JPMorgan Accepts $13 Billion Fine For Lending Practices

JPMorgan Chase Bank agreed to pay a $13 billion fine to the U.S. government for its role in the disastrous mortgage lending practices that landed more than 15 million American homeowners underwater.

The announcement was made by Eric Schneiderman, the attorney general for New York, who chaired a state and federal workgroup investigating the wrongdoing.

“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,” Schneiderman said in a statement. “This historic deal is exactly what our working group was created to do. We’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”

JPMorgan officials were not given any prison time, despite their role in facilitating a housing crisis where homeowners owe a collective $913 billion more than their homes are worth.

JPMorgan was one of several large banks that issued mortgages and bundled them into securities that sold like stocks. After the housing market plunged and homeowners defaulted in droves, the value of the securities took a dive. Investors, saddled with enormous losses, accused the banks of selling mortgages they knew were doomed.

Homeowners Get $4 Billion in Relief

The government has been investigating those banks, including JPMorgan, for several years and the $13 billion fine is part of the clean-up. It more than triples the previous highest fine ever levied, the $4 billion BP paid for spilling oil in the Gulf of Mexico.

Homeowners are supposed to receive $4 billion as their portion of the $13 billion settlement, but that pales in comparison to the $7 billion compensation going back to investors.

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, will receive $4 billion of the $7 billion. Fannie Mae and Freddie Mac purchased billions of dollars in mortgage securities before 2008 and those investments imploded.

“JP Morgan and the banks it bought sold hundreds of billions of dollars of defective mortgages into the securities markets helping to precipitate the financial crisis,” Michael Stephens, Acting Inspector General of the FHFA said in a statement. “Investors, including Fannie Mae and Freddie Mac, suffered enormous losses not knowing about those defects.”

The remaining $3 billion will go to a credit union association and governments in New York and California, who are expected to pass the compensation along to investors in those states.

A Wall Street banker taking care of Wall Street investors is sure to draw the ire of millions of homeowners, who will have to find compensation, however they can, from the $4 billion.

Metro Areas Hit Hardest

Half the money will be focused on reducing the principal balance of mortgages in areas of the country hit hard by foreclosures.

Here are some cities and percentages of homes that are underwater:

• Las Vegas: 48 percent
• Orlando: 41 percent
• Atlanta: 39 percent
• Chicago: 39 percent
• Tampa: 37 percent
• Miami: 37 percent

The other $2 billion will be used to reduce interest rates on existing loans, offer new loans to moderate- and low-income buyers and keep those loans on the books. JPMorgan also is scheduled to get credit for demolishing foreclosed homes to reduce urban blight.

More Than 12 Million Homes Still Underwater

Zillow Negative Equity Report for Q2 2013 shows that 23.8 percent of homes with a mortgage were in negative equity. That’s about 12.2 million homes, a drop from the peak of 15.3 million (30.9 percent) in 2011. Much of the improvement comes from rising home prices, though foreclosures and short sales have contributed some to the decline.

An independent auditor will supervise the $4 billion in consumer relief to make sure JPMorgan has fulfilled terms of the agreement by 2016. If not, the bank faces another series of penalties.

It is estimated that U.S. home values have plummeted more than $6 trillion since the housing bubble burst in 2006.