Goldman Sachs Group Inc agreed to pay up to $60 million to settle a Massachusetts probe into whether its subprime mortgage securitization business had encouraged unfair loans, state officials said on Monday.

Goldman did not write mortgages but contributed to demand for the riskiest home loans by securitizing them -- buying mortgages, packaging them and reselling them, Attorney General Martha Coakley told reporters. This is the first such settlement with a subprime mortgage securitizer, she said.

There is no dispute that Goldman Sachs and other securitizers have been involved intricately in this whole process by which loans were made to homeowners who were destined to fail, Coakley said. Many of these loans were unfair; they were destined to fail.

Goldman will work on renegotiating the terms of existing subprime mortgages with Massachusetts homeowners who are having trouble making payments -- and whose home values have fallen below their loan amounts -- but who have not yet suffered foreclosure.

It will make up to $50 million in concessions to homeowners and pay another $10 million to the state, Coakley said. No lawsuit was filed as part of the inquiry.

Goldman spokesman Michael DuVally said the company was pleased to have settled the matter.

REVISING MORTGAGE TERMS

Subprime mortgages -- loans to homebuyers with poor credit -- played a major role in the creation of the U.S. housing bubble earlier this decade. The deflation of that bubble was a major contributor to the global recession.

Reworking the terms of securitized mortgages -- which have been resold to other investors -- has been a major sticking point for government officials looking to prevent foreclosure for homeowners.

Although people think loans should be modified, actually accomplishing it has been difficult, Coakley said.

Rising unemployment and falling home values mean that many Americans are finding themselves unable to make their regular mortgage payments, and are also unable to refinance because their homes are now worth less than they owe on their loans.

Goldman has agreed to reduce the principal due on first mortgages by up to 35 percent and on second mortgages by 50 percent or more, Coakley said.

Wall Street firms generated enormous profits during the boom years, but lawmakers and other critics have argued their pressure on mortgage brokers to generate loans needed to feed their securitization business helped lower standards and pumped up the bubble.

Goldman has long insisted it was a minor player in the mortgage-backed business, relative to rivals like Bear Stearns and Lehman Brothers.

Industry league tables showed it climbed as high as No. 7 in issuing subprime mortgage-backed securities and was sixth in underwriting in 2006, but quickly fell out of the top 10 by the following year.

Coakley acknowledged that the $60 million in payments is a small amount for Wall Street giant Goldman, which last year earned $2.3 billion -- even in the midst of the worst financial crisis the world has seen in decades. But it is a meaningful move for the more than 700 Massachusetts residents who could keep their homes as a result of the agreement, she said.

For Goldman Sachs, the amount of money is probably negligible, Coakley said. For those in Massachusetts, it's a huge boost.

(Reporting by Scott Malone; Additional reporting by Joseph Giannone; Editing by Gerald E. McCormick and Tim Dobbyn)

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