Federal Housing Finance Agency is asking for over $6 billion in fees from JPMorgan bank based on allegations that the bank falsely sold securities to government supported mortgage companies.
The $6 billion in fees the Federal Housing Finance Agency is requesting from JPMorgan marks the single largest penalty on record for any bank dealing with government authorities and one of the largest to date to stem from the financial crisis. JPMorgan however is challenging the debt. Charges in this case include mis-selling securities to government supported mortgage companies in which the FHA reports the bank falsely claimed loans totaling over $33 billion in addition to misleading the government on the financial situations of borrower are involved.
The suit pending for JPMorgan is one of 17 started by the Federal Housing Finance Agency on individual banks in 2011 and for JPMorgan comes in addition to the ‘London Whale trading scandal and addition upcoming penalty charges for its alleged manipulations of the commodities market.
Fannie Mae and Freddie Mac, the two companies involved in the suit are government backed businesses that guarantee mortgages. In addition both companies purchase securities for their own company portfolios. After JPMorgan sold the companies securities to the $33 billion dollars in mortgages, values fell sharply as borrowers’ defaulted beginning in 2007.
JPMorgan is challenging the total amount requested but according to authorities is preparing for a settlement that will still result in billions of additional dollars. This pending case attributes to the estimations released by JPMorgan estimating an additional $6.8 billion in legal and litigation costs that could exceed expenses. The combination of the ‘London Whale’ Scandal, fees requested for this case by the Federal Housing Finance Agency and other pending suits are mounting a debt for the company that will result in billions of additional dollars spent.
Although many of the cases that stem from the financial crisis have seen banks paying out large sums of the originally requested fees, there is still hope JPMorgan may receive a reduced settlement for this particular case and even a possibility that the bank could win the case in court. The large settlement requested for this claim is due in part to the charges suggesting fraud which increases the total amount significantly.
JPMorgan is arguing that many of the securities sold to the two companies were originally purchased from Washington Mutual and Bear Sterns with the support of U.S government while the two banks struggled during the financial crisis. If significant evidence of this action can be presented, the bank argues is cannot be held accountable for the misdeeds of the companies will attempting to assist during the crisis.
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