In $13 Billion Settlement, JPMorgan May Have Gotten a Good Deal - NYTimes.com - 0 views
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One way to determine whether JPMorgan has gotten off lightly is to calculate the settlement payments as a percentage of the subprime and Alt-A mortgages that the bank sold. From 2004 through 2007, JPMorgan, along with Washington Mutual and Bear Stearns, sold around $1 trillion of mortgages, according to Inside Mortgage Finance, an industry publication. So far, JPMorgan has paid or set aside about $25 billion to meet claims that the loans should not have been sold. In other words, that sum is 2.5 percent of the total, though that figure could increase as the bank strikes other settlements.
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Since the crisis, many attempts have been made to assess how many of the subprime and Alt-A mortgages inside the bonds were of too low a standard. The results are staggering.
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Occupancy was a focus of one of the lawsuits that was wrapped into the government settlement. The suit, brought by Federal Housing Finance Agency, alleged that, in one bond deal, 15 percent of the loans were for a second home, five times the level stated in the deal’s prospectus. Most of those loans probably defaulted, which means the ultimate loss rate on the bond was probably far higher than 2.5 percent.
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Some plaintiffs even assert that practically all the loans should never have been included in some bonds issued in 2006 and 2007. For instance, in litigation against Bear Stearns, private investors, after doing analyses of the underlying mortgages, have asserted that 80 to 100 percent of the loans did not meet minimum standards, according to a survey of court filings by Nomura bank.