J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles

Reuters is reporting that according to a source in the know, J.P. Morgan Chase & Co.’s (JPM) tentative $13 billion residential mortgage-backed securities settlement with the US Justice Department has hit a couple of stumbling blocks. The firm is reportedly trying to include a provision that would close any criminal probes into its packaging and sale of mortgage securities-except for an inquiry by California prosecutors. This counters the bank’s earlier decision to agree to keep criminal investigations out of the deal.

The settlement, preliminarily reached last week, includes $4 billion to resolve claims made by the Federal Housing Finance Agency, which contends that J.P. Morgan misled Freddie Mac (FMCC) and Fannie Mae (FNMA) about the quality of loans the latter two bought from the investment bank before the 2008 economic crisis. Another $4 billion is for consumer relief, while $5 billion is for penalties.

The agreement also would settle a separate mortgage securities lawsuit filed separately by NY AG Eric Schneiderman against the firm over Bear Stearns (BSC)-packaged mortgage bonds. The state’s top prosecutor contended that Bear Stearns misled investors about the faulty loans behind the securities, neglected to complete assess the debt, disregarded defects that were found, and concealed its failure to properly examine the loans or reveal their risks.

The deal isn’t final and certain matters still need to be resolved, such as the disagreement with the Federal Deposit Insurance Corp. over who should be responsible for legal liabilities stemming from the bank’s takeover of Washington Mutual’s (WAMUQ) obligations and assets during the economic collapse. JPMorgan paid $1.9 billion to acquire that bank from FDIC. However, the firm is disputing its degree of responsibility for investor losses on the failed savings holding company’s mortgage securities. The DOJ wants a provision that will stop the bank from attempting to move WaMu liabilities covered under the agreement to the FDIC.

Other Recent JPMorgan Settlements
Also last week, JPMorgan consented to pay $100 million to the Commodity Futures Trading Commission over its “London whale” trades debacle. The CFTC accused the bank’s London traders of employing a reckless derivatives strategy that cost JPMorgan $6.2 billion in losses. While the firm didn’t deny or admit to the agency’s finding that there was a violation, it did agree about “certain facts.” For one, J.P. Morgan admitted that it did not properly supervise the traders who tweaked prices to lower the bank’s losses at cost to investors.

That settlement comes a month after the firm said it would pay $920 million over related charges to the Securities and Exchange Commission, the Federal Reserve, Office of the Comptroller of the Currency in the US and the Financial Conduct Authority in the UK.

Please contact our RMBS fraud lawyers if you think you might have grounds for a mortgage-backed securities case.

J.P. Morgan Reaches $13 Billion Tentative Deal with Justice Department, The Wall Street Journal, October 19, 2013

JP Morgan’s Settlement with the CFTC (PDF)

JPMorgan in tentative $13 billion deal with U.S. Justice Department: source, Reuters, October 9, 2013

More Blog Posts:
JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013