A much anticipated settlement between JPMorgan Chase & Co. and the government is the biggest settlement ever with any single firm.
Chase said Tuesday that it has agreed to a $13 billion settlement in principal with President Obama’s RMBS Working Group of the Financial Fraud Enforcement Task Force.
The agreement resolves actual and potential civil claims on residential mortgage-backed securities packaged, marketed and sold by Chase, Bear Stearns and Washington Mutual Bank prior to 2009.
Chase acquired WaMu from the Federal Deposit Insurance Corp. when it failed in September 2008. It picked up Bear Stearns in May 2008, when it was on the brink of failure, in a deal brokered by the Federal Reserve.
The government claims that Chase employees regularly represented that securitized loans complied with underwriting guidelines — even though the employees knew the loans didn’t comply.
In its own statement, the Department of Justice said that Chase acknowledged it made serious misrepresentations to the public about numerous RMBS transactions.
The Justice Department called the deal “the largest settlement with a single entity in American history.”
The cash portion of the agreement is $9 billion and includes a $2 billion civil money penalty being paid to the Justice Department to settle claims made under the Financial Institutions Reform, Recovery, and Enforcement Act. It also includes $7 billion in compensatory payments — though that amount reflects $4 billion that was already included in a settlement with the FHFA announced in October.
The National Credit Union Administration will get $1.4 billion, and the FDIC will receive $0.515 billion. In addition, the states of California, Delaware, Illinois, Massachusetts and New York will receive a combined $1.067 billion — with nearly two-thirds going to the Empire State.
The other $4 billion will come in the form of borrower relief such as principal reduction, forbearance and other direct benefits from various relief programs. Chase committed to completing this part of the settlement by 2017. Beneficiaries include underwater borrowers and potential homebuyers.
A statement from Department of Housing and Urban Development Secretary Shaun Donovan indicated that more than 100,000 borrowers could benefit from the settlement.
The agreement prohibits Chase from seeking indemnification from the FDIC.
“The conduct JPMorgan has acknowledged — packaging risky home loans into securities, then selling them without disclosing their low quality to investors — contributed to the wreckage of the financial crisis,” Associate Attorney General Tony West said in the Justice Department’s announcement. “By requiring JPMorgan both to pay the largest FIRREA penalty in history and provide needed consumer relief to areas hardest hit by the financial crisis, we rectify some of that harm today.”
The financial behemoth has already set aside enough reserves to cover the settlement.
Chase disclosed Friday a $4.5 billion settlement that was reached with 21 major institutional investors of RMBS issued by Chase and Bear Stearns.
Between the pair of settlements reached during the past week, Chase has resolved a significant portion of its RMBS-related civil litigation claims and most of the claims brought by federally insured and federally controlled entities.
“The settlement concludes and terminates all pending civil enforcement investigations, including those by the Department of Justice and the State AGs from California, Delaware, Illinois, Massachusetts and New York, relating to RMBS activities by JPMorgan Chase, Bear Stearns and Washington Mutual.,” Chase said in its statement. “The settlement also concludes and terminates all civil litigation claims brought by FDIC, FHFA and NCUA relating to securitizations of residential mortgage loans by JPMorgan Chase, Bear Stearns and Washington Mutual.”
However, the financial institution and its employees still could be facing criminal charges by the U.S. Attorney for the Eastern District of California.
In today’s statement, Chase said it continues to cooperate with the Department of Justice’s ongoing criminal investigation.
“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” U.S. Attorney General Eric Holder said in the announcement. “JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”
Holder proclaimed that the size and scope of the settlement should send a clear signal that the government’s financial fraud investigations are far from over.
