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» IN THE NEWS JPMorgan Settles Legacy Mortgage Suits with Federal Government, GSEs JPMorgan Chase struck a deal with the U.S. Department of Justice on November 19 to resolve civil claims from both federal and state officials over residential mortgagebacked securities (RMBS) issued prior to January 1, 2009, by the bank and two financial institutions it acquired in 2008— Bear Stearns and Washington Mutual. The $13 billion settlement is the largest in American history between the U.S. government and a single entity. Under the agreement reached, JPMorgan will pay $9 billion in restitution and provide an additional $4 billion in relief for homeowners at risk of foreclosure and communities impacted by the housing crisis. Federal officials say the relief funding could benefit more than 100,000 borrowers. According to JPMorgan, borrower relief will be in the form of principal reduction, forbearance, and other direct benefits from various relief programs. The bank has committed to complete delivery of the promised relief to borrowers before the end of 2017. The cash portion of the settlement payment consists of a $2 billion civil monetary penalty and $7 billion in compensatory payments, including a previously announced $4 billion payment to resolve litigation claims from the Federal Housing Finance Agency (FHFA) over rep and warranty repurchases. Tied to JPMorgan's earlier settlement with the FHFA, the bank agreed to pay $1.1 billion to cover repurchase claims on whole loans sold to the GSEs between 2000 and 2008, in addition to the $4 billion payment to address FHFA's claims of alleged violations of federal and state securities laws in connection with $33.8 billion of privatelabel securities (PLS) purchased by the GSEs between 2005 and 2007 from JPMorgan, Bear Stearns, and Washington Mutual. In conjunction with the FHFA settlement, JPMorgan also reached individual agreements with each of the GSEs to resolve representation and warranty claims related to single-family mortgage purchases by the two companies. The bank agreed to pay $670 million to Fannie Mae and $480 million to Freddie Mac. The larger $13 billion record-setting settlement involving JPMorgan was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal unit formed in 2012 by President Obama to investigate wrongdoing within the mortgage-backed securities market that helped to trigger, contribute to, or exacerbate the U.S. financial crisis. New York Attorney General Eric T. Schneiderman co-chairs the RMBS Working Group. The landmark settlement comes 13 months after Schneiderman sued JPMorgan for fraudulent RMBS packaged and sold by Bear Stearns before it was acquired by JPMorgan at the behest of government officials at the Federal Reserve, FDIC, and U.S. Treasury. In announcing the settlement, Schneiderman said, "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. This historic deal . . . is exactly what our working group was created to do." He continued, "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." Separately, the FDIC announced that it also reached a settlement with JPMorgan Chase and its affiliates in relation to the failure of six banks. The FDIC, acting as receiver for the failed institutions, says misrepresentations were made in the offering documents for 40 RMBS purchased by the now-defunct banks. JPMorgan agreed to pay $515.4 million, which will be distributed among the receiverships for the failed Citizens National Bank (failed May 22, 2009), Strategic Capital Bank (May 22, 2009), Colonial Bank (August 14, 2009), Guaranty Bank (August 21, 2009), Irwin Union Bank and Trust Company (September 18, 2009), and United Western Bank (January 21, 2011). From May 2012 to September 2012, the FDIC as receiver for five of the failed banks filed 10 lawsuits against JPMorgan Chase, its affiliates, and other defendants for violations of federal and state securities laws in connection with the sale of RMBS. As part of the global settlement reached, JPMorgan acknowledged it made serious, material misrepresentations to the public— including the investing public—about VISIT US ONLINE @ DSNEWS.COM numerous RMBS transactions, according to a statement on the New York attorney general's website. JPMorgan Chase says it is fully reserved for the recent settlements. The bank held about $23 billion in litigation reserves as of the end of the third quarter. Fitch Ratings says JPMorgan's recent litigation matters set "a relatively high bar" for other banks still facing litigation from FHFA or other federal entities. Fitch called the settlement amounts "substantial, particularly given the level of todate losses" on the underlying securities. "This reflects the more aggressive stance taken by the federal government in resolving litigation against the banks involving precrisis matters," Fitch said, adding that some banks "may need to increase the size of their litigation reserves to reflect the comparative amounts of recent settlements." Jury Returns Decision of Liability in BofACountrywide Case A 10-person panel of jurors is holding Bank of America (BofA) and a mid-level manager liable for high-risk mortgages sold to Fannie Mae and Freddie Mac that were originated by Countrywide through a program known as Hustle. After hearing arguments for four weeks in a Manhattan federal court, the jury in late October returned a decision finding BofA liable on one charge of fraud in the civil case. Jurors also decided Rebecca Mairone, who worked for Countrywide from 2006 to 2008 as COO of one of its lending divisions, was liable in the civil fraud charge brought against her by the Justice Department. It's among only a handful of cases stemming from the subprime and foreclosure crisis to go to trial and the first time an individual has been singled out as being responsible for personally contributing to the housing market's implosion—and government officials are relishing the victory. "Bank of America chose to defend Countrywide's conduct with all its might and money, claiming there was no case here. The jury disagreed," said Preet Bharara, Manhattan U.S. attorney and the prosecutor in the case. Bharara says the Hustle program treated quality control and underwriting "as a joke" and he faulted BofA and Mairone for "making disastrously bad loans and systematically removing quality checks in 87

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