FHFA demands $6bn from big bank for mortgage fiasco

by Ryan Smith29 Aug 2013

The U.S. government is demanding at least $6bn from JPMorgan Chase to settle lawsuits over the subprime mortgage fiasco, Reuters reports.

Citing a source who requested anonymity, Reuters reported Wednesday that the Federal Housing Finance Agency is pressing the big bank for the settlement. Chase, meanwhile, argues that it should pay less to settle the suit, which concerns bonds backed by subprime mortgages.

The FHFA sued Chase two years ago over $33bn in securities while simultaneously filing suit against at least 16 other financial institutions, Reuters reports. The lawsuits allege that the banks misrepresented how thoroughly they vetted the mortgages backing the bonds. As homeowners fell behind on their payments, the value of the securities plummeted.

The talks with Chase concern securities that include bonds sold by Bear Stearns and Washington Mutual, which Chase took over during the financial meltdown, Reuters reports.

The FHFA lawsuit is only one of many legal challenges Chase faces right now. Earlier this week, the bank was ordered to pay $42.5 million to billionaire Leonard Blavatnik in a suit over a tanked investment in mortgage-backed securities. Chase is also facing an ongoing criminal probe by the Department of Justice over its practices in the selling of mortgage-backed bonds.

Chase has spent about $5bn in legal costs in each of the last two years, Reuters reports. At the end of June, the company estimated possible losses in excess of its reserves at $6.8bn.


  • by Wm Matz | 8/29/2013 9:57:37 AM

    What incredible irony! JPMorgan developed the derivatives model [read Gillian Tett's Fools' Gold for details]. But their own risk quant, Krishna Varikooty, warned against using the model with home mortgages due to lack of sufficient performance data. As a result, JPM Chase did far less of the derivatives than the others. Now their model comes back to bite them, vicariously through the acquisitions of the Bear Stearns and WaMu trash.

    By the way, no one yet has been able to document exactly which WaMu mortgages JPMC bought from the FDIC. In a recent CA appellate case involving an old WaMu mortgage, the Chase attorney was asked by a justice who actually owned the mortgage; his incredible answer was, "Your honor, we don't know."


Is TILA-RESPA a good or bad thing long term?