JPMorgan agrees to record $13-B deal for mortgage misdeeds

NEW YORK CITY, United States – JPMorgan Chase has agreed to a record $13 billion settlement over mislabeled mortgage securities that federal and state authorities said stoked the financial crisis, the Department of Justice announced Tuesday.

The bank “acknowledged it made serious misrepresentations to the public – including the investing public” over the quality of residential mortgage-backed securities (RMBS) it sold ahead of the financial crisis, the department said in a statement.

The deal includes $9 billion in payments to authorities and $4 billion in relief to consumers – mainly homeowners – harmed by the conduct of JPMorgan and the two failed banks it took over during the crisis, Bear Stearns and Washington Mutual.

The agreement resolves a major part of a series of complaints against the largest US bank over mortgage securities that investors incurred huge losses on.

It came after months of tough talks between regulators, justice authorities and the bank. At one point at the end of September, when the Justice Department reportedly was hours away from suing the bank, chief executive Jamie Dimon met in Washington with Attorney General Eric Holder to keep the deal discussions going.

The agreement announced Tuesday clears most of the civil allegations over mortgage securities against the banks.

However, the Justice Department said, the deal still does not absolve the bank or its employees from possible criminal charges.

“Through this $13 billion resolution, we are demanding accountability and requiring remediation from those who helped create a financial storm that devastated millions of Americans,” Associate Attorney General Tony West said in a statement.

New York Attorney General Eric Schneiderman, who co-led a task force investigating JPMorgan and other banks over losses the federal government and states incurred on mortgage securities, called the settlement a “historic deal which will bring long-overdue relief to homeowners around the country and across New York.”

“We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten,” he said.

“And as a result we’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”

The complex deal includes claims and penalties to be paid to the Justice Department, the National Credit Union Administration, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency (FHFA), and the states of California, Delaware, Illinois, Massachusetts, and New York.

The $4 billion for consumer relief requires the bank to forgive some principal on many customers’ loans and modify others to improve conditions for borrowers.

The bank also must make special efforts to lend in certain target areas and make efforts to help blighted neighborhoods.

If it fails to follow through adequately in the latter requirements, the agreement says, it will have to pay damages to the non-profit group NeighborWorks America, which supports affordable housing.

“Abuses in the mortgage-backed securities industry helped turn a crisis in the housing market into an international financial crisis,” said Benjamin Wagner, US attorney for the Eastern District of California.

“The impacts were staggering. JPMorgan sold securities knowing that many of the loans backing those certificates were toxic. Credit unions, banks and other investor victims across the country, including many in the Eastern District of California, continue to struggle with losses they suffered as a result.”

The settlement was the latest in a series of government actions over mortgage securities, which were the key fuel of the financial sector meltdown that, together with the collapse of the housing sector, plunged the economy into deep recession in 2008-2009.

In addition to the $4 billion for the FHFA in Tuesday’s deal, JPMorgan separately has to pay the agency, which oversees mortgage giants Fannie Mae and Freddie Mac, $1.1 billion for selling them poor-quality mortgages.

And last week JPMorgan reached a tentative deal to pay private-sector investors $4.5 billion for losses on mortgage securities.

With the broad details and numbers of the reported deal reported for some time, the settlement had no impact on the bank’s shares. JPMorgan was up 0.8% at $56.16 in late trade. – Rappler.com