$13 Billion Penalty for Toxic Mortgages OK’d
Washington — After months of tense negotiations, the Justice Department on Tuesday finalized a record $13 billion settlement with JPMorgan Chase to resolve allegations that the bank knowingly sold faulty mortgage securities that contributed to the financial crisis.
It is the largest penalty ever levied against a single company and is a colossal win for the government after years of public criticism over its struggle to hold Wall Street accountable for crisis-era sins. It is also a tremendous black eye for a bank once lauded as the nation’s strongest financial institution to emerge from the crisis.
New York Attorney General Eric Schneiderman, who is a member of President Obama’s mortgage task force that helped negotiate the deal, announced the details of the settlement Tuesday.
The agreement puts to rest multiple state and federal probes into the JPMorgan’s sale of mortgage securities to investors. But it still leaves the bank and its executives at risk of criminal prosecution for fraud.
Like other banks, JPMorgan bundled hundreds of home loans into securities and marketed them as investments that could be traded like stocks. When homeowners defaulted on their mortgages in droves, the value of the securities plummeted and investors were saddled with huge losses. Government authorities subsequently launched probes into whether the banks misled investors about the risks and the quality of the securities.
The most complex component of the JPMorgan settlement involves $4 billion in aid directed to distressed homeowners. People close to the negotiations say Justice’s lead negotiator, Associate Attorney General Tony West, worked over the weekend with Department of Housing and Urban Development Secretary Shaun Donovan to hash out the terms.
Nearly half of the aid will go to reducing the principal amount JPMorgan customers owe on their mortgages. The bank will also be credited $300 million for temporarily suspending the collection of mortgage payments to increase the odds that borrowers will be able to remain in their homes.