Justice announces record $13 billion settlement with JP Morgan Chase
By Consumers Union on Tuesday, November 19th, 2013
A few weeks ago, Consumers Union first wrote about this pending settlement between the U.S. Justice Department and JP Morgan Chase to resolve allegations that the bank purposely sold faulty securities comprised of poor quality mortgages which failed and contributed to the financial crisis.
Just moments ago, the Washington Post announced that the settlement has been reached and the details have now been made public. Attorney General Eric J. Holder said, “Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown.” Consumers Union believes this is an important step to force accountability on the part of the banks for their role in precipitating the mortgage meltdown which has affected so many.
Here is a summary of key settlement provisions:
- $4 billion in aid directed to distressed homeowners, nearly half of which will go to reducing the principal amount JP Morgan customers owe on their mortgages.
- JP Morgan Chase will be credited $300 million for temporarily suspending the collection of mortgage payments to help borrowers stay in their homes.
- Remaining money will be used to lower interest rates on existing loans and to provide low-income borrowers with new mortgages which the bank must keep on its own books to encourage responsible lending.
- JP Morgan Chase will receive credit for curbing blight by demolishing foreclosed homes.
- The consumer relief portion of the settlement will be supervised by an independent monitor through 2016.
- $7 billion of the total settlement will be earmarked for investors who lost billions on the faulty securities.
- $1.4 billion will go to the National Credit Union Administration (regulatory agency) to recover losses from securities sold to now defunct credit unions.
- Remaining investor payout will be divided among the offices of the attorneys general in California, Massachusetts, Illinois, Delaware and New York.
- At least $1 billion will go to resolve a lawsuit filed by New York Attorney General Schneiderman in October 2012.
- JP Morgan Chase must acknowledge that along with its affiliates, it made false representations to investors. It must also admit that its employees knew the loans in question did not comply with its own guidelines, but the bank allowed them to be bundled and sold anyway.
- JP Morgan Chase cannot claim a tax deduction on the penalty, something that consumer advocacy groups have fought to prevent.
- A very important aspect of the settlement is that it did not release JP Morgan Chase or any individuals from possible criminal prosecution.
The Washington Post reported that this may be just the beginning for the Justice Department as it moves forward to crack down on other banks which underwrote, sold and packaged home loans into faulty securities then sold them on the secondary market to others. The Washington Post noted that nine other banks, including Bank of America, Wells Fargo and Citigroup are under close scrutiny.
Do you think the banks are paying their fair share for their role in causing the mortgage meltdown?