Deal settles lawsuit brought by Federal Housing Finance Agency – but has still to agree on bond sales fine

JP Morgan reached a $5.1bn (£3.2bn) settlement with the US mortgage company regulator on Friday as the bank continues to negotiate with the justice department over what is expected to be an even larger fine related to bond sales.

The deal settles a lawsuit brought by Federal Housing Finance Agency (FHFA), which regulates government-backed loan firms Fannie Mae and Freddie Mac. The FHFA alleged JP Morgan misled Fannie and Freddie about the quality of mortgages it sold to them during the housing boom. The settlement included $4bn to end a lawsuit over securities disclosures and $1.1bn covering mortgage repurchases.

"This is a significant step as the government and JP Morgan Chase move to address outstanding mortgage-related issues," said FHFA acting director Edward DeMarco. He said the resolution "provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae's and Freddie Mac's assets on behalf of taxpayers."

The justice department and the bank continue to negotiate a wider investigation into the bank's past sales of mortgage bonds that could total another $9bn - $4bn in consumer relief, $3bn for investors who purchased poor-performing securities issued by the bank and another $2 billion in penalties.

Jamie Dimon, JP Morgan's chief executive office, has been seeking to resolve a batch of issues with regulators and a mass settlement was expected this week.

Talks appear to have foundered, however, after the bank sought to hold government-backed insurer the Federal Deposit Insurance Corporation (FDIC) liable for part of the payment, according to reports.

The justice department is opposing the bank's request that the FDIC assumes liability for investors' losses stemming from Washington Mutual, the lender it acquired in 2008 at the government's request at the height of the financial crisis. It is as yet unclear whether the bank will be able to pursue the FDIC for repayment of the FHFA penalties.

The bank has already agreed to pay the Commodity Futures Trading Commission (CFTC) $100m for "reckless behavior" relating to the $6bn losses made by the so-called London Whale trader.

The bank is also negotiating a settlement with a dozen bondholders including BlackRock and Allianz over the sale of mortgage securities that went wrong. That agreement could land the bank with another $6bn payment.

In addition, the bank is facing a federal investigation into whether it hired the children of top Chinese government officials in an attempt to win business in the country. The hirings could potentially violate the foreign corrupt practices act.

© Guardian News and Media 2013

[Image via Agence France-Presse]