Calling it the largest settlement with a single entity in American history, the Justice Department on Tuesday announced a $13 billion settlement with banking giant JPMorgan to resolve claims related to its packaging, marketing, sale, and issuance of residential mortgage-backed securities. The settlement also pertains to securities sold by Bear Stearns and Washington Mutual prior to Jan. 1, 2009. 

“JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm's behavior,” said Attorney General Eric Holder in a statement. “The size and scope of this resolution should send a clear signal that the Justice Department's financial fraud investigations are far from over. No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability.”

Within the settlement JPMorgan acknowledged that it represented to investors that the mortgage loans in various securities complied with underwriting guidelines. However, employees knew that the loans in question did not comply with those guidelines and were not appropriate for securitization. This conduct contributed to the financial crisis.

Of the $13 billion resolution, $9 billion will be paid to settle federal and state civil claims arising from thir own investigations. JPMorgan will pay $2 billion as a civil penalty to settle Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act, $1.4 billion to settle federal and state securities claims by the National Credit Union Administration, $515.4 million to settle claims by the Federal Deposit Insurance Corporation, $4 billion to settle claims by the Federal Housing Finance Agency (FHFA), $298.9 million to settle claims by the State of California, $19.7 million to settle claims by the State of Delaware, $100 million to settle claims by the State of Illinois, $34.4 million to settle claims by the Commonwealth of Massachusetts, and $613.8 million to settle claims by the State of New York.

JPMorgan will pay out the remaining $4 billion in the form of relief to aid consumers harmed by the its conduct and by Bear Stearns and Washington Mutual. That relief will take various forms, including principal forgiveness, loan modification, and efforts to reduce blight.

An independent monitor will be appointed to determine whether it is satisfying those obligations. If JPMorgan fails to live up to its agreement by Dec. 31, 2017, it must pay liquidated damages in the amount of the shortfall to NeighborWorks America, a non-profit organization dedicated to affordable housing and facilitating community development.

This settlement resolves only civil claims. does not release the individuals involved from civil charges, nor does it release JPMorgan or any individuals from potential criminal prosecution.

To keep JPMorgan from seeking reimbursement from the federal government for any money it pays pursuant to this resolution, the Justice Department required language in the settlement agreement that prohibits it from demanding indemnification from the FDIC, both in its capacity as a corporate entity and as the receiver for Washington Mutual.  

Topics