DOJ, federal and state working group reach record $13 billion settlement with JPMorgan Chase

NEW YORK (Legal Newsline) -- New York Attorney General Eric Schneiderman announced Tuesday that a state and federal working group he co-chairs, along with the U.S. Department of Justice, have reached a $13 billion settlement with JPMorgan Chase.

The agreement is the largest settlement with a single entity in American history, and resolves federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities, or RMBS, by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009.

The settlement requires JPMorgan to pay $9 billion and provide $4 billion in consumer relief, including mortgage modifications for homeowners at risk of foreclosure.

According to Schneiderman's office, New York will receive more than $1 billion of the $13 billion settlement, including $613 million in cash and about $400 million in consumer relief for struggling residents.

Among other uses, the cash portion will be directed to provide additional legal services and housing counseling for those affected by Superstorm Sandy, the attorney general said.

The settlement was negotiated through the President Barack Obama's Financial Fraud Enforcement Task Force's Residential Mortgage-Backed Securities Working Group, which was formed in 2012 to share resources and continue investigating wrongdoing in the mortgage-backed securities market prior to the financial crisis. Schneiderman co-chairs the group.

"Since my first day in office, I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy," Schneiderman said in a statement.

"This historic deal, which will bring long-overdue relief to homeowners around the country and across New York, is exactly what our working group was created to do. We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten, and as a result we've won a major victory today in the fight to hold those who caused the financial crisis accountable."

Under the settlement, JPMorgan Chase will be required to provide $2 billion in principal reductions to borrowers, including first and second liens and forbearance and provide an additional $2 billion in financial relief for borrowers and communities, including:

- Refinancing at lower interest rates;

- Donation of bank-owned properties or bank-controlled distressed mortgages to nonprofits or land banks; and

- New mortgage loans to low-and moderate-income families harmed by the financial crisis.

As part of the settlement, JPMorgan acknowledged it made serious, material misrepresentations to the public -- including the investing public -- about numerous RMBS transactions.

Compliance with the settlement will be overseen by an independent monitor.

Schneiderman and the attorneys general of California, Delaware, Illinois and Massachusetts conducted related investigations.

"JPMorgan Chase profited by giving California's pension funds incomplete information about mortgage investments," California Attorney General Kamala Harris said in a statement.

"This settlement returns the money to California's pension funds that JPMorgan wrongfully took from them."

According to the terms of the settlement, California will recover $298.9 million in damages.

Delaware will receive $19.7 million.

"Our financial system only works when everyone plays by the rules," Delaware Attorney General Beau Biden said in a statement. "Today, as a result of our coordinated investigations, we are holding accountable one of the financial institutions that, by breaking those rules, helped cause the economic crisis that brought our nation to its knees.

"Even as the American people recover from this crisis, we will continue to seek accountability on their behalf."

Illinois Attorney General Lisa Madigan agreed.

"We are still cleaning up the mess that Wall Street made with its reckless investment schemes and fraudulent conduct," she said in a statement.

"Today's settlement with Chase will assist Illinois to recover its losses from the dangerous and deceptive securities that put our economy on the path to destruction."

Under the settlement, Illinois will receive $100 million, which will be paid to the state's pensions systems.

In particular, JPMorgan Chase will pay $72.4 million to the Illinois Teachers Retirement System, $16.2 million to the State Universities Retirement System and $11.4 million to the Illinois State Board of Investment, which oversees the State Employees' Retirement System, General Assembly Retirement System and Judges' Retirement System.

"This is a historic settlement that will help us to hold accountable those investment banks that played a role in creating and exacerbating the housing crisis," Massachusetts Attorney General Martha Coakley said in a statement.

Massachusetts will receive $34.4 million to settle its own investigation of JPMorgan's securitization practices.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.