JPMorgan Chase to pay $614 mn to settle mortgage fraud charges

US banking giant JPMorgan Chase & Co yesterday agreed to pay $614 million to settle US government charges of defrauding federal agencies by approving bad loans that wrongly qualified for federal insurance.

JPMorgan''This settlement with JP Morgan Chase will enable HUD to recover funds lost due to Chase's past unacceptable mortgage underwriting practices,'' said HUD's [Department of Housing and Urban Development] acting general counsel Damon Smith.

The latest payout comes after JPMorgan, the largest US bank by assets, agreed last year to pay around $20 billion to settle several claims over other mortgage, derivatives and power trading issues.

The US Department of Justice (DoJ) said that JPMorgan  will pay $614 million for violating the False Claims Act by knowingly underwriting non-compliant mortgage loans submitted for insurance coverage and guarantees by the Department of Housing and Urban Development, Federal Housing Administration (FHA), and Department of Veterans Affairs (VA). 

''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,'' said associate attorney general Tony West.  ''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.'' 

From early 2002, JPMorgan is accused of falsely certifying that loans it originated and underwrote were qualified for FHA and the VA insurance and guarantees, but because of the misrepresentations, both federal agencies incurred substantial losses when unqualified loans failed and caused the FHA and VA to cover the losses.

As part of the settlement, which was handled by US attorney in Manhattan Preet Bharara, JPMorgan admitted that, for more than a decade, it approved thousands of FHA loans and hundreds of VA loans that were not eligible for FHA or VA insurance because they did not meet applicable agency underwriting requirements. 

''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,'' said U.S. attorney for the Southern District of New York Preet Bharara.  ''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,'' Bharara added.

JPMorgan also admitted that it failed to inform the FHA and the VA when its own internal reviews discovered more than 500 defective loans that never should have been submitted for FHA and VA insurance.

''The Department of Justice will continue to hold accountable financial institutions whose irresponsible mortgage lending undermines the housing market and costs the taxpayers many millions of dollars,'' said assistant attorney general for the Justice Department's Civil Division Stuart F. Delery.  ''I thank U.S. Attorney Bharara and his team for their stellar efforts in this case and look forward to our coordinated efforts in these cases.''

Mortgage-backed securities are financial products consisting of mortgages pooled together and repackaged and sold to investors as securities.

The FHA's Single Family Mortgage Insurance Program enables low- and moderate-income borrowers to purchase homes by insuring qualified loans made by participating lenders, such as JP Morgan Chase, against losses if the loans later default

However, in the run up to the global financial crisis, sub-prime mortgages were sold to people with low credit and many of them defaulted on their loans when the mortgage market bubble burst, leading to huge losses for banks and other financial institutions which became burdened with so-called ''toxic assets'' requiring taxpayer-funded bailouts.

In 2011, the FHA filed lawsuits against 17 of the world's top financial institutions including JPMorgan, saying THAT they sold $196 billion of risky home loans to government sponsored mortgagers Fannie Mae and Freddie Mac without adequate scrutiny.

JPMorgan's involvement amounted $33 billion in the deals.

Over the past three years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants.

The settlement is part of efforts underway by Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 US attorney's offices and state and local enforcement departments, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. 

Since its formation, the task force has helped increase investigation and prosecution of financial crimes; enhanced coordination and cooperation among federal, state and local authorities.