JPMorgan Chase & Co has reached a tentative US$4 billion deal with the US Federal Housing Finance Agency (FHFA) to settle claims that the bank misled government-sponsored mortgage agencies about the quality of mortgages it sold them during the housing boom, a person familiar with the matter said.
JPMorgan and the FHFA, which is pursuing claims on behalf of finance agencies Fannie Mae and Freddie Mac, have agreed on the amount as a tentative part of a potential US$11 billion global settlement with government agencies, including the US Department of Justice.
The US$4 billion figure was first reported on Friday by the Wall Street Journal.
A spokesman for JPMorgan declined to comment as did a spokeswoman for the FHFA.
The bank and the US Department of Justice have discussed a broader deal under which JPMorgan would pay US$7 billion of cash and US$4 billion of consumer relief, to cover claims from the FHFA and other government agencies.
JPMorgan is seeking a single settlement to resolve all claims from federal and state agencies over its mortgage-related liabilities stemming from the bust in house prices.
Barring a complete breakdown in talks with the US Department of Justice, a final deal between the bank and the FHFA is unlikely to happen outside of a broader pact, a person familiar with the matter told reporters on Friday.
Earlier this week, others familiar with the talks said negotiations continued between the justice department and JPMorgan, with the bank circulating several proposals.
The FHFA has sued JPMorgan over mortgage loans totaling about US$33 billion.
A US$4 billion deal would amount to about US$0.12 on the dollar, less than the US$0.20-rate under an earlier settlement by Switzerland-based bank UBS AG, New York research consultancy Graham Fisher & Co managing director Josh Rosner said.
At first glance, the tentative settlement looks like “a great deal for JPMorgan,” Rosner said.
He cautioned that it is unclear how comparable the deals are because the loans at issue have different origins and differences between the balances owed are not known.
Chief executive officer Jamie Dimon went to Washington to meet with US Attorney General Eric Holder on Sept. 26 to advance those discussions, but a deal has not been forthcoming.
Though Dimon is intent on getting the legal issues behind the bank, a sore spot with him and other JPMorgan directors has been how much the company will have to pay for bad mortgage deals done by Washington Mutual and Bear Stearns, two troubled institutions that JPMorgan took over during the financial crisis with the encouragement of bank regulators.
JPMorgan reported its first quarterly loss under Dimon on Friday as the company recorded a US$7.2 billion hit from litigation expenses largely to build its reserves to settle lawsuits over mortgages. The bank said all of its legal reserves now amount to US$23 billion.