updated 9/1/2011 12:49:31 PM ET 2011-09-01T16:49:31

Goldman Sachs' mortgage subsidiary agreed Thursday to stop many of its controversial mortgage-related practices in a settlement with a New York state banking regulator.

The New York's Department of Financial Services and Banking Department said the settlement was a condition to Goldman Sachs Group Inc.'s sale of its Litton Loan Servicing subsidiary to a mortgage company Ocwen Financial Corp.

As part of the deal, the Goldman subsidiary said it will stop the practice of robo-signing mortgage paperwork. Robo-signing came to light last fall when it was revealed that the largest banks had outsourced mortgage paperwork to processing companies that, in turn, hired unqualified people to sign thousands of mortgage affidavits without reviewing loan documents. The practice is illegal. Many documents were also notarized them in a way that violates state law. The findings led to a temporary halt to most mortgage foreclosures in the fall of 2010.

Benjamin Lawsky, who took over as the Superintendent of the Department of Financial Services in May, was in charge of approving Goldman's $264 million deal in June to sell Litton to Ocwen.

Lawsky used his approval power to address shoddy mortgage practices at Litton. The agreement does not impact other large banks and mortgage companies.

Goldman, Litton and Ocwen also agreed to withdraw pending foreclosures if affidavits were robo-signed or inaccurate. The settlement requires the company to either return property that was wrongfully sold back to the original borrowers or provide compensation.

Under Thursday's settlement, Lawsky received a commitment from Goldman Sachs to help troubled homeowners by writing down $53 million in unpaid principal of home mortgages.

The deal also prevents Litton or Ocwen from adding late fees and other servicer fees that make it more difficult for delinquent borrowers to pay back what they owe.

The agreement doesn't preclude future investigations of past practices or release any future claims.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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