By Stuart Pfeifer
3:48 PM EST, November 19, 2013
JPMorgan Chase & Co. will pay a record $13 billion to resolve allegations that it sold faulty mortgage investments that fueled the 2008 financial crisis, Justice Department and state officials said.
New York Atty. Gen. Eric T. Schneiderman said the settlement was the largest ever paid by a U.S. company. The settlement requires JPMorgan to pay $9 billion and provide $4 billion in consumer relief, including mortgage modifications for homeowners at risk of foreclosure.
As part of the settlement, JPMorgan acknowledged making serious misrepresentations to the public, including the investing public, about numerous mortgage-backed securities transactions.
"Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown," said Atty. Gen. Eric Holder. "JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior. The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over."
California Atty. Gen. Kamala Harris said nearly $300 million of the settlement will go to California to resolve allegations involving mortgage-backed securities sold to California's public employee and teacher pension funds, CalPERS and CalSTRS, between 2004 and 2008.
"JPMorgan Chase profited by giving California’s pension funds incomplete information about mortgage investments," Harris said. "This settlement returns the money to California’s pension funds that JP Morgan wrongfully took from them."
Harris said that her investigation found that offering documents for the securities failed to accurately disclose the true characteristics of many of the underlying mortgages, and that due diligence to weed out poor-quality loans had not been adequately performed.
The Justice Department and JPMorgan had been negotiating for weeks over details of the settlement, which was announced simultaneously by the Justice Department, Schneiderman and Harris.
CalPERS and CalSTRS will be reimbursed through the settlement for losses on investments in mortgage-backed securities of JPMorgan and its predecessors Washington Mutual Bank and Bear Stearns.
JPMorgan will also provide $4 billion in relief to aid consumers across the country, including Californians, harmed by the unlawful conduct, Harris said. That relief will take various forms, including principal forgiveness, loan modification and efforts to reduce blight.
An independent monitor will be appointed to determine whether JPMorgan is satisfying its obligations, Harris said.
The settlement also calls for JPMorgan to provide financial relief for borrowers and communities, including by refinancing at lower interest rates; donating bank-owned properties or bank-controlled distressed mortgages to nonprofits; and by issuing new mortgage loans to low-and moderate-income families harmed by the financial crisis.
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