Freddie Mac and Fannie Mae Housing Finance Giants Receive $5.1 billion from JP Morgan
JP Morgan had been facing severe claim issues with Freddie Mac and Fannie Mae Housing Finance Giants who were backed by the government. The claim issues were solved when JP Morgan agreed to pay a sum of $5.1 billion to both the housing finance giants.
There were also further talks with the Department of Justice and the claims could be more expensive for JP Morgan if similar claim issues erupted.
J P Morgan purchased Bear Stearns in 2008. The dispute was that JPMorgan had sold low quality mortgages and securities that created problems later.
Freddie Mac and Fannie Mae Housing Finance Giants invested in these mortgages policy in 2008 and went thru tremendous financial problem when investments in housing nosedived in 2008 and had to seek governmental help of being bailed out.
The final settlement of this claim issue was announced by Federal Housing Finance Agency who in 2008 had helped both the housing giants from a financial washout.
Edward DeMarco heading Federal Housing Finance Agency mentioned that the claims proved that they were responsible to the ordinary tax payers and the assets of these tax payers were conserved thru this settlement. It also added great stability in the marketplace and this was essential.
Edward DeMarco also maintained that this $5.1 billion claim issue was a significant step to attend the various claim issues that were present for a long time. JP Morgan did not undertake any responsibility of doing anything wrong when selling the specified mortgages issues.
Other JP Morgan Claim Problems
$4 billion would be paid by JP Morgan to settle the wrongly representation of mortgage backed securities of Bear Stearns in 2008. As the specified quality levels of the mortgages sold to Fannie and Freddie were not met, JP Morgan would buy back it for a sum of 1.1billion dollars.
JP Morgan maintained that this settlement was a broader effort on their part to solve the problem of mortgage securities and how the government reacted towards the solution. This settlement also reflected the great efforts of governmental agencies like Department of Justice to name a few.
Washington Mutual was taken over by JP Morgan in 2008 after it had crashed when taken over by Federal Deposit Insurance Corporation. The query as to what would happen to the pending reimbursement claim to WaMu is not clear. This basic problem has lead to other issues with the Department of Justice and it is preventing JP Morgan from solving any expensive settlements. WaMu securities were of nearly $1.15 billion, as a part of FHFA or Federal Housing Finance Agency settlement.
The shares of JP Morgan have gone up a little over 20% this year. This was early recognized of as rumors. Federal Housing Finance Agency in 2011 sued around 18 banks over mortgage securities being misinterpreted and JP Morgan was the fourth bank in the list.
UBS in $885 million settled an agreement with Federal Housing Finance Agency in July. Federal Housing Finance Agency also settled with GE and Citigroup but the sum settlement was not disclosed.
JP Morgan being the biggest bank in the country was able to bear the cost of the settlement and it had $2.5 trillion as assets and $21.3 billion as annual income in the year 2012.
There were other legal issues faced by JP Morgan. It paid $1 billion for the London Whale debacle and $80 million over credit card issues.
The bank was alleged to manipulate electric prices in Midwest and California and had to pay $410 million to settle the claim charges. In China also it was involved in various malpractices related to hiring.
The legal expense for the bank was massive and this ate into the third quarter revenue. The CEO Dimon said that this loss was very painful and they would be many more litigation costs that would eat into the earnings of other quarters in the coming years.