by its affiliated servicing company, Litton Loan Servicing LP, Goldman has agreed to help qualified borrowers find refinancing options and other alternatives to foreclosure.


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