In another significant development involving JPMorgan Chase, the bank has agreed to pay $5.1 billion to resolve claims that it misled Fannie Mae and Freddie Mac about risky home loans and mortgage securities it sold them before the housing market collapsed. The Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, announced the settlement last month with JPMorgan. It was reported that an even broader deal with the Justice Department is still being negotiated. JPMorgan sold $33 billion in mortgage securities to Fannie and Freddie between 2005 and 2007. 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.
In a statement, JPMorgan called the agreement with the FHFA “an important step towards a broader resolution of the firm’s” mortgage-related matters. Edward DeMarco, the FHFA’s acting director, claimed that the settlement with JPMorgan “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.” It’s believed that this settlement will be the start of what could be the largest penalty the government has extracted from a company for actions related to the financial crisis. The crisis, triggered by vast sales of risky mortgage securities, plunged the economy into the deepest recession since the Great Depression.
It should be noted that Fannie and Freddie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 percent of new mortgages. However, the two companies 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.
Source: Associated Press
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