JPMorgan Chase & Co. (NYSE:JPM), the largest U.S. bank by assets, agreed to pay $614 million to the U.S. government to settle the latest in a string of legal claims it defrauded federal agencies by underwriting sub-standard mortgage loans. Shares dropped in pre-market trade.
U.S. District Judge J. Paul Oetken in Manhattan approved the deal, which calls for JPMorgan to pay the money within a month and install an improved quality control program to review loans it underwrites using a federally maintained software application that determines if a loan qualifies for government insurance.
The New York-based company said in a statement after market close yesterday that the "settlement represents another significant step in the firm's efforts to put historical mortgage-related issues behind it."
JPMorgan said it has already recorded reserves for the settlement and does not expect the deal to have any significant additional financial impact. JPMorgan set aside $23 billion last year to cover the settlements.
In a statement, U.S. Attorney Preet Bharara said JPMorgan had for years took part in federally subsidized programs meant to make homes more affordable for millions of Americans.
"Yet, for more than a decade, it abused that privilege," Bharara said. "JPMorgan Chase put profits ahead of responsibility by recklessly churning out thousands of defective mortgage loans, failing to inform the government of known problems with those loans and leaving the government to cover the losses when the loans defaulted."
The prosecutor acknowledged, however, that JPMorgan had accepted responsibility and promised to reform the flawed practices.
The government said the bank approved thousands of loans for government insurance or refinancing that didn't meet the requirements of federal programs and failed to self-report hundreds of loans it identified as having been affected by fraud or other deficiencies. It also regularly submitted loan data that lacked integrity because it was not based on documents or other information it possessed when employees submitted the data, the government said.
Associate Attorney General Tony West said the deal "recovers wrongfully claimed funds for vital government programs that give millions of Americans the opportunity to own a home and sends a clear message that we will take appropriately aggressive action against financial institutions that knowingly engage in improper mortgage lending practices."
Last year, JPMorgan agreed to about $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.
On Monday, the company agreed to pay $1.45 million to settle four-year-old allegations brought by the US Equal Employment Opportunity Commission that the bank had maintained a sexually hostile environment for women in a mortgage loan center on Ohio.
JPMorgan is one of several banks that have faced similar allegations. Citigroup Inc. (NYSE:C) and Deutsche Bank AG (NYSE:DB) have also reached settlements, while the Justice Department is seeking $2.1 billion in penalties from Bank of America Corp (NYSE:BAC) after a jury found the bank liable for fraud over mortgages sold by its Countrywide unit.
JPMorgan shares fell 0.7 percent to $54.55 at 8:13 a.m. in New York. The stock is down 6 percent this year.