JPMorgan Chase & Co.
) continues to be embroiled in legal hassles related to the sale
of risky mortgage backed securities (MBS). Now, the U.S. housing
regulator - the Federal Housing Finance Agency (FHFA) - is
seeking a minimum of $6 billion as fine to settle lawsuits over
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In 2011, the FHFA, which oversees Fannie Mae and Freddie Mac,
sued JPMorgan over the sale of $33 billion worth MBS to Fannie
Mae and Freddie Mac by making false and misleading statements
related to the quality of loans. Apart from JPMorgan, 16 other
major banks including
Bank of America Corporation
) were sued on similar charges.
The regulator charged Washington Mutual and Bear Stearns Cos. -
both acquired by JPMorgan in 2008 - of misrepresenting facts
about the quality of loans underlying MBS. These securities were
sold to Fannie Mae and Freddie Mac during 2005-2007.
While JPMorgan is in negotiation with the FHFA to resolve the
lawsuits, some banks have already been successful in reaching a
settlement. Among these, are Citigroup, which agreed to the
settlement of an undisclosed amount and UBS, which conceded to
pay $885 million.
Additionally, JPMorgan is facing investigations from the
Department of Justice (DOJ) and the Securities and Exchange
Commission (SEC). In May 2013, the company received a notice from
the Civil Division containing the preliminary inquiry's
conclusion, which declared the company guilty of violating
several federal security laws at the time of selling residential
MBS during 2005-2007.
As a matter of fact, JPMorgan faces several lawsuits related to
its conduct preceding the financial crisis. If the company is
required to pay $6 billion to settle the case, it will increase
its legal expenses. Notably, at the end of second-quarter 2013,
the company increased its anticipated legal losses (exceeding its
existing litigation reserves) to $6.8 billion from $6.0 billion
in the prior quarter.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).