The Federal Housing Finance Agency (FHFA has released details about its portion of the $13 billion settlement with JP Morgan Chase (JPM) announced last week by the U.S. Department of Justice. The suit resolves several claims of alleged violations of federal and state securities laws in connection with private-label residential mortgage-backed securities purchased by Freddie Mac and Fannie Mae (the GSEs) in the years leading up to the financial crisis. The GSEs will receive $4 billion from the suit, $2.74 billion of which will go to Freddie Mac and $1.26 billion to Fannie Mae.
FHFA also announced a separate agreement that will resolve representation and warranty claims arising out of the purchase by the GSEs of single family loans. That settlement will result in an additional $1.1 billion payment from JPM to the GSEs, $670 million to Fannie Mae and $480 million to Freddie Mac.
Claims leading to the larger settlement involve nearly 130 securities issued by JPM, Bear Stearns & Company and Washington Mutual (WaMu). JPM acquired the latter two companies in 2008 as Bear Stearns faced bankruptcy and WaMu was seized by the Federal Deposit Insurance Corporation. About 80 percent of the claims are said to have involved securities issued by the two failed companies.
Under terms of the agreement JPM does not admit to any wrongdoing or liabilities. The settlement does not indemnify the company from pending criminal actions in federal courts.
FHFA Acting Direction Edward J. DeMarco said, "The satisfactory resolution of the private-label securities litigation with J.P. Morgan Chase & Co. provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae's and Freddie Mac's assets on behalf of taxpayers. This is a significant step as the government and J. P. Morgan Chase move to address outstanding mortgage-related issues. Further, I am pleased that a resolution of single family, whole loan representation and warranty claims could be achieved at the same time. This, too, will have a beneficial impact for taxpayers and the housing finance market."
FHFA has now settled 4 of the 18 PLS suits it filed in 2011. The agency said it remains committed to satisfactory resolution of the pending actions.