JPMorgan reaches $13B settlement with government

JPMorgan Chase has agreed to a record $13 billion settlement with federal and state agencies over claims it misled investors when selling risky mortgage securities before the financial crisis.

The Justice Department announced the deal Tuesday, noting it was the largest of its kind ever reached with a single institution in U.S. history. Under the agreement, the nation’s largest bank admitted that it made “serious misrepresentations” to the public about several mortgage-backed security deals.

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U.S. officials claimed these actions helped contribute to the financial crisis, and indicated they were not finished punishing those they feel contributed to the economic meltdown.

“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” said Attorney General Eric Holder. “The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over.”

The record settlement, portions of which had already been announced before Tuesday, was announced amid some complaints from the left that the Obama administration has not done enough to tackle wrongdoers that contributed to the financial crisis. It also closes a major, long-running legal woe for JPMorgan, which has suffered a number of embarrassing public missteps in the last year.

JPMorgan emphasized that the bank did not admit to violating any laws as part of the settlement, and noted that up to $7 billion of it could be tax deductible. Several Democratic lawmakers were critical of allowing the bank to deduct settlement costs before the deal was announced.

Under the settlement, JPMorgan agreed to pay $9 billion, as well as another $4 billion in consumer relief, including to struggling homeowners facing foreclosure. They will receive principal forgiveness on their mortgages and loan modifications.

Blight in areas hard hit by the housing downturn would also be addressed by some of the settlement funds. An independent monitor will track the bank to see if it is living up to its end of the bargain, and the bank will be forced to pay damages to an affordable housing nonprofit if it fails to complete the work by 2018.

In a statement, JPMorgan Chairman and CEO Jamie Dimon said he was “pleased” to have reached the settlement. The bank said the settlement brings to an end all pending civil enforcement probes against the bank, as well as civil suits filed by several regulators.

A host of federal and state regulators were involved in the final settlement, including the Federal Deposit Insurance Corporation and the Federal Housing Finance Agency. The states of California, Delaware, Illinois, New York and Massachusetts will also receive portions of the settlement.

The settlement closes a host of civil suits the bank faced, including one filed in October of 2012 by New York Attorney General Eric Schneiderman, whom the president tapped to lead the working group charged with hunting down bad actions in the mortgage market that led to the crisis.

The settlement addresses a range of misbehavior by JPMorgan, as well as by Bear Stearns and Washington Mutual, two institutions JPMorgan took on in the aftermath of the financial meltdown.

The deal also requires JPMorgan to admit to several acts of wrongdoing, including that bank employees knew that certain mortgages were not fit to be packaged into a security and sold off to investors, and did not disclose that information. 

— This story was updated at 4:54 p.m.

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