The FHFA sued JPMorgan, along with 17 other financial firms, on behalf of government-
controlled Fannie Mae and Freddie Mac two years ago. The regulator accused the firms of misleading the mortgage-finance twins about the quality of the mortgages pooled into securities. When those mortgages soured, the securities were worthless and saddled Fannie Mae and Freddie Mac with billions in losses.
Friday’s deal calls for JPMorgan, the nation’s largest bank, to pay about $2.7 billion to Freddie Mac and $1.3 billion to Fannie Mae to resolve claims related to mortgage securities sold to the companies between 2005 and 2007 by the bank and two firms it acquired, Bear Stearns and Washington Mutual.
That $4 billion deal will be carved out of the larger $13 billion deal being finalized by the Justice Department.
In a separate deal, JPMorgan also agreed to pay more than $1 billion directly to Fannie Mae and Freddie to resolve disputes over mortgages that the financing giants insured that went bad. Fannie Mae will receive $670 million as part of this deal, while Freddie Mac will get $480 million.
JPMorgan is one of many lenders that sell home loans to Fannie Mae and its sister agency, Freddie Mac, which bundle them into mortgage-backed securities and cover the losses if a homeowner defaults. The mortgage-finance companies suffered massive losses during the housing crash, requiring a $188 billion taxpayer bailout.
Fannie Mae and Freddie Mac have combed through millions of loans looking for shoddy underwriting to force mortgage lenders to buy them back.
“One of our goals in 2013 was to put legacy issues behind us so we can focus on building a stronger housing finance system for the future,” Timothy J. Mayopoulos, president and chief executive of Fannie Mae, said in a statement.
In a statement, JPMorgan said the deal is “an important step towards a broader resolution” with Justice and the other government authorities.
The $4 billion agreement marks the fourth lawsuit that the FHFA has resolved on faulty mortgages, with Citigroup, General Electric and UBS reaching settlements this year. Reuters reported this week that the housing agency was near a deal with Bank of America for a $6 billion agreement. Officials at Bank of America and the FHFA declined to comment on those negotiations.
The FHFA’s acting director, Edward DeMarco, said the deal “provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae’s and Freddie Mac’s assets on behalf of taxpayers.”