Archive for November, 2013

JPMorgan Chase and DOJ Reach $13 Billion Settlement Over Toxic Mortgage Investments

The number is staggering–$13 billion.  That’s “billion” with a “B.”  But this is the amount that JPMorgan Chase has agreed to pay in connection with a settlement with the Department of Justice over residential mortgage-backed securities.  The settlement is more the result of JPMorgan’s peddling of junk investment products rather than its dealings with homeowners, but it is nevertheless illustrative of the bank’s attitudes when it came to putting profits first. The settlement agreement included a statement of facts, which you can read here:  JPM_DOJ Settlement.

In a nutshell, JPMorgan Chase and two entities its essentially acquired (Bear Stearns and Washington Mutual) bought billions and billions of dollars worth of mortgage loans to securitize.  JPMorgan had due diligence teams review the loans to insure that they complied with certain underwriting standards.  Many of the mortgage loans did not comply with their standards, but were nevertheless acquired and put into residential mortgage-backed securities to be sold to investors.  According to the statement of facts, JPMorgan knew it was purchasing and re-selling bad loans, and yet they did it anyway and misrepresented what they were doing to would-be investors.

What does this settlement mean for homeowners?  Not much directly.  However, indirectly, I think it is significant for a few reasons.  First and foremost, another bank is being held accountable for their role in the financial crisis.  $13 billion is a very large settlement, and while it may pale in comparison to the overall damage done to the economy by the Big Banks, it’s the largest government settlement with one company in U.S. history.  Indirectly, the settlement may provide some benefit to homeowners.  Of the $13 billion total, $4 billion is designated to aid consumers harmed by improper mortgage actions of JPMorgan, Bear Stearns, and Washington Mutual. That relief will come via principal forgiveness, loan modification and efforts to reduce blight.  The relief to borrowers is to be completed by the end of 2017.

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