JPMorgan has reportedly reached a $4.5 billion settlement with a group of investors over claims that the bank sold them faulty residential mortgage-backed securities (RMBS) that resulted in huge losses.
The preliminary deal, which still needs approval from trustees and may be subject to court review, covers 330 mortgage bond trusts issued between 2005 and 2008, according to Bloomberg News.
The settlement is separate from the tentative $13 billion settlement that JPMorgan is still negotiating with the U.S. Department of Justice over the sale of faulty RMBS in the run-up to the financial crisis. Last month, as part of that settlement, JPMorgan agreed to pay $5.1 billion to settle claims that it misrepresented mortgage bonds sold to government-sponsored enterprises Fannie Mae and Freddie Mac. A final deal on that settlement could be announced as early as next week, according to the report.
The $4.5 billion settlement announced Friday would compensate the 21 investors for repurchase demands and servicing claims on mortgage bonds issued by JPMorgan and Bear Stearns Cos., which JPMorgan purchased in 2008. It doesn't include RMBS issued by Washington Mutual Inc., the failed lender whose assets were bought by JPMorgan later that year.
JPMorgan, which is looking to put its legal matters stemming from the sale of ‘faulty’ RMBS behind it, is reportedly facing at least seven other Department of Justice investigations.
Kathy Patrick, a lawyer with Gibbs & Bruns LLP, representing the 21 investors, said her clients were pleased with the outcome of the settlement, which includes a ‘binding offer from JPMorgan to pay $4.5 billion in cash’ and a promise from the bank to improve its mortgage servicing operations.
"This settlement is another important step in JPMorgan's efforts to resolve legacy-related RMBS matters," the New York-based bank said in the statement, following announcement of the settlement.
JPMorgan claims it has enough cash reserves to cover the settlement, as well as any other remaining mortgage bond litigation, according to the report.