The Justice Department today officially announced that it has reached a $13 billion settlement with JPMorgan Chase (JPM 1.94%)for federal and state civil claims related to residential mortgage-backed security, or RMBS, transactions before Jan. 1, 2009. The $13 billion settlement is the largest single settlement the Justice Department has reached with any one organization; it also covers claims against Bear Stearns and Washington Mutual, which JPMorgan Chase acquired.
"Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown," said Attorney General Eric Holder in a press release. "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."
Under the settlement, JPMorgan Chase acknowledged that it misled both the public and those investing in its mortgage-backed securities. The release highlighted that in its statement of facts, JPMorgan Chase told investors that the mortgages in the RMBSs met underwriting guidelines even though the bank's 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."
The Justice Department noted that such transactions by JPMorgan Chase and other banks contributed directly to the financial crisis.
The Justice Department is requiring JPMorgan Chase "to provide much needed relief to underwater homeowners and potential homebuyers, including those in distressed areas of the country." In addition, the Justice Department said that despite the civil settlement, neither JPMorgan Chase nor its employees would be absolved from the prospect of facing criminal charges related to RMBS practices.
Of the $13 billion settlement, $9 billion will be paid by JPMorgan to settle both federal and state civil claims, including $4 billion to the Federal Housing Finance Agency and $2 billion to the Justice Department. In addition, $4 billion will be paid to consumers injured by "the unlawful conduct" of JPMorgan, Bear Stearns, and Washington Mutual, through principal forgiveness, loan modifications, and other forms.
"The size and scope of this resolution should send a clear signal that the Justice Department's financial fraud investigations are far from over," Holder stated "No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability. I want to personally thank the RMBS Working Group for its tireless work not only in this case, but also in the investigations that remain ongoing."
