Fed Investigates Allegations Against Goldman Sachs’ Litton Unit

The Federal Reserve Bank of New York is looking into allegations that a Goldman Sachs Group Inc. (GS) unit improperly denied mortgage borrowers the chance to lower payments through a government program.

The Financial Times reported late yesterday on its website that it received a letter from an anonymous employee of the unit, Litton Loan Servicing LP, with the allegations.

“We are in possession of the letter and are conducting an inquiry,” Jack Gutt, a spokesman for the New York Fed, said in an e-mail to Bloomberg News yesterday without elaborating.

Goldman Sachs, the fifth-biggest U.S. bank by assets, said in March it’s trying to sell Houston-based Litton after acquiring it more than three years ago. The unit is cooperating with investigations by the attorneys general from 50 states of the mortgage industry’s foreclosure practices, which began after they discovered some firms used faulty or falsified paperwork to seize homes.

Michael Duvally, a spokesman for Goldman Sachs in New York, declined to comment.

The unidentified person familiar with Litton said some loan modifications were denied because Litton employees made mistakes in calculating the borrower’s income or on the grounds that documents were missing, even if the computer system showed the appropriate paperwork was received, the Financial Times reported.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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