The Free Press, Mankato, MN

State, national news

October 27, 2013

JPMorgan's $5B settlement doesn't end its troubles

The bank has set aside $23 billion to cover legal costs -- and it may need it all.

WASHINGTON (AP) — The $5.1 billion that JPMorgan Chase has agreed to pay hardly ends its legal troubles over mortgage securities it sold.

It's merely a down payment.

JPMorgan still faces heavy financial burdens. The bank has set aside $23 billion to cover legal costs — and it may need it all.

In a statement Friday night, JPMorgan called its latest settlement an "important step" toward resolving allegations over mortgage-backed securities it sold. The $5.1 billion would resolve federal claims that it misled Fannie Mae and Freddie Mac about risky home loans and securities they bought before the housing market collapsed.

Fannie and Freddie were rescued in a taxpayer bailout in 2008 as they sank under the weight of mortgage losses.

Between 2005 and 2007, JPMorgan sold $33 billion in mortgage securities to Fannie and Freddie, according to their regulator. That was the second-most sold to Fannie and Freddie ahead of the crisis, behind only Bank of America. The securities soured after the housing bubble burst in 2007, losing billions in value.

Fannie and Freddie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. The two don't directly make loans to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. This system helps make loans widely available to borrowers.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced Friday's settlement with JPMorgan, the largest U.S. bank.

The deal is expected to be followed by a broader agreement with the Justice Department that's still being negotiated. Last weekend, JPMorgan reached a tentative deal with Justice to pay $13 billion.

The $13 billion tentative deal included $4 billion to resolve the FHFA claims. Even reduced by that amount, it would be the largest penalty the government has extracted from a company for actions related to the financial crisis. It's unclear when the broader agreement will be finalized.

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