JPMorgan Chase & Co has agreed to pay $5.1 billion to settle claims that it and firms it bought misled Fannie Mae and Freddie Mac about the quality of mortgage securities and home loans it sold to them during the housing boom.
The bank and the agencies' regulator said Friday evening that the settlement was expected to be part of a tentative $13 billion deal that JPMorgan is negotiating with federal and state agencies over its mortgage bond liabilities.
But the unusually timed announcement, which appeared to catch other parties involved in the negotiations by surprise, covered not only $4 billion that was expected as part of the larger deal but also an additional $1.15 billion to cover separate issues over home loans.
The $4 billion portion of the payment, which was agreed on several weeks ago according to people familiar with the negotiations, resolves a 2-year-old lawsuit in which the regulator accused JPMorgan of overstating the quality of loans in mortgage securities in sold to Fannie and Freddie.
The agency became impatient waiting for the larger settlement and wanted to move on to resolving similar lawsuits it brought against other banks, one person said.
The additional $1.1 million resolves claims that JPMorgan breached the representations it made about the quality of single-family mortgages it sold the government-sponsored entities, the regulator said.
Negotiations on the final terms of the larger settlement are continuing, people familiar with discussions said on Friday.
While the parties have agreed to the framework of the deal, talks have slowed over whether JPMorgan can shift onto the Federal Deposit Insurance Corp liabilities of Washington Mutual, a failed lender which JPMorgan took over during the financial crisis.
The FHFA settlement leaves open the possibility for JPMorgan to recoup payments related to Washington Mutual. The Justice Department, which is leading the larger negotiations, is seeking a provision in the larger settlement that bars JPMorgan from seeking to push the claims onto FDIC, according to one of the people familiar with the talks.
It is unclear if the FDIC will be part of the larger settlement. FDIC spokesman Andrew Gray declined to comment.
The $13 billion settlement is also expected to include a $2 billion enforcement penalty for JPMorgan's mortgage securities sales which are being investigated by federal prosecutors in California; $4 billion of consumer debt relief; and $3 billion of assorted payments and compensation sought by other government agencies.
"This is a significant step as the government and J.P. Morgan Chase move to address outstanding mortgage-related issues," FHFA Acting Director Edward DeMarco said in a statement.
The bank, the largest in the United States, said the deal was "an important step towards a broader resolution" of the firms mortgage-related issues with government agencies.
(Reporting by David Henry in New York and Aruna Viswanatha in Washington; Editing by Richard Chang)