By Pete Yost
and Marcy Gordon
WASHINGTON: JPMorgan Chase & Co. has reached a record $13 billion settlement with federal and state authorities, resolving claims over the bank’s sales of low-quality, high-risk mortgage-backed securities that collapsed in value during the U.S. housing decline years ago.
“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” U.S. Attorney General Eric Holder said. “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.”
The settlement announced Tuesday requires JPMorgan to pay $9 billion and provide $4 billion in consumer relief, including principal reductions and other mortgage modifications for homeowners facing foreclosure.
According to the settlement, JPMorgan acknowledged that it regularly represented to investors that mortgage loans in various securities complied with underwriting guidelines. Contrary to those representations, on a number of occasions JPMorgan employees knew that the securities did not comply with those underwriting guidelines, the Justice Department said.
The final issue revolved around the $4 billion to compensate consumers. Some $1.5 billion will be a write-down to reduce the principal of homeowner loans; $300 million will enable homeowners to pay less now on their mortgages; and the remainder of the $4 billion will reduce mortgage interest rates, originate new loans and revive blighted properties.