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JPMorgan Reaches Tentative $4 Billion Housing Settlement: WSJ

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Jamie Dimon, president and chief executive officer of JPMorgan Chase, is questioned by reporters as he arrives with other financial leaders for a meeting with President Barack Obama regarding the debt ceiling and the economy at the White House in Washington, Wednesday, Oct. 2, 2013. (AP Photo/Charles Dharapak) | AP

JPMorgan Chase has reached a tentative deal to pay $4 billion to settle claims it sold bad mortgages to government agencies ahead of the financial crisis, the Wall Street Journal reported on Friday.

The Federal Housing Finance Agency has accused the biggest U.S. bank by assets of misleading Fannie Mae and Freddie Mac about the quality of mortgages it sold to them during the late-2000s housing boom. The questionable sales include many made by Bear Stearns and Washington Mutual, two banks JPMorgan bought during the financial crisis.

Any settlement would be part of a wider government probe, also involving the Justice Department, which has been looming over JPMorgan for months. Reports circulated in September that the bank might end up paying as much as $11 billion in total to various agencies to settle the case.

The FHFA settlement seems to be less than the $6 billion the agency originally sought, according to CNBC. However, the deal won't be finalized until a broader deal with the Justice Department is reached, WSJ reports.

From Reuters:

By Aruna Viswanatha and David Henry

WASHINGTON/NEW YORK, Oct 18 (Reuters) - JPMorgan Chase & Co has reached a tentative $4 billion deal with the U.S. Federal Housing Finance Agency to settle claims that the bank misled government-sponsored mortgage agencies about the quality of mortgages it sold them during the housing boom, according to a person familiar with the matter.

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 $11 billion global settlement with government agencies, including the U.S. Department of Justice.

The $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 Department of Justice have discussed a broader deal under which JPMorgan would pay $7 billion of cash and $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.

Baring a complete breakdown in talks with the 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 Reuters 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 some $33 billion. A $4 billion deal would amount to about 12 cents on the dollar, less than the 20-cent rate under an earlier settlement by Switzerland-based bank UBS AG, said Josh Rosner, managing director of Graham Fisher & Co, a New York research consultancy.

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.

CEO Jamie Dimon went to Washington to meet with U.S. 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 from bank regulators.

JPMorgan reported its first quarterly loss under Dimon on Friday as the company recorded a $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 $23 billion.

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