JPMorgan Chase & Co
) recently agreed to settle a mortgage related lawsuit by
shelling out $18.3 million. The settlement comes on the back of
Bear Stearns' failure to divulge the actual interest rates on
mortgage documents with adjustable-rates. Bear Stearns was
acquired by JPMorgan in Jun 2008.
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The mortgage lawsuit was filed in 2007 by complainants who had
opted for home loans carrying an adjustable interest rate. At
that time, the loans were provided by Bear Stearns unit, EMC
Mortgage, based in Lewisville, Texas. This firm specialized in
purchasing and servicing troubled mortgages. However, the firm
was taken over by JPMorgan during the recent economic meltdown.
The charges against JPMorgan and Bear Stearns alleged that the
companies deliberately refrained from revealing the resetting of
introductory interest rates. The documents related to mortgages
deceived customers by concealing the fact that the borrowers'
principal balance on loan would rise on the payment of the
minimum monthly amount.
Further, the lawyers representing the litigants are trying to
resolve two similar cases against JPMorgan in connection with
option adjustable rate mortgages. Recently, in August, JPMorgan
had agreed to disburse $10 million in order to settle a similar
lawsuit in connection with loans provided to its customers by
Washington Mutual, which was acquired by JPMorgan in 2008.
Additionally, JPMorgan agreed to expend a further $2 million to
settle charges against Lending 1st Mortgage associated with the
sale of a small set of mortgage loans. However, in 2012, Lending
1st had agreed to compensate by paying $150,000 in order to
settle charges filed against it. Nevertheless, the case awaits a
ruling in the US District Court in Oakland, Calif.
The lawsuit is expected to heighten JPMorgan's legal woes. The
bank is already burdened with a series of regulatory
investigations pertaining to the sale of risky MBS preceding the
financial crisis as well as the $6 billion trading loss it
incurred in the London Whale derivatives scandal. All these
factors are expected to add to JPMorgan's anticipated legal
expenses in the near term.
Apart from JPMorgan, other banks including
Bank of America Corporation
) are also combating similar lawsuits associated with the sale of
mortgage backed securities, prior to 2008.
JPMorgan currently carries a Zacks Rank #3 (Hold).