Prior to the 2008 when Wall Street was laying on big bets on the housing market, mortgage servicing was the equivalent of blackjack; the odds for a player who knew the rules were very good and having a company that collected monthly mortgage payments from homeowners provided a reliable revenue stream. Even better were the companies that operated in the sub-prime space — “default servicers” — because if you couldn’t shake the shekels out of the homeowners pocket, you could always seize the property in foreclosure and make back your nut and then some. In the colorful vernacular of the industry these mortgage loans are referred to as “S&D” (scratch and dent).
Now Goldman Sachs isn’t the place you’d think would want to make paltry and piddling sums off the backs of individual homeowners, but, then again, recent history has proven this notion incorrect. Goldman, for most observers, is a company that operates in hedge fund heaven, a financial stratosphere full of qualified investors and high rollers with lots of coin to spread around. But when it comes to trolling for revenue Goldman will bait its hooks for anything that might prove profitable, and back in 2007 the Wall Street giant had its eye on a relatively small Houston based company by the name of Litton Loan Servicing run by a father and son team, Larry Litton Sr. and Larry “Blake” Litton Jr. The company had a portfolio of “non-performing” sub-prime loans which they attempted to turn around by pursuing a variety of options including loan modifications. Whatever Goldman wants Goldman gets and in late 2007 the financial giant muscled out the competition to acquire Litton at auction. However, according to Suzanne Kapner, writing for the Financial Times in a March 16th 2011 article, Goldman’s interest wasn’t simply distressed mortgages. The ever cagey financial giant “also wanted to use the data that Litton collects from delinquent borrowers to help it make bets on the housing market, said people familiar with the strategy.”