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WASHINGTON, D.C. — (Mealey’s) In what it is calling the largest settlement with a single entity in American history, the U.S. Department of Justice announced in a press release on Nov. 19 that it has reached a $13 billion settlement with JPMorgan to settle state and federal civil claims that JPMorgan misrepresented the investment quality of residential mortgage-backed securities (RMBS) that it packaged, marketed, sold and issued to the investing public.
Under the terms of the settlement, JPMorgan will acknowledge that “it made serious misrepresentations to the public — including the investing public — about numerous RMBS transactions.”
“The resolution also requires JPMorgan to provide much needed relief to underwater homeowners and potential homebuyers, including those in distressed areas of the country. The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges,” according to the press release.
In particular, JPMorgan acknowledges that it regularly misrepresented to investors that “the mortgage loans in various securities complied with underwriting guidelines. Contrary to those representations, as the statement of facts explains, on a number of different occasions, JPMorgan employees knew that the loans in question did not comply with those guidelines and were not otherwise appropriate for securitization, but they allowed the loans to be securitized — and those securities to be sold — without disclosing this information to investors.”
“This conduct, along with similar conduct by other banks that bundled toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis,” according to the press release.
“Of the record-breaking $13 billion resolution, $9 billion will be paid to settle federal and state civil claims by various entities related to RMBS. Of that $9 billion, JPMorgan will pay $2 billion as a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), $1.4 billion to settle federal and state securities claims by the National Credit Union Administration (NCUA), $515.4 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), $4 billion to settle federal and state claims by the Federal Housing Finance Agency (FHFA), $298.9 million to settle claims by the State of California, $19.7 million to settle claims by the State of Delaware, $100 million to settle claims by the State of Illinois, $34.4 million to settle claims by the Commonwealth of Massachusetts, and $613.8 million to settle claims by the State of New York.
“JPMorgan will pay out the remaining $4 billion in the form of relief to aid consumers harmed by the unlawful conduct of JPMorgan, Bear Stearns and Washington Mutual. That relief will take various forms, including principal forgiveness, loan modification, targeted originations and efforts to reduce blight. An independent monitor will be appointed to determine whether JPMorgan is satisfying its obligations. If JPMorgan fails to live up to its agreement by Dec. 31, 2017, it must pay liquidated damages in the amount of the shortfall to NeighborWorks America, a non-profit organization and leader in providing affordable housing and facilitating community development.”
Moreover, under the terms of the settlement agreement, “only civil claims arising out of the RMBS packaged, markets, sold and issued by JPMorgan, Bear Stearns and Washington Mutual” are resolved.
“The agreement does not release individuals from civil charges, nor does it release JPMorgan or any individuals from potential criminal prosecution. In addition, as part of the settlement, JPMorgan has pledged to fully cooperate in investigation related to the conduct covered by the agreement.”
The Justice Department’s press release is available online at http://www.justice.gov/opa/pr/2013/November/13-ag-1237.html.
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