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JPMorgan Chase pays largest penalty for mortgage misdeeds

centralvalleybusinesstimes.com | November 19, 2013

By Nate Raymond

JP Morgan Chase, the largest bank in the country is paying the largest penalty ever levied against a financial institution -- $13 billion.

It 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 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.

The agreement 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 wrongdoing in the mortgage-backed securities market that helped trigger the Great Recession.

“There must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” says New York Attorney General Eric Schneiderman, co-chairman of the working group.

The collapse of the housing market in the Central Valley, plunging the region into a financial abyss, can be traced to the machinations of JPMorgan personnel, according to U.S. Attorney Benjamin Wagner, whose investigation into the Valley's problems helps shape the overall probe.

“Abuses in the mortgage-backed securities industry fostered the deterioration of underwriting standards among many mortgage lenders, and fueled the financial crisis,” says Mr. Wagner. “The impacts were staggering. JPMorgan sold more than $25 billion in non-prime RMBS certificates backed by toxic loans. Credit unions, commercial banks, and many other victim investors across the country, including some in the Eastern District of California, suffered billions of dollars in losses. This office, which serves a district that was ravaged by the financial crisis, played a major role in delivering a measure of justice in this matter. I want to particularly thank Rich Elias, Colleen Kennedy, and Kelli Taylor of this office for their outstanding work in this matter.”

California Attorney General Kamala Harris says the settlement should see some relief going to the state's two largest public pension funds -- CalPERS and CalSTRS.

According to the terms of the settlement, California will recover $298,973,000 in damages.

“JP Morgan Chase profited by giving California’s pension funds incomplete information about mortgage investments,” says Ms.Harris. “This settlement returns the money to California’s pension funds that JP Morgan wrongfully took from them.”

As part of the global settlement, JPMorgan acknowledges it made serious, material misrepresentations to the public – including the investing public – about numerous RMBS transactions.

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, says the agreement.

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.

 

Back to November 2013 Archive

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