Morgan Stanley, JPMorgan Settle With FHFA For $1.86 Billion

Posted by Patrick Barnard on February 05, 2014 No Comments
Categories : Required Reading

Morgan Stanley and JPMorgan Chase & Co. will pay a combined $1.86 billion to settle claims brought by the Federal Housing Finance Agency (FHFA) that the banks sold faulty mortgages to government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in the run-up to the financial crisis.

Specifically, Morgan Stanley will settle for $1.25 billion while JPMorgan will settle for $614 million, according to Bloomberg News.

The settlement is separate from JPMorgan's agreement with FHFA in October to pay $4 billion to settle similar claims.

‘The resolution announced today is a product of the Justice Department's continuing efforts to hold accountable those whose conduct contributed to the financial crisis,’ says Tony West, Associate Attorney General, with regard to the JPMorgan case, in a statement. ‘This settlement recovers wrongfully claimed funds for vital government programs that give millions of Americans the opportunity to own a home and sends a clear message that we will take appropriately aggressive action against financial institutions that knowingly engage in improper mortgage lending practices.’

‘For years, JPMorgan Chase has enjoyed the privilege of participating in federally subsidized programs aimed at helping millions of Americans realize the dream of homeownership,’ adds Preet Bharara, U.S. Attorney for the Southern District of New York. ‘Yet, for more than a decade, it abused that privilege. JPMorgan Chase put profits ahead of responsibility by recklessly churning out thousands of defective mortgage loans, failing to inform the government of known problems with those loans and leaving the government to cover the losses when the loans defaulted. With today's settlement, however, JPMorgan Chase has accepted responsibility for its misconduct and has committed to reform its business practices. This settlement adds to the list of successful mortgage fraud cases this office has pursued.’

The settlement brings the amount paid by the six largest U.S. lenders in connection with past sales of faulty mortgage-backed securities since the financial crisis to more than $114 billion, including legal expenses, according to the report.

Morgan Stanley and JPMorgan are among 18 banks sued by the FHFA in 2011. Seven of those banks last year agreed to pay a total of almost $8 billion to settle claims they sold faulty mortgages to the GSEs.

In November, JPMorgan and the U.S. Department of Justice (DOJ) finalized a $13 billion settlement over alleged ‘faulty’ mortgage-backed securities (MBS) the bank sold to investors and pension funds in the lead-up to the financial crisis. The settlement, which resolved several state and federal investigations into JPMorgan's sale of MBS to investors from 2005 through 2008, was reportedly the largest ever reached between a financial firm and the U.S. government.

More recently, JPMorgan paid $1.7 billion to settle allegations that it failed to report evidence of disgraced financier Bernard Madoff's Ponzi scheme to authorities while serving as Madoff's banker. â�¨â�¨In addition, the bank paid $350 million to settle a related suit brought by the Office of the Comptroller of the Currency – and $543 million to cover private claims.â�¨â�¨

JPMorgan still faces separate probes by the DOJ into its energy-trading business and recruiting practices in Asia.

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