JPMorgan Chase & Co. (JPM) has agreed to settle securities allegations that it defrauded federal agencies by underwriting mortgage loans that were sub-standard. As part of the agreement with the US government, the bank acknowledged that for over 10 years it approved thousands of insured loans that were ineligible for insurance by the Department of Veterans Affairs of the Federal Housing Administration. The Justice Department claims that as a result of JPMorgan’s actions, both the VA and FHA sustained significant losses because loans that were not qualified failed.
The mortgage fraud lawsuit is over the financial firm’s involvement in US programs that let private-sector lenders approve mortgages for government refinancing or insurances. According to prosecutors, JPMorgan violated the rules on a routine basis when it approved loans that did not meet the program’s criteria. One example, noted by Bloomberg.com, is the bank’s decision to underwrite a loan for an Indiana property and approving it for FHA insurance even though the rules don’t allow for reliance on documents that are over 120 days old to verify the assets of the borrower. After just three payments, the borrower defaulted. Because JPMorgan was the note’s holder, the Department of Housing and Urban Development paid a $109,253 insurance claim.
The Justice Department says that as part of the securities settlement the bank has also admitted that it did not let agencies know that its own internal reviews uncovered over 500 defective loans that should not have been turned in for VA and FHA insurance. According to United States attorney in Manhattan Preet Bharara, JPMorgan put “profits ahead of responsibility.”
The mortgage case stems from a whistleblower lawsuit by Keith Edwards, who sued JPMorgan last year under the False Claims Act. Under the Qui Tam provisions of the act, Edwards is entitled to a percentage of the settlement.
Also this week, JPMorgan agreed to pay $1.45M to 16 female mortgage brokers who accused the bank of allowing for a work environment that was sexually charged, leading to their unfair treatment. The female brokers say that when they failed to “embrace” this atmosphere, they were deprived of certain training opportunities and sales calls.
JPMorgan Joins Morgan Stanley in Settling U.S. Mortgage Lawsuits, BusinessWeek/Bloomberg, February 5, 2014
JPMorgan to pay 1.45 mn for sexual harassment, New Straits Times, February 6, 2014
More Blog Posts:
JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 25, 2014
JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013
FDIC Sued by JPMorgan Chase in $1B Securities Case Involving Washington Mutual Purchase & Mortgage-Backed Securities, Institutional Investor Securities Blog, December 23, 2013