The Department of Justice has confirmed the $13 billion settlement with JP Morgan that has been widely reported in the press as a done deal for over a month. It will resolve 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 Jan. 1, 2009.
The record-breaking settlement will allocate $9 billion to resolve various claims by federal and state entities according to the following breakdown: $2 billion is a civil penalty levied by the Department of Justice, $1.4 billion and $515.4 million will settle claims by the National Credit Union Administration and the Federal Deposit Insurance Corporation; and state level claims will be settled as follows: California, $298.9 million; Delaware, $19.7 million; Illinois, $100 million to Illinois; Massachusetts, $34.4 million; New York, $613.8 million. Four billion dollars will be paid to settle claims from the Federal Housing Finance Agency and much of that money is expected to be used to assist distressed homeowners.
As part of the settlement, JPMorgan acknowledged it made serious misrepresentations to the public - including the investing public - about numerous RMBS transactions. The resolution also requires JPMorgan to provide much needed relief to underwater homeowners and potential homebuyers, including those in distressed areas of the country. The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges. As reported earlier the latter was critical in negotiations as JP Morgan sought to end the possibility of further action in a criminal case being pursued in federal court in Sacramento.
"Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown," said Attorney General Eric Holder. "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 size and scope of this resolution should send a clear signal that the Justice Department's financial fraud investigations are far from over. 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."
Shaun Donovan, Secretary of Housing and Urban Development released the following statement. "I'm proud to have worked with Attorney General Holder in negotiating a settlement with JP Morgan that will help Americans stay in their homes. President Obama's Mortgage Backed Securities Task Force was created to hold banks accountable for actions that led to the housing crisis and today was another important step in that process. This agreement ensures that accountability includes assistance to American consumers and communities hardest hit by the housing crisis by providing $4 billion in relief that could benefit more than 100,000 borrowers.""
