Photo: flickr commons
Reuters is reporting that a federal judge has ordered Goldman Sachs to face a class-action lawsuit.The suit accuses the New York-based bank of misleading investors in 2006 when it sold mortgage backed securities tied to risky second-lien mortgages. The mortgages were originated by New Century Financial, a firm that was heavily involved in subprime lending and collapsed in 2007.
Per Reuters, the allegations cut to the heart of the process through which mortgage-linked securities were created and sold to investors throughout the credit bubble:
“Plaintiffs in the lawsuit said New Century ignored its own underwriting standards and used improper appraisals when making the loans, and Goldman failed to conduct adequate due diligence when it bought the loans and packaged them into securities.”