This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

JPMorgan at Risk With FHFA Settlement

NEW YORK ( TheStreet) -- JPMorgan Chase (JPM - Get Report) will have to be very careful if it admits wrongdoing as part of an expected $4 billion settlement with the Federal Housing Finance Agency, to avoid opening up major exposure in private mortgage putback lawsuits.

As part of the large settlement expected between the nation's largest bank, the Department of Justice, federal regulators and states' attorneys general, JPMorgan Chase is working on a $4 billion settlement with the FHFA, which regulates Fannie Mae (FNMA) and Freddie Mac (FMCC). Fannie and Freddie were taken under government conservatorship in September 2008.

JPMorgan Chase, Bank of America (BAC) and other major mortgage lenders have already entered into large direct settlements with Fannie and Freddie, over the losses on loans sold directly to the agencies. Those loans were made under Fannie Mae and Freddie Mac guidelines, and the agencies had all the relevant data to make strong cases for settlements.

The FHFA settlement is completely different, because it will cover the losses taken by Fannie Mae and Freddie Mac -- together known as the government sponsored enterprises, or GSEs -- on private label mortgage-backed securities sold to them by JPMorgan. The GSEs bought a huge amount of private label paper during the housing boom. This means that they were buying the same MBS that other institutional investors bought from JPMorgan.

"The Department of Justice now has this mandate that any settlement you make with a company has to include some statement of admission of wrongdoing," says Guggenheim analyst Marty Mosby.

Making an admission of wrongdoing in the direct sale of loans to GSEs is relatively easy, according to Mosby, since a bank "can say that due to a lack of strict controls and overriding acceptance in the marketplace, there was mismanagement, but nothing fraudulent."

But language admitting wrongdoing in the sale of private label MBS to Fannie and Freddie is "very sticky," Mosby says. "That is a critical piece of language. As soon as you admit to any wrongdoing to FHFA, it will affect lawsuits from private investors."

The Wall Street Journal on Wednesday reported that a group of investors, including BlackRock (BLK) and Neuberger Berman are seeking "at least $5.75 billion" from JPMorgan Chase, to recover losses on mortgage-backed securities sold to them by the bank.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
FNMA $2.26 -3.83%
FMCC $2.17 -3.56%
JPM $68.53 0.00%
AAPL $118.44 -2.36%
FB $94.14 0.14%

Markets

Chart of I:DJI
DOW 17,598.20 -91.66 -0.52%
S&P 500 2,098.04 -5.80 -0.28%
NASDAQ 5,115.3820 -12.8990 -0.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs