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JPMorgan, Feds Finalize Record $13 Billion Mortgage Settlement

Nov 19, 2013
Originally published on November 19, 2013 3:54 pm
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From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, HOST:

And I'm Robert Siegel.

It is the largest amount of money ever paid by a single company to the government. JPMorgan Chase has agreed to pay $13 billion to settle charges related to the marketing and sale of mortgage-backed securities. The settlement was announced by the Justice Department this afternoon, after weeks of negotiation.

NPR's Jim Zarroli has been following the story and joins us now. And, Jim, first, remind us what JPMorgan Chase was accused of doing here.

JIM ZARROLI, BYLINE: Well, this has to do with the mortgage-backed securities that were sold by JPMorgan Chase and also Bear Stearns and Washington Mutual, which it later acquired. You may remember, there was a huge market for mortgage-backed securities in the years leading up to the subprime crisis. A lot of banks sold them. JPMorgan Chase was one of them. It was accused by the government of misrepresenting the quality of the mortgages underlying these assets.

You know, they say a lot of people bought them, lost money. The government says, JPMorgan Chase played a part in that. And Eric Holder, the attorney general, said today in a statement, this helps sow the seeds for the mortgage meltdown, which we're still recovering from today.

SIEGEL: Well, under the terms of the settlement, does JPMorgan Chase acknowledge that it did something wrong?

ZARROLI: Well, JPMorgan Chase says it didn't violate any securities law but the Justice Department says it does admit that it misrepresented the quality of the mortgage assets it sold. They knew loans didn't comply with underwriting guidelines, they allowed them to be sold anyway. And Attorney General Holder says, JPMorgan Chase wasn't the only financial institution that did this but that's no excuse for its behavior.

SIEGEL: So JPMorgan Chase agrees to pay $13 billion to settle these charges. What happens to that money?

ZARROLI: Well, some of it goes to the five states that were part of this investigation - New York, California, Illinois, Massachusetts and Delaware. Two billion goes to the Justice Department. The Federal Housing and Finance Agency, which oversees Fannie Mae and Freddie Mac, gets 4 billion. The National Credit Union Administration gets 1.4. About half a billion goes to the Federal Deposit Insurance Corporation, which rescues failing banks. And then finally, about 4 billion goes to consumers. It goes to homeowners.

SIEGEL: And how will that $4 billion be divided up and distributed to homeowners or consumers?

ZARROLI: Well, this was actually a sticking point in the negotiations and it's why things weren't settled until the past few days. Basically, they're divvying up the money in different ways. At least 1.7 goes to people who are underwater on their mortgages. You know, they owe more than their properties are worth. The bank will lower the principal on their mortgages. Some of it will go toward fixing up blighted neighborhoods, neighborhoods where there are a lot of abandoned houses. So the government says all this is going to just go toward, you know, repairing some of the damage from the subprime mortgage crisis, which we're still feeling today.

SIEGEL: Jim, JPMorgan Chase is an enormous institution but $13 billion is a lot of money for anyone or any company to pay. Why do you think they decided to settle this case?

ZARROLI: Well, first of all, part of that - going to have to say, $7 billion at least is tax deductible. So it's not quite as much as it seems. I think beyond that, JPMorgan Chase has a lot on its plate right now. Even after this settlement, they still face private lawsuits. There's a criminal investigation by the government. And then there are other things, like the London Whale trading losses, which they're still dealing with. I think JPMorgan Chase thought, you know, this is a way to resolve a lot of the legal hassles that it faces right now. You know, they think, you know, we just want to try to move on as quickly as we can. And that means, you know, swallowing hard and paying the money.

SIEGEL: Close the chapter and pay up.

ZARROLI: Right.

SIEGEL: NPR's Jim Zarroli. Jim, thank you.

ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.