JPMorgan Chase Agrees to Pay $4.5 Billion Over Bad Mortgage-Backed Securities

The JPMorgan Chase headquarters on Park Avenue in New York
Alamy
By Karen Freifeld

NEW YORK -- JPMorgan Chase & Co (JPM) said on Friday it agreed to pay $4.5 billion to settle claims by investors who lost money on mortgage-backed securities before the collapse of the U.S. housing market.

The bank reached the agreement with 21 institutional investors in 330 residential mortgage-backed securities trusts issued by JPMorgan and Bear Stearns, which it took over during the financial crisis, according to the bank and lawyers for the investors.

The deal still has to be accepted by seven trustees overseeing the securities holdings, the parties said.

The settlement does not include trusts issued by Washington Mutual, which JPMorgan also acquired.

The deal is separate from the preliminary $13 billion settlement JPMorgan has reached with the U.S. government that would resolve a raft of actions over residential mortgage-backed securities.

"This settlement is another important step in J.P. Morgan's efforts to resolve legacy related RMBS matters," the bank said in a statement.

The bank said it believes reserves it has built will cover the expense of "this and any remaining" mortgage securities litigation.

The 21 investors include BlackRock Inc, Metlife Inc , Allianz SE's Pacific Investment Management Company , the TCW Group and Bayerische Landesbank.

Under the agreement, the trustees have until Jan. 15 to accept the offer, which may be extended for another 60 days, according to JPMorgan and Gibbs & Bruns, the Houston law firm that represented the institutional investors.

Kathy Patrick of Gibbs & Bruns called the deal "an important milestone" in a three-year effort by the group of 21 bondholders.

The seven trustees over the bonds include Bank of New York Mellon Corp. Kevin Heine, a spokesman for the Bank of New York Mellon, said the bank would "evaluate the proposed settlement along with the other trustees."

If accepted, the deal would resolve claims that JPMorgan and Bear Stearns misrepresented the mortgages underlying the securities, JPMorgan said.

The settlement also would resolve servicing claims on all trusts issued by the bank and Bear Stearns between 2005 and 2008.

JPMorgan is the third bank to strike a deal with investors over shoddy mortgage-backed securities issued in the run-up to the financial crisis.

Bank of America Corp agreed to a $8.5 billion settlement in June 2011 with 22 institutional investors. That deal is still awaiting court approval.

In 2012, bondholders in trusts issued by Ally Financial's bankrupt former mortgage lending arm, Residential Capital, won an agreement to bring an $8.7 billion claim, although that was later reduced to $7.3 billion.

Gibbs & Bruns has represented investors in all three settlements. In 2011, the law firm said its investor clients had instructed trustees overseeing $95 billion of securities issued by JPMorgan, Bear Stearns and Washington Mutual to investigate whether the bonds were backed by ineligible mortgages.

Washington Mutual is not included in the deal because of litigation between the Federal Deposit Insurance Corp and JPMorgan over who is responsible for losses at the former mortgage lender, according to a person familiar with the matter.

The exclusion explains the difference between the amount of the announced deal and reports last month that JPMorgan was near an agreement with the investors for close to $6 billion, said another person familiar with the negotiations.

The separate tentative $13 billion settlement between JPMorgan and the U.S. government also has been complicated by that dispute, according to other sources.

JPMorgan CEO Jamie Dimon has vowed to resolve legal and regulatory issues that have been weighing heavily on the company since May 2012.

In October, JPMorgan reported its first quarterly loss under Dimon as it recorded more than $9 billion of expenses to build its litigation reserves.

JPMorgan is the biggest U.S. bank by assets.

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61 Comments

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seekthetruth123

Tell the government to go F themselves. I would love to see what happens as you are worth more than the current admin !

November 18 2013 at 12:19 AM Report abuse +1 rate up rate down Reply
drrfcjr

this stuff won't stop happening unless jail time is given out.

November 17 2013 at 10:18 PM Report abuse rate up rate down Reply
r333wa

where did this 4.5 b go??? back to the people who lost there homes??? Oh gosh, no that would make too much sense!

November 17 2013 at 9:49 PM Report abuse rate up rate down Reply
bob9private

Where is the money?
Since it does not go to those who are hurt, who is taking the cream?

November 17 2013 at 9:47 PM Report abuse rate up rate down Reply
john

dumb and dumber

November 17 2013 at 7:57 PM Report abuse rate up rate down Reply
DRILLER

Y' know this story has been up for Days And Days And Days. So how about some NEWS, and maybe an update, IF and When the fine ever does get paid.
And Let us know who's personal checking account it went into.
my bet is Holder then Obama.

November 17 2013 at 5:09 PM Report abuse rate up rate down Reply
Frank

So what pot does the fine go in - the government of course to waste. Not to the folks who lost big time. Some jail time should go along with the fine. You know the managers who devised and sold the scheme. But then you can bet they paid off politicians big time to stay in the game.

November 17 2013 at 1:45 PM Report abuse +1 rate up rate down Reply
Wendy

I know exactly how all these people feel who lost their homes,,, I'm one of them. Or I have become one on paper and in the courts. I'm still fighting it. I tried everything I could to keep my home. Reps for Chase arranged with me to straighten it all out,, but when I did what they instructed me too, they turned around and sent it all back. Leaving my family who had already been through so much with loosing our home to wildfires, only to have an innocent mistake take the home that we replaced the burned one with. I have sent and cooresponded with Obama's poor excuses and didn't believe me over Chase' lies. I will not go down so quietly.

November 17 2013 at 1:44 PM Report abuse rate up rate down Reply
dweeeb.buster

Banks pay billions for playing by the rules the failed social engineers mandated, while the mouth-breathing government goons who wrought the havoc jet around at tax payer expense, while confiscating lifetime pensions from the victims of their attacks.

November 17 2013 at 11:31 AM Report abuse -2 rate up rate down Reply
johndson

How much of the $4.5 billion will find its way ALL the way back to the tens of thousands of people who, were foreclosed on, lost their houses, lost their retirement savings, went bankrupt, lost all of their equity, all of the above?? The banks, thanks to a ton of cash, are still here, and recovered. How about all those people that the banks fell on? Where's their TARP? Where is there help? I'd bet $4.5 billion, even if it ALL went to the people whose lives were financially ruined, it couldn't begin to cover the actual debt the banks caused.

November 17 2013 at 9:49 AM Report abuse +4 rate up rate down Reply
1 reply to johndson's comment
laserwork

Why should those foreclosed upon get anything back?
The reason the securities were bad is that borrowers were defaulting on their loans.

November 17 2013 at 11:05 PM Report abuse +1 rate up rate down Reply