Earlier this year federal regulators were ready to prepare a list of enforcement consequences and fines against the largest bank, JP Morgan Chase. This stemmed from pending lawsuits by the Federal Housing Financial Agency – who accused JP Morgan of unlawful practices during the height of mortgage recession. From 2005 to the housing collapse in 2008, it was suggested JP Morgan packaged and sold mortgage loans to Fannie Mae and Freddie Mac that violated numerous federal securities laws. This of course is in correlation with Alt-A mortgages, a niche in the mortgage industry that stuttered to a a collapse in 2008, along with the sub-prime market. Yet, somehow JP Morgan has now avoided these investigations by settling with the Justice Department for $13 billion dollars.
The Domino Effect
In January of this year, several banks, including JP Morgan were named in a Independent Foreclosure Review Agreement. Due to deficiencies in mortgage processing and servicing, a fund was developed to pay back to homeowners for losses. The payments would be assigned to homeowners who entered into foreclosure between January 2009 until December 31, 2010. The payments were to be issued to the homeowners, but the settlement between over a dozen of the big banks and the Office of the Comptroller of the Currency and the Federal Reserve Board never made big news. Reportedly, homeowners had been contacted prior to the deadline of December 31, 2012. Payments averaged between $300 to $125,000 for over 4 million homeowners.
While JP Morgan settles with the Justice Department to avoid investigations for $13 billion, further yet are the many homeowners to continue to lose big. In 2008 alone, more than 850,000 families lost their homes, resulting in a spike of 226 percent of foreclosures from numbers in 2006. The foreclosure programs implemented failed to make a dent, while the numbers continued to spike into the millions of families walking away from their largest asset – raising the numbers of unemployment which still affect millions today.
The sub-prime market exploded in the mid to late 90’s, offering an opportunity to low-income, low credit scoring individuals to own property. The softened parameters included 100 percent financing of purchases and refinances for borrowers with credit scores as low 500. Sub-prime lenders monopolized the industry, drawing customers with promises of closing without an appraisal until funding of the loan and packaging the loan off to the secondary market.
The Alt-A market also exploded with loans, promising lower interest rates with Adjustable-Rate Mortgages (ARMS) that would keep a low payment for three, five or even 10-years. Thereafter, the rate could spike two percent every year with a max increase set at typically five or six percent. This process started catching up with homeowners who needed to refinance. Bloated appraisals started occurring in the mortgage industry to offset the costly ARM and negative amortization loans, resulting in one of the largest financial collapses in any one industry in 2008.
When foreclosure filings increased into troubling numbers, so did bankruptcies and unemployment rates- setting off a domino effect that continues today. Many low-income neighborhoods sit abandoned, houses boarded up as homeowners struggle to surface from the financial drowning experienced through the last several years. In 2009, the housing market in Michigan reached a pinnacle of drastic depression. The median home value fell to $7,000, allowing investors to come in and purchase the properties to invest another $20,000 into repairs and rent out the properties.
While JP Morgan is negotiating a deal with the United States to walk away from numerous lawsuits and investigations, this leaves no room for comfort for the millions of homeowners still struggling. Certainly, borrowers had the right to read disclosures and may had been aware of their payments- but felt it was their only chance to get a home and signed. In the sub-prime market, lenders like JP Morgan touted loans with requirements that included no income verification or bank statements for income verification. Lack of oversight, future analysis and uneducated consumers blossomed into a bubble that finally burst five years ago.
What is Next for JP Morgan?
The specific details of the settlement with the Justice Department are not fully disclosed at this time. Further yet, many are wondering the exact punishment when the bank will use consumer funds to pay the United States. Just a few short months ago, Attorney General Holder was adamant about the ongoing criminal investigation against JP Morgan. Until, JP Morgan bumped up the settlement amount to $13 billion which is to include $4 billion to the Federal Housing Finance
Agency. The money is to offset allegations that JP Morgan mislead Fannie Mae and Freddie Mac with unlawful securities.
Once JP Morgan bumped their settlement to that amount, Holder backed off the investigations. Is this nothing more than child’s play of bribery? Many consumers feel that way. Speaking to former homeowner and customer of JP Morgan C. Neil, he expressed his distaste at the latest news,
I was 65 when I signed my mortgage with Chase. I was told in two years they would refinance the adjustable mortgage. That never happened, they avoided my calls and my rate increased and the following year increased again. I called for help and was given the runaround. I did receive a pithy $400 check as a sorry several years later. Yet, the feds get $13 billion? This is nothing more than a recycling corruption between the two biggest conspirators- the banks and the government.
Millions may agree with Neil. For now, only time will disclose the specific details of the settlement, including how much of it is actually cash versus coupons or other discounts. Technically, it appears $4 billion will be paid in cash to the Federal Housing Finance Agency, but little else remains clear. The biggest settlement between the largest bank JP Morgan Chase and the Justice Department may be finalizing very soon for $13 billion. This might settle the criminal investigation but it may mean big trouble for CEO of JP Morgan Jamie Dimon, a fall guy is typically needed in matters of this magnitude. For now homeowners continue are aiming to regain their financial footing on a slope that hopefully will even out.