JP Morgan Settlement

Posted by kevin on October 19, 2013 under Foreclosure Blog | Comments are off for this article

About a month ago, I wrote to you about the governments investigation of JP Morgan Chase (“JPMC”) based on the sale of Bear Stearns mortgage backed securities (“MBS”).

Well, the financial news has been abuzz with stories about JPMC. Yesterday, it was reported that JPMC was trying to settle all of its criminal and civil cases with the government for $3 billion. The bulk of that settlement was to be attributed to the sale of MBS. In regard to MBS, the issue was predominately whether JPMC (or Bear or Washington Mutual- all bought by JPMC) violated its warranties and representations concerning the quality of the loans put into securitized trusts. The issues were: (1) was that enough money; (2) what claims would be part of the settlement; and (3) whether JPMC would have to admit culpability.

Well, the talks have moved pretty fast in the last day. It appears that the AG, Eric Holder, rejected the $3 billion offer. The number that is being floated around is $11 billion, but that includes claims of FHFA relating to claims that JPMC misled Fannie and Freddie, and claims brought by the NY AG. From that $11 billion, $7 billion would be in cash, and $4 billion would be available to JPMC borrower (I represent a few of those). Discussions are said to be very fluid at this time, because there is not a meeting of the minds about what claims are included or whether JPMC must admit culpability There may be a deal; there may not be a deal. We shall soon find out

Interesting. The feds are going after JPMC for putting bad loans into securitized trusts and lying about it. I have always said that the two parties who got screwed during the mortgage run up of the 2000’s were homeowners and the investors in securitized trusts. If a crappy loan finds it’s way into a securitized trust, it was usually because the originating lender offered a loan to someone who could not afford to repay it. That is predatory lending. So, violation of warranties and representations goes hand in hand with predatory lending. By settling, even without an admission of guilt, JPMC is tacitly agreeing that it misled investors. So, aren’t they also admitting that they engaged in widespread predatory lending?

What about borrowers? They either lost or are in the process of losing their homes and savings. Who has taken care of them? Well, I guess you can say that the proposed settlement of $11 billion puts $4 billion on the table, in the form of modifications, to borrowers. But, what have the courts done for borrowers? Not much. In New Jersey, there are only a handful of cases (I can think of only two offhand) that deal with predatory lending and neither were in the context of the current mortgage crisis. Since 2007, well over 100,000 people have lost their homes in New Jersey, yet I am not aware of one case since that time that found a loan issued in NJ to be predatory. There are some bankruptcy cases that have dealt with this issue, and there is a NJ case that says that modification agreements are subject to the Consumer Fraud Act, but I am not aware of any reported cases that hold that a loan issued in NJ was predatory during the current mortgage crisis. How can that be? Certainly, NJ loans were not subjected to a higher underwriting standard. One day, this will all come to light. What can you do? Discuss this issue with your elected officials. Demand an even playing field.