Illinois Homeowners to Get Mortgage Relief in JPMorgan $13 Billion Settlement
Concluding a lengthy fraud and misconduct investigation on toxic loans that spurred the mortgage meltdown, the largest U.S. bank will earmark $4 billion to underwater homeowners as part of the historic settlement. Illinois is a recipient.
JPMorgan Chase has been swiped with a large bear claw from the administration's Financial Fraud Enforcement Task Force. It's on the hook for penalties to the historic settlement tune of $13 billion for bogus paper packaged and sold as residential-mortgage-backed securities (RMBS) that predate Jan. 1, 2009.
"No firm, no matter how profitable, is above the law," Attorney General Eric Holder said in the Department of Justice announcement of the government's largest settlement with a single company, adding that "the passage of time is no shield from accountability."
Washington Mutual Bank, acquired by JPMorgan and named along with Bear Stearns (another JPM acquisition) is remembered as one of the more aggressive offenders in the RMBS market. In the settlement documents, the bank's behavior is cited as "unscrupulous" and "deceptive."
They've admitted they burned investors and "sold securities knowing that many of the loans backing those certificates were toxic," gas lighting a financial crisis with international scope, said U.S. Attorney for the Eastern District of California Benjamin Wagner in the statement.
Still trying to get your head around this? Recall that during bubblicious times, investors couldn't get enough of these mortgage-backed securities. This derivative product took home loans from the riskiest consumer demographics imaginable, bundled these tranches (or slices) of bad mortgages paying ridiculously high interest rates with some lower-risk loans, and sold the lot off as fat investment slabs. Pension funds bought them up. Fund managers put them in 401(k)s. Banks sold this toxic waste to the investing public.
The scheme was full of fraud, says Chris Arnold in his report on the settlement for National Public Radio.
Disbursement of the $13 billion is complex: $9 billion is allocated for fed and state civil RMBS claims and $2 billion in civil penalty under the Financial Institutions Reform. Read the complete statement for a fuller idea of the money tracks. Illinois Attorney General Lisa Madigan's office conducted independent investigations that paved the way for the record-shattering settlement. “We are still cleaning up the mess that Wall Street made with its reckless investment schemes and fraudulent conduct,” Madigan said in a statement. Three Illinois pension funds will split $100 million for losses incurred from investments in the mortgage bonds, reported the Tribune.
The current housing recovery is booming here, shaky there, entwined with contrary foreclosure data. Although Chicago foreclosures have declined every month for a year, month-over-month data show a 30 percent spike, putting the Windy City in third place nationally, behind Miami and Tampa. One out of every 427 Chicago housing units had a foreclosure filing during October, according to RealtyTrac's U.S. Foreclosure Market Report. And repossessed homes have jumped by 65 percent since June.
As part of the resolution, $4 billion is earmarked for consumer relief and slated to assist about 100,000 homeowners nationwide in mortgage reductions, loan modifications and outright forgiveness of the principal. JPMorgan won't be writing any checks. Instead, using this system of "credits" the company can work off the debt owed to the government and may become a model for other legal cases. The amount for this portion of the settlement for Illinois is not yet calculated.
The banking giant has until Dec. 31, 2017 to comply. If they're caught reneging on the terms, they're looking down the mouth of liquidated damages payable to the affordable housing non-profit Neighborhood Works America.