JPMorgan $13 billion mortgage settlement expected Tues. - sources

By Aruna Viswanatha and David Henry

WASHINGTON/NEW YORK (Reuters) - JPMorgan Chase & Co is expected to announce a $13 billion agreement with the U.S. government on Tuesday to settle claims it overstated the quality of mortgages sold to investors during the housing boom, two people familiar with the matter said.

The civil settlement would mark the end of weeks of tense negotiations between JPMorgan Chase, the largest U.S. bank, and government agencies that were under pressure to hold banks accountable for wrongdoing that led to the housing crisis.

Even after the settlement, the bank faces at least nine other government investigations, covering everything from its hiring practices in China to whether it manipulated the Libor benchmark interest rate.

 

JPMorgan Chase and government agencies led by the Justice Department reached a tentative agreement in mid-October and have been hammering out details since then.

Earlier this week the bank and officials at the U.S. Justice Department and U.S. Department of Housing and Urban Development agreed to terms of a $4 billion relief package that is part of the broader deal, paving the way for the full announcement.

Of the $4 billion, at least $1.5 billion is for the bank to forgive some borrower debt. As much as $500 million more would go to change the terms of loans to lower monthly payments.

The remaining $2 billion would go for assorted measures, including new loans for low- and moderate-income borrowers in areas that have been hard-hit by the housing crisis and for demolishing abandoned homes, a source said.

Last month the Federal Housing Finance Agency announced a related $5.1 billion deal to resolve claims about the quality of mortgage bonds it sold, $4 billion of which is part of the expected announcement.

JPMorgan's negotiations with the Justice Department began in earnest last spring, after Justice Department lawyers in California reached a preliminary conclusion that the bank had violated U.S. civil laws. The Justice Department had looked into mortgage bonds the bank sold from 2005 through 2007, the company disclosed in August.

Government lawyers had prepared to file a lawsuit against JPMorgan in September, and scheduled a news conference to announce it. But they canceled it at the last minute as JPMorgan reached out to government officials to discuss a settlement. Dimon met U.S. Attorney General Eric Holder later that month to talk about a deal on mortgage probes.

OBAMA'S TASK FORCE

The settlement is the most significant action to come out of a task force the Obama administration created in January 2012, years after the height of the financial crisis, to probe the packaging and sale of shoddy home loans.

Lawmakers and others have been critical of the administration's failure to hold Wall Street banks, executives, and other parties accountable for the excesses that resulted in the housing crisis.

The task force included representatives from the Justice Department, the U.S. Securities and Exchange Commission, the New York State Attorney General, among others.

The agencies worked together unusually closely on the lawsuits. The Justice Department sent more than a dozen subpoenas after announcing the working group, then investigators from the inspector general's office at the regulator of Fannie Mae and Freddie Mac helped to build the cases. Meanwhile, U.S. Attorneys offices around the country prepared the lawsuits and opened investigations into possible criminal acts.

(Reporting by Aruna Viswanatha in Washington and David Henry in New York, Editing by Dan Wilchins, Gerald E. McCormick and Jeffrey Benkoe)