JPMorgan Chase will pay a $614 million settlement for violating the False Claims Act by knowingly originating and underwriting non-compliant mortgage loans it submitted for insurance coverage and guarantees by the Federal Housing Administration and the Department of Veteran Affairs.
“The Department of Justice will continue to hold accountable financial institutions whose irresponsible mortgage lending undermines the housing market and costs the taxpayers many millions of dollars,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery in a statement.
JPMorgan admitted that for more than a decade it approved thousands of FHA loans and hundreds of VA loans that were not eligible for FHA or VA insurance because they did not meet agency underwriting requirements.
The bank also admitted it failed to inform the FHA and VA when the financial institution’s internal reviews discovered more than 500 defective loans that should never have been submitted for FHA and VA insurance.
“JPMorgan Chase put profits ahead of responsibility by recklessly churning out thousands of defective mortgage loans, failing to inform the government of known problems with those loans and leaving the government to cover the losses when the loans defaulted,” said U.S. Attorney for the Southern District of New York Preet Bharara. “With today’s settlement, however, JPMorgan Chase has accepted responsibility for its misconduct and has committed to reform its business practices. “
JPMorgan began falsely certifying loans it originated and underwrote as eligible for FHA and VA insurance as early as 2002. This contributed to both the FHA and VA incurring “substantial” losses when unqualified loans failed, forcing both agencies to cover the associated losses.
The settlement will enable HUD to recover funds that were lost due to JPMorgan Chase’s bad underwriting practices, according to HUD Acting General Counsel Damon Smith. The bank is now required to institute new and tighter controls to prevent abusing the FHA’s automated underwriting system.
This settlement resolves allegations in a complaint followed by a private whistleblower.
Written by Alyssa Gerace