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JPMorgan pays $5.1 billion securities settlement to Fannie, Freddie

JPMorgan pays $5.1 billion securities settlement to Fannie, Freddie
JPMorgan Chase & Co will pay Fannie Mae and Freddie Mac a $5.1 billion settlement to compensate for misleading the housing finance agencies about risky mortgage securities and home loans it sold them before the housing boom collapsed.

The deal is part of a larger settlement still in negotiations with the US Department of Justice.

The settlement was announced Friday by the Federal Housing Finance Agency, which oversees Fannie and Freddie.

"This is a significant step as the government and J. P. Morgan Chase move to address outstanding mortgage-related issues," FHFA Acting Director Edward DeMarco said in a statement.

JPMorgan, the largest bank in the US, said the deal was "an important step towards a broader resolution" of the bank’s mortgage-related issues with the government.

The banking giant sold tens of billions in mortgage securities to Fannie and Freddie, the FHFA said. Those securities tanked as the housing bubble burst in 2007, going down billions in value. The government bailed out Fannie and Freddie during the financial collapse with aid totaling $187 billion. The agencies have since repaid $146 billion, according to AP.

Earlier this month, JPMorgan had reached an agreement with the Justice Department for a $13 billion settlement on allegations regarding the quality of mortgage-based securities, or high risk sub-prime mortgages, that it bundled ahead of the 2008 financial crisis. 

That agreement represented the most significant enforcement action since the government initiated a task force at the federal and state law level to pursue wrongdoing stemming from mortgage securities.

Out of that $13 billion settlement, $9 billion are comprised of fines or penalties, while $4 billion will go to relief for struggling homeowners. 

JPMorgan had set aside $9.2 billion in the July-to-September quarter to cover mounting legal bills, pushing the company into the red in the third quarter for the first time since 2004, and the first loss under CEO Jamie Dimon.