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RENEE MONTAGNE, HOST:

The Justice Department announced official yesterday that JPMorgan Chase will pay a record $13 billion in fines and penalties. It is the largest settlement the federal government has ever made with a single company. And it is in response to the damage done by the deluge of toxic mortgages that flooded financial markets during the housing bubble.

NPR's Chris Arnold has more.

CHRIS ARNOLD, BYLINE: A lot of times when big settlements with banks get announced, the banks don't admit any wrongdoing. That frustrates white collar crime watchdogs. But it's different this time. JPMorgan says it made, quote, serious misrepresentations about mortgages. We spoke to Tony West, the U.S. associate attorney general. He was the Justice Department's lead negotiator.

TONY WEST: The conduct JPMorgan has acknowledge, which is packaging risky home loans into securities, then selling them without disclosing their low quality to investors, that is behavior that we believe contributed to the wreckage of the financial crisis.

ARNOLD: During the housing bubble, lots of banks made huge profits selling garbage loans to investors and telling them the loans were good. Millions of Americans ended up mortgages with terms that they couldn't afford. By this time you know the story: massive foreclosures, huge losses. But this is worth noting: The Justice Department is now signaling that it would like to use this settlement as a model to go after other big financial firms.

WEST: We do believe this can be a template that we can use with other financial institutions who have been engaging in the same conduct that we believe needs to be addressed.

ARNOLD: And I don't imagine you're going to tell me who those are, who might be next?

WEST: Stay tuned, stay tuned, Chris.

ARNOLD: OK. So if this settlement could be a model, what exactly does it accomplish? One key part is that there's $4 billion earmarked for consumer relief. Now, to be clear, the bank won't be handing out that money writing checks to homeowners. The way this works is that the bank has a debt to the government of $4 billion and it has to do stuff to pay that off.

MIKE CALHOUN: It does that by helping families stay in their homes and by cleaning up some of the damage caused by foreclosures.

ARNOLD: That's Mike Calhoun, the president of the Center for Responsible Lending.

CALHOUN: And it earns credit for each of those different activities and it has to earn $4 billion of credit under this settlement and provide that relief to families and communities.

ARNOLD: Calhoun likes that as part of that. The government got JPMorgan to commit to doing $1.5 billion worth of principal reductions for homeowners - that is, if someone is struggling to pay a $300,000 mortgage. But with house price declines, the house is only worth now $200,000. If the bank reduces the debt to that current value of the house, that...

CALHOUN: Is one of the most defective ways of preventing foreclosures. And that works out well not just for the homeowners but for the investors themselves.

ARNOLD: There are a range of other initiatives: reaching out to the long-term unemployed to allow them to stay in their homes until they find another job, refinancing people who are stuck in high interest rates, blight abatement in some areas. Calhoun says though all this will only work with good oversight.

CALHOUN: That is essential to make sure that it really benefits Main Street and people who are facing these problems.

ARNOLD: To that end, the settlement calls for an independent monitor to oversee the bank's compliance. HUD says the monitor will be former North Carolina Banking Commissioner Joseph Smith. He already oversees another mortgage settlement that was agreed to by the nation's largest banks. For his part, JPMorgan Chase's chairman and CEO Jamie Dimon, who was speaking on a very scratchy investor conference call, said that the overall company is doing very well. That's despite a string of legal settlements and entanglements.

JAMIE DIMON: Well, we make mistakes and do things wrong. We've always tried (unintelligible) the good, the bad and the ugly and we're always trying to get better. That doesn't mean that the franchises we have aren't doing well.

ARNOLD: One last key part of the settlement: it does not resolve an ongoing federal criminal investigation into the bank. So criminal charges against some individuals could still be brought by the Justice Department. Chris Arnold, NPR News.

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MONTAGNE: You're listening to MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.

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