After months of back-and-forth, the US Justice Department and JPMorgan Chase (JPM) have agreed to a $13 billion settlement. The historic deal concludes several of lawsuits and probes over failed mortgage bonds that were issued prior to the economic crisis. It also is the largest combination of damages and fines to be obtained by the federal government in a civil case with just one company. JPMorgan had initially wanted to pay just $3 billion.
The $13 billion deal is the largest crackdown this government had made against Wall Street over questionable mortgage practices. US Attorney General H. Eric Holder and other lead DOJ officials were involved in the settlement talks with JPMorgan CEO Jamie Dimon and other senior officials.
The settlement is over billions of dollars in residential mortgage backed securities involving not just the firm but also its Washington Mutual (WAMUQ) and Bear Stearns (BSC) outfits. The government claims that the RMBS were based on mortgages that were not as solid as what they were advertised to be.
As part of the agreement, JPMorgan acknowledged a statement of facts that delineated its wrongdoing and retracted its demand that prosecutors stop a related criminal probe directed at the bank. Also, the firm for the most part forfeited getting back some of the settlement from the Federal Deposit Insurance Corporation.
Of the $13 billion, $9 billion will pay state and federal civil lawsuit claims over residential mortgage-backed securities including:
• $2 million as a civil penalty to the DOJ
• $1.4 billion to resolve the National Credit Union Administration’s state and federal claims
• $4 billion for Federal Housing Finance Agency claims
• $515 million over Federal Deposit Insurance Corp. claims
• Almost $20 million resolves Delaware claims
• Almost $300 million is for California claims
• Almost $614 million resolves NY state claims
• $100 million is for Illinois claims
• $34 million settles claims made by Massachusetts
The rest of the settlement in the amount of $4 billion will be in the form of programs to help homeowners that suffered harm. JPMorgan says it would pay up to $1.7 billion to write down principal amounts of loans it held in which the borrower owes a sum greater than the value of the property.
Meantime, $300 million to $500 million will go to forbearance, which involves the restructuring of certain mortgages to lower monthly payments. The final $2 billion will go to a number of measures, including absorbing whatever principal is still owed on properties that haven’t foreclosed but were already vacated, as well as to new mortgage originators for certain income borrowers. JPMorgan might even use some of this money to pay for anti-blight work in beleaguered neighborhoods.
The Resolution Law Group represents institutional investors and high net worth individual investors wishing to recoup their RMBS fraud losses. Contact our securities lawyers today.