JPMorgan to pay US$5.1 bil. over deception
By Marcy Gordon, APWASHINGTON--JPMorgan Chase has agreed to pay US$5.1 billion to resolve claims that it misled U.S. mortgage giants Fannie Mae and Freddie Mac about risky home loans and mortgage securities it sold them before the housing market collapsed.
October 27, 2013, 12:01 am TWN
The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the settlement Friday with JPMorgan, the largest U.S. bank. A broader deal with the Justice Department is still being negotiated.
Under the terms of the settlement, JPMorgan admits no wrongdoing.
The settlement is the start of what could be the largest penalty the government has extracted from a company for actions related to the financial crisis. The crisis, triggered by vast sales of risky mortgage securities, plunged the economy into the deepest recession since the Great Depression.
JPMorgan sold US$33 billion in mortgage securities to Fannie and Freddie between 2005 and 2007, according to the agency. That was the second-most sold to Fannie and Freddie ahead of the crisis, behind only Bank of America. The securities soured after the housing bubble burst in 2007, losing billions in value.
In a statement, JPMorgan called the agreement “an important step towards a broader resolution of the firm's” mortgage-related matters.
Edward DeMarco, the FHFA's acting director, said the settlement with JPMorgan “provides greater certainty in the marketplace.”
The deal is expected to be followed by a broader agreement with the Justice Department and New York state authorities that's still being negotiated. Last weekend, JPMorgan reached a tentative agreement with Justice to pay US$13 billion over bad loans and mortgage securities the bank sold before the crisis.
The US$13 billion tentative deal included US$4 billion to resolve the FHFA claims. Even reduced by that amount, it would be the largest penalty the government has extracted from a company for actions related to the financial crisis. It's unclear when the broader agreement will be finalized.
New York Attorney General Eric Schneiderman applauded the FHFA's settlement. “Five years after the financial crisis, it is critical that we continue to share resources to maximize the relief provided to struggling homeowners and ensure accountability for those who created the crisis in the first place,” he said in a statement.
The FHFA sued 18 financial institutions in September 2011 over their sales of mortgage securities to Fannie and Freddie. The total price for the securities sold was US$196 billion.
The government rescued Fannie and Freddie during the financial crisis when both were on the verge of collapse. The companies received taxpayer aid totaling US$187 billion. They have since become profitable and repaid US$146 billion.
New York-based JPMorgan will pay about US$2.74 billion to Freddie and US$1.26 billion to Fannie for the securities it sold. JPMorgan is also paying US$1.1 billion for home loans it sold to Fannie and Freddie ahead of the crisis.