The bank is hoping to resolve investigations into the sale of mortgage-backed securities from 2005 to 2007.
JPMorgan Chase & Co. resumed settlement talks with the U.S. as authorities prepared to sue the bank in California federal court alleging it misrepresented the quality of mortgage-backed securities it sold from 2005 to 2007, according to a person familiar with the matter.
The government informed JPMorgan it was ready to file a complaint Tuesday in Sacramento, the person said. Shortly after, talks between the bank and Justice Department officials over a possible settlement restarted, said the person, who asked not to be identified because the matter isn’t public.
JPMorgan is seeking to negotiate an accord resolving mortgage-bond investigations being conducted by federal and state authorities, including probes by the U.S. attorneys in Sacramento, Philadelphia and Washington, according to another person briefed on the effort.
The bank had also tried to settle a $6 billion claim by the Federal Housing Finance Agency and an investigation by New York Attorney General Eric Schneiderman, who sued the company in October over mortgage bonds packaged by Bear Stearns Cos., which JPMorgan acquired in 2008, according to the person, who asked not to be identified because the talks are private.
The FHFA sued the bank and 17 other lenders two years ago over faulty mortgage bonds. The agency sought to recoup some of the losses taxpayers were forced to cover when the government took over failing mortgage-finance companies Fannie Mae and Freddie Mac in 2008. Fannie Mae and Freddie Mac, which are regulated by the FHFA, have taken $187.5 billion in federal aid since then.
JPMorgan offered to pay about $3 billion to settle an array of probes, the Wall Street Journal reported today, citing a person familiar with the matter. The Justice Department pressed the bank to pay more, the newspaper said. The Financial Times said the bank is discussing a $4 billion settlement as it seeks to resolve state and federal mortgage claims. The FT cited unidentified people familiar with the situation.
Brian Marchiony, a spokesman for New York-based JPMorgan, declined to comment on settlement talks. Spokespersons for the Justice Department and the FHFA also declined to comment.
U.S. prosecutors in Sacramento had commenced criminal and civil investigations into the securities backed by crisis-era loans, the bank disclosed in an August regulatory filing. Investigators already had concluded that JPMorgan violated civil securities laws stemming from its sales of securities based on loans made to high-risk borrowers and loans that didn’t require documentation proving income, the bank said.