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Housing Regulator Cuts Deal With JPMorgan on Mortgages

Washington — The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, said Friday that it struck a separate $5.1 billion deal with JPMorgan Chase over faulty mortgage practices, rather than wait for the Justice Department to finalize its share of a tentative $13 billion deal with the bank.

Until now, the FHFA had agreed to bundle its lawsuit against the bank into a global settlement that federal prosecutors have been working on for months. The back and forth proved too much for the housing regulator, which decided to take matters into its own hands, said a person familiar with the deal who was not authorized to speak publicly.

The FHFA sued JPMorgan, along with 17 other financial firms, on behalf of government-controlled Fannie Mae and Freddie Mac two years ago. The regulator accused the firms of misleading the mortgage-finance twins about the quality of the mortgages pooled into securities. When those mortgages soured, the securities were worthless and saddled Fannie Mae and Freddie Mac with billions in losses.

Friday’s deal calls for JPMorgan, the nation’s largest bank, to pay about $2.7 billion to Freddie Mac and $1.3 billion to Fannie Mae to resolve claims related to mortgage securities sold to the companies between 2005 and 2007 by the bank and two firms it acquired, Bear Stearns and Washington Mutual.

That $4 billion deal will be carved out of the larger $13 billion deal being finalized by the Justice Department.

In a separate deal, JPMorgan also agreed to pay more than $1 billion directly to Fannie Mae and Freddie to resolve disputes over mortgages that the financing giants insured that went bad. Fannie Mae will receive $670 million as part of this deal, while Freddie Mac will get $480 million.

JPMorgan is one of many lenders that sell home loans to Fannie Mae and its sister agency, Freddie Mac, which bundle them into mortgage-backed securities and cover the losses if a homeowner defaults. The mortgage-finance companies suffered massive losses during the housing crash, requiring a $188 billion taxpayer bailout.

Fannie Mae and Freddie Mac have combed through millions of loans looking for shoddy underwriting to force mortgage lenders to buy them back.