JPMorgan Chase has agreed to pay $5.1 billion (3.69 billion euros) over charges it misled government-backed mortgage giants Fannie Mae and Freddie Mac about the quality of home loans and mortgage securities it sold them.
The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, announced Friday that it had reached the settlement with JPMorgan. The agency had accused the bank, and two subsidiaries, Bear Stearns and Washington Mutual, of causing "billions of dollars" in losses to the two mortgage giants.
A broader deal with the Justice Department remains in the works.
Misleading Fannie and Freddie
The larger of the two settlements ($4 billion) is related to $33.8 billion in mortgage-backed securities JPMorgan, the largest US bank, sold to Fannie and Freddie between 2005 and 2007, the FHFA said. Only Bank of America sold more of the securities to Fannie and Freddie before the US housing bubble burst in 2007.
According to the FHFA, JPMorgan "falsely" told Fannie and Freddie that the mortgages met the two agencies' quality standards when their true quality was actually much lower. That "constitutes negligent misrepresentation, common law fraud and aiding and abetting fraud," the FHFA said in its complaint.
JPMorgan will pay approximately $2.74 billion to Freddie and $1.26 billion to Fannie for the mortgage-backed securities it sold them. Another $1.1 billion will be paid to the mortgage agencies for home loans JPMorgan sold them before the financial crisis.
The US government provided a $187 billion bailout to Fannie and Freddie during the financial crisis, when the two agencies teetered on the brink of collapse. They have both since become profitable, repaying $146 billion.
FHFA Acting Director Edward J DeMarco said Friday's agreement "provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae's and Freddie Mac's assets on behalf of taxpayers."
"This is a significant step as the government and JPMorgan Chase move to address outstanding mortgage-related issues," he said.
JPMorgan said in a statement that the settlement was "an important step towards a broader resolution of the firm's [mortgage-backed securities]-related matters with governmental entities."
dr/ch (AFP, AP)