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JPMorgan Chase to pay $13 billion in record agreement to settle charges of mortgage securities fraud

JPMorgan Chase has agreed to pay $13 billion to settle federal and state charges related to the packaging, marketing, and sale of residential mortgage-backed securities by JPMorgan, Bear Stearns, and Washington Mutual before to January 1, 2009. 

The agreement announced Tuesday is the largest settlement with a corporation in American history.

It requires JPMorgan, the nation’s largest bank, to pay $9 billion and provide $4 billion in consumer relief, including mortgage modifications for homeowners at risk of foreclosure.

“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” said U.S. Attorney General 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.” 

Holder said the Justice Department’s financial fraud investigations are far from over. 

“No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability,” he said.

The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a state and federal group formed in 2012 to continue investigating wrongdoing in the mortgage-backed securities market prior to the financial crisis.

“This historic deal, which will bring long-overdue relief to homeowners around the country and across New York, is exactly what our working group was created to do,” said New York Attorney General Schneiderman, co-chair of working group. “We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten, and as a result we’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”

As part of the settlement, JPMorgan acknowledged it made serious, material misrepresentations to the public – including the investing public – about numerous residential mortgage-backed securities transactions, Holder said.

“JP Morgan and the banks it bought, Bear Stearns and Washington Mutual, sold hundreds of billions of dollars of defective mortgages into the securities markets helping to precipitate the financial crisis,” Michael P. Stephens, acting inspector general of the Federal Housing Finance Agency, said. “Investors, including Fannie Mae and Freddie Mac, suffered enormous losses by purchasing RMBS from JPMorgan, Washington Mutual, and Bear Stearns not knowing about those defects.”

Compliance with the settlement will be overseen by an independent monitor.

Copyright 2013, Rita R. Robison, Consumer Specialist

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