Legal woes do not seem to end for JPMorgan Chase & Co. (JPM). Recently, the company agreed to pay $614 million to the U.S. Government to compensate for losses related to the faulty mortgage loans issued in the period before the financial crisis.
As per the deal, JPMorgan will also improve its quality control program to review loans and carefully determine as to whether they meet the criteria for government insurance.
The federal agencies involved in the deal include the United States Attorney's Office for the Southern District of New York, the Federal Housing Administration (:FHA), the United States Department of Housing and Urban Development (:HUD) and the United States Department of Veterans Affairs (:VA).
With the aforementioned settlement, JPMorgan will find respite from the False Claims Act, Financial Institutions Reform, Recovery, and Enforcement Act (:FIRREA) as well as other civil and administrative liability for FHA and VA insurance claims that have been paid to the company since 2002 till the date of the settlement.
In the pre-crisis period, banking majors like JPMorgan indulged in unfair practices that include issuing loans while compromising with the quality. Despite these loans not meeting the eligibly criteria for government insurance, they were released in the market with the sole motive of making profit, thereby neglecting investor security. Consequently, these faulty mortgage loans defaulted, which intensified the financial crisis and the losses were borne by the taxpayers.
The loans and securities backed by government insurance tend to attract larger client base as they are comparatively secure. Therefore, it is mandatory that they go through quality measures and comply with certain set benchmarks.
Though the stringent regulations will tend to weigh on earnings in the near term, they will protect the hard-earned money of investors as well as the taxpayers.
Apart from JPMorgan, other Wall Street biggies that faced similar allegations include Bank of America Corp. (BAC), Citigroup, Inc. (C) and Deutsche Bank AG (DB).
Though JPMorgan was embroiled in several legal hassles, it has steadily steered itself out. Last year, the company resolved most of the litigations, which amounted to a settlement fee of nearly $20 billion. Despite the payment of such a large sum, the company managed to report a profit in the last quarter.
Moreover, the latest deal will expectedly have no impact on JPMorgan’s earnings in the quarters ahead as the company is well prepared to deal with it.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
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