NEW YORK (Reuters) - Goldman Sachs Group Inc has agreed to settle a class-action lawsuit with investors who claimed losses on $698 million of securities backed by risky mortgage loans issued by defunct subprime lender New Century Financial Corp.
Lawyers for the investors said in a letter filed in U.S. District Court in Manhattan on Tuesday that a proposed settlement had been reached. Terms were not immediately disclosed, though they are expected to be included in court papers filed by July 31.
Goldman is one of many banks accused by U.S. legislators and regulators of fueling the nation's housing and financial crisis by misleading investors about the quality of mortgage debt they sold.
A federal judge in February ordered Goldman to face the class-action lawsuit that accuses it of defrauding investors in GSAMP Trust 2006-S2, a $698 million offering of certificates backed by second-lien home loans.
The loans were made by New Century, a subprime mortgage specialist that went bankrupt in 2007.
The investors, led by the Public Employees' Retirement System of Mississippi, contend the offering documents contained materially untrue statements about the underwriting and appraisal standards used by California-based New Century, the mortgage originator. Goldman securitized and issued the certificates.
David Wales, a lawyer for the investors, declined comment. Tiffany Galvin, a spokeswoman for Goldman Sachs, also declined to comment.
The proposed settlement requires approval by Harold Baer, the U.S. district judge who authorized the class-action lawsuit. The lawsuit allowed all investors who said they lost money in the 2006 offering to be represented together rather than seek damages on their own. Goldman was appealing that decision at the time of Tuesday's letter from the investors' lawyers.
Several other banks have faced similar claims by investors burned by their investments in mortgage-backed securities.
Settlements to date include a $315 million accord in a lawsuit against Merrill Lynch, now owned by Bank of America Corp. , and a $125 million deal in a case against Wells Fargo & Co .
The case is Public Employees' Retirement System of Mississippi v. Goldman Sachs Group Inc et al, U.S. District Court, Southern District of New York, No. 09-01110.
Reporting By Nate Raymond; Editing by Martha Graybow, Editing by Andrew Hay