JPMorgan Agrees to Pay $13 Billion for Role in Mortgage Crisis

 

On November 19th, 2013 the United States Justice Department settled fraud claims with super bank JPMorgan to the tune of $13 billion. The fine is the biggest ever received by a single entity in the history of the United States.

The government had been going after the bank because it alleged that before the mortgage crisis JPMorgan and companies it now owns, like Bear Sterns and Washington Mutual, sold risky mortgage securities while not representing their true quality to investors.

Everything was fine until the housing bubble popped and the mortgages started failing. This started a chain reaction that then made these large mortgage securities fail and put our whole financial system in jeopardy.

Big Fine = Not Guilty?

According to Attorney General Eric Holder, “Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown.” But despite how certain the government was about the guilt of JPMorgan, the settlement allows them to walk away from the mess they created without admitting any guilt.

On a conference call with investors JPMorgan’s CEO Jamie Dimon stressed that in their agreement they had not admitted to any violation of the law. By working with the government to draft the settlement agreement and paying the giant fine, the bank gets to wash its hands of their role in the mortgage crisis and walk away without severe legal punishments.

This point was crucial to JPMorgan because had it admitted any wrong doing or violation of the law, they would have been opening the door to private lawsuits. While private lawsuits can still happen, they won’t have extra ammunition from this settlement agreement.

$13 Billion is a Great Deal

Considering the bank was looking at extensive fines and even criminal prosecution under securities fraud laws, $13 billion wasn’t all that bad of a deal for the bank.

The $13 billion includes $4 billion to the Federal Housing Finance Agency which now oversees Fannie Mae and Freddie Mac. On top of that, they also had to buy back $1.1 billion in mortgages that they sold to the two mortgage entities.

The real cherry on this corporate bank sundae is that the $13 billion settlement is tax deductible for the company! Not bad for a company that has had profits of more than $66 billion since the 2008 financial crisis.

Relief for Consumers

While the biggest chunks of the settlement are going to the Federal government, agencies or entities it oversees or individual states, there has been $4 billion set aside to help consumers who were affected by the bank’s actions.

$2 billion of that money will be used to reduce the principals on mortgages for borrowers. The other $2 billion will be used for a variety of other programs to help consumers and communities. There will be loan refinancings, donations of bank owned properties and a new wave of mortgage loans for low or moderate income families.