JPMorgan Chase has reached a $13 billion settlement with regulators – the largest settlement with a single entity ever.
The agreement resolves federal and state civil claims arising out of the packaging, marketing, sale, and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns, and Washington Mutual prior to January 1, 2009.
The settlement requires JPMorgan to pay $9 billion and provide $4 billion in consumer relief, including mortgage modifications for homeowners at risk of foreclosure.
New York State, for example, will receive more than $1 billion of the $13 billion settlement, including $613 million in cash and approximately $400 million in consumer relief. New York State Attorney General Eric Schneiderman said that, among other uses, the cash portion will be directed to provide additional legal services and housing counseling for those affected by Superstorm Sandy.
The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal working group formed in 2012 to share resources and continue investigating the mortgage-backed securities market prior to the financial crisis. Schneiderman co-chairs the RMBS working group.
“Since my first day in office, I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” said Schneiderman. “This historic deal, which will bring long-overdue relief to homeowners around the country and across New York, is exactly what our working group was created to do. We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten, and as a result we’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”
The settlement resolves a lawsuit filed by Schneiderman in October 2012 against J.P. Morgan Securities LLC (formerly known as Bear Stearns & Co. Inc.), JP Morgan Chase Bank, N.A., and EMC Mortgage LLC (formerly known as EMC Mortgage Corporation) alleging fraud under the New York State Martin Act in the packaging and sale of residential mortgage-backed securities by Bear Stearns. As part of the global settlement, JPMorgan acknowledges it made serious, material misrepresentations to the public – including the investing public – about numerous RMBS transactions.
The global settlement includes a statement of facts in which JPMorgan acknowledges that it regularly misrepresented to RMBS 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 its own 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, the statement of facts says.
Michael P. Stephens, Acting Inspector General of the Federal Housing Finance Agency, said, “JP Morgan and the banks it bought, Bear Stearns and Washington Mutual, sold hundreds of billions of dollars of defective mortgages into the securities markets helping to precipitate the financial crisis. Investors, including Fannie Mae and Freddie Mac, suffered enormous losses by purchasing RMBS from JPMorgan, Washington Mutual, and Bear Stearns not knowing about those defects. Today’s settlement is a significant, but by no means a final step by FHFA-OIG, DOJ, the NYAG, and our other law enforcement partners to hold accountable those who committed acts of fraud and deceit.”
Among other things, under the settlement, JPMorgan Chase will be required to:
- Provide $2 billion in principal reductions to borrowers, including first and second liens and forbearance;
- Provide an additional $2 billion in financial relief for borrowers and communities, including:
o Refinancing at lower interest rates;
o Donation of bank-owned properties or bank-controlled distressed mortgages to nonprofits or land banks; and
o New mortgage loans to low-and moderate-income families harmed by the financial crisis.
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