JP Morgan to pay US$614m in mortgage fraud case
JP Morgan Chase settled the latest in a string of legal claims on Tuesday when it agreed to pay US$614 million to the US government and admitted that it had defrauded federal agencies by underwriting substandard mortgage loans.
JP Morgan, the largest US bank by assets, said as part of the settlement that it had approved for more than a decade thousands of insured loans that were not eligible for insurance by the Federal Housing Administration or the Department of Veterans Affairs, according to court papers.
As a consequence, "both the [housing administration] and the [Department of Veteran Affairs] incurred substantial losses when unqualified loans failed and caused [the two agencies] to cover the associated losses," the Department of Justice said.
JP Morgan is one of several banks that has faced similar allegations. Citigroup and Deutsche Bank have also reached settlements, while the justice department is seeking US$2.1 billion in penalties from Bank of America after a jury found the bank liable for fraud over mortgages sold by its Countrywide unit.
Last year, JP Morgan agreed to about US$20 billion in settlements in its drive to clear up legal claims. The deals covered claims over other mortgage issues, as well as derivatives and power trading.
The bank said the "settlement represents another significant step in [its] efforts to put historical mortgage-related issues behind it".
It added that it had already recorded reserves for the settlement and did not expect the deal to have any significant additional financial impact.
The settlement with the justice department began with a whistle-blower, Keith Edwards, who sued JP Morgan in January last year under an anti-fraud law known as the False Claims Act.
The law allows individuals to sue government contractors and suppliers for defrauding taxpayers. Whistle-blowers can keep a slice of the penalty if successful.
It has not been determined what Edwards' share will be, according to court papers. The existence of his suit was sealed until Tuesday.
In other recent legal claims, JP Morgan agreed on Monday to pay US$1.45 million to settle four-year-old allegations brought by the Equal Employment Opportunity Commission that the bank had maintained a sexually hostile environment for women in a mortgage loan centre in Ohio.
On Tuesday, a federal bankruptcy judge approved the bank's US$543 million deal to end two private lawsuits stemming from its relationship with convicted Ponzi scheme mastermind Bernard Madoff.
Last month, the bank separately agreed to pay more than US$2 billion to settle criminal charges related to the Madoff fraud.