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(AP Photo/Mark Lennihan) Moody’s Investors Service said banks such as JPMorgan Chase and Goldman Sachs were downgraded because the agency is growing more concerned about the ability of the banks to repay their debts.
JPMorgan to pay Fannie, Freddie regulator $5.1 billion over mortgages
First Published Oct 25 2013 04:34 pm • Last Updated Oct 25 2013 04:33 pm

NEW YORK - JPMorgan Chase & Co. will pay $5.1 billion to resolve claims over faulty investments sold to mortgage giants Fannie Mae and Freddie Mac in the lead-up to the financial crisis.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the deal late Friday.

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The $5.1 billion sum is part of a total $13 billion settlement between JPMorgan and the federal government that has been in the works and which could be announced in coming days. The timing was still unclear, according to a person familiar with the matter but who was not authorized to speak publicly.

The agreement would resolve claims that JPMorgan and two troubled banks it purchased during the financial crisis - Bear Stearns and Washington Mutual - packaged bad loans and then sold residential mortgage-backed securities that later went south.

Under the deal, JPMorgan will pay $2.74 billion to Freddie and $1.26 billion to Fannie. In a separate settlement, the bank will also resolve "representation and warranty claims" by paying $1.1 billion more to both entities.

"This is a significant step as the government and J.P. Morgan Chase move to address outstanding mortgage-related issues," Edward DeMarco, the FHFA’s acting director, said in a statement. "Further, I am pleased that a resolution of single family, whole loan representation and warranty claims could be achieved at the same time. This, too, will have a beneficial impact for taxpayers and the housing finance market."

In a statement, JPMorgan said the settlement would resolve the bank’s largest case involving mortgage-backed securities. The claims relate to about $33.8 billion in mortgage securities Fannie and Freddie purchased from JPMorgan as well as Bear Stearns and Washington Mutual.

"Today’s settlements totaling $5.1 billion are an important step towards a broader resolution of the firm’s MBS-related matters with governmental entities, and reflect significant efforts by the Department of Justice and other federal and state governmental agencies," JPMorgan said in a statement.

The settlement announced Friday does not include $4 billion of the broader $13 billion settlement earmarked for homeowner relief, said the person familiar with the matter.

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