The Justice Department is set to announce a $13 billion settlement with JPMorgan Chase over the bank’s questionable mortgage practices in the run-up to the financial crisis, people briefed on the deal said, as prosecutors and the bank hashed out the final details of the deal in recent days.
The announcement, expected as soon as Tuesday, will detail how the government will divvy up the record $13 billion payout, with $4 billion directed to struggling homeowners. Under the settlement, the people briefed on the deal said, JPMorgan will have to hire an independent monitor to oversee the distribution of the $4 billion in relief, a black mark for a bank once considered one of Wall Street’s most trusted institutions.
The settlement, which comes after months of negotiating, will resolve an array of state and federal investigations into the bank’s sale of troubled mortgage securities to investors. Such securities, sold by banks across Wall Street, were at the center of the 2008 financial crisis.
When the securities soured, generating billions of dollars in losses for pension funds and other investors, federal and state authorities opened wide-ranging investigations into whether the banks properly warned investors of the risks.
JPMorgan, the nation’s largest bank, has become a symbol of that crackdown. And the size of the settlement reflects that magnitude. The $13 billion deal dwarfs all other settlements the Justice Department exacted from a single company.
The $4 billion in consumer relief, directed at hard hit areas like Detroit, is a crucial element of the deal. Nearly half of the sum, one person briefed on the deal said, will go to reducing the balance of mortgages in foreclosure racked areas. JPMorgan will also be credited $500 million for briefly halting collection of mortgage payments.
For the remaining $2 billion in relief, the person said, JPMorgan has agreed to reduce interest rates on existing loans, offer new loans to low-income homebuyers and keep those loans on its books. The bank will also receive credit for demolishing abandoned homes and other efforts addressed at curbing urban blight.
In addition to the $4 billion in consumer relief, JPMorgan will pay about $2 billion as a fine to prosecutors in Sacramento. The prosecutors, which were planning to sue the bank until settlement talks heated up in September, suspected JPMorgan failed to fully disclose the risks of buying such investments.
The government earmarked the final $7 billion as compensation for investors. The largest recipient is the Federal Housing Finance, which announced a $4 billion deal with JPMorgan last month. The agency oversees Fannie Mae and Freddie Mac, the housing finance giants that purchased billions of dollars in mortgage securities that later imploded.
The remaining portion of the compensation will benefit a credit union association, along with the offices of the New York and California attorneys general. The state authorities will probably pass on the compensation to investors in their states.
