Goldman Sachs has spent more than $4.5 billion buying up bum mortgages over the past couple of years. It is not doing so because it wants to, but because it has to: Under the terms of its mortgage settlement last year, it must provide $1.8 billion in relief to consumers. But Goldman doesn’t write any mortgages, and so it has to provide that relief to other people’s consumers by buying their mortgages.

This is all a very long way of saying that Goldman’s got a sizeable delinquent mortgage portfolio right now, and those are the kinds of things that the Fed looks at in a stress test, because if the shit really hits the fan, first-lien mortgages are likely to be a pretty significant money-losing proposition for the banks that hold them. For the most part, the banks did pretty well: BofA, HSBC, Morgan Stanley and Wells Fargo are all in line to suffer losses of less than 2% in a “severely adverse scenario.” Others are a bit more exposed: The House of Corbat might get dinged for 2.5%; BBVA, BMO, Fifth Third and KeyCorp a looking at 3%. That realest of real banks, M&T, would be looking at losses in excess of 4%, but you’d expect that from a bank that just does bank-y things like writing mortgages without any of the frou-frou trading nonsense.

And then there’s Goldman Sachs: The Fed says Goldman’s brand-new garbage mortgage-book losses would be 52.3%. 52.3%! Almost 24 times the median loss rate! That’s some real Old Testament suffering visited upon God’s anointed financiers.

Or is it?

Goldman released its own projections Friday of how it would fare in a downturn scenario. It’s projected losses on first-lien U.S. mortgages: 0%.

Neither Goldman or the Fed explained how it came up with its figure….

Goldman says its own estimates exclude loans that it accounts for using the “fair-value” method, which reflects the price they would fetch in the market.

Since Goldman bought many of these loans at steep discounts at government auctions, it’s possible the bank could sell them at a profit but at a price below the bond’s original face value.

Goldman’s Mortgage-Buying Binge Did Not Go Unnoticed by the Fed [WSJ]