Justice News

Department of Justice
Office of Public Affairs

Tuesday, February 4, 2014
JPMorgan Chase to Pay $614 Million for Submitting False
Claims for FHA-insured and VA-guaranteed Mortgage Loans
Department of Justice today announced that JPMorgan Chase (JPMC) will
pay $614 million for violating the False Claims Act by knowingly
originating and underwriting non-compliant mortgage loans submitted for
insurance coverage and guarantees by the Department of Housing and Urban
Development’s (HUD) Federal Housing Administration (FHA) and the
Department of Veterans Affairs (VA).  JPMC is a bank and financial
services company headquartered in New York.

“The resolution announced today is a product of the Justice
Department’s continuing efforts to hold accountable those whose conduct
contributed to the financial crisis,” said Associate Attorney General
Tony West.  “This settlement recovers wrongfully claimed funds for vital
government programs that give millions of Americans the opportunity to
own a home and sends a clear message that we will take appropriately
aggressive action against financial institutions that knowingly engage
in improper mortgage lending practices.” 
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.  “I thank U.S. Attorney Bharara and his team for their
stellar efforts in this case and look forward to our coordinated
efforts in these cases.”

As part of the settlement, which was handled by the U.S.
Attorney’s Office for the Southern District of New York, JPMC 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 applicable agency underwriting requirements. 
JPMC further admitted that it failed to inform the FHA and the VA when
its own internal reviews discovered more than 500 defective loans that
never should have been submitted for FHA and VA insurance.

“For years, JPMorgan Chase has enjoyed the privilege of
participating in federally subsidized programs aimed at helping millions
of Americans realize the dream of homeownership,” said U.S. Attorney
for the Southern District of New York Preet Bharara.  “Yet, for more
than a decade, it abused that privilege.  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.  With today’s settlement, however, JPMorgan
Chase has accepted responsibility for its misconduct and has committed
to reform its business practices.  This settlement adds to the list of
successful mortgage fraud cases this office has pursued.”

Beginning as early as 2002, JPMC falsely certified that loans it
originated and underwrote were qualified for FHA and VA insurance and
guarantees.  As a consequence of JPMC’s misrepresentations, both the FHA
and the VA incurred substantial losses when unqualified loans failed
and caused the FHA and VA to cover the associated losses.

“This settlement with JP Morgan Chase will enable HUD to recover
funds lost due to Chase’s past unacceptable mortgage underwriting
practices,” said HUD’s Acting General Counsel Damon Smith.  “In
addition, Chase must now institute new and tighter controls to prevent
abuses of FHA’s automated underwriting system.  HUD will continue
working with the Department of Justice to ensure that lenders are held
accountable and are required to institute practices that will benefit
both borrowers and the FHA insurance fund.”

“The agreement reached with JPMC was possible due to the dedication
of the U.S. Attorney’s Office for the Southern District of New York and
the hard work of the talented staff at the Office of Inspector
General,” said Inspector General of the Department of Housing and Urban
Development David A. Montoya.  “It also demonstrates the combined
commitment of the Justice Department and the Office of Inspector General
to continuing efforts to enforce FHA mortgage insurance requirements.”

The FHA’s Single Family Mortgage Insurance Program enables low- and
moderate- income borrowers to purchase homes by insuring qualified
loans made by participating lenders, such as JPMC, against losses if the
loans later default.  A participating lender may only submit to the FHA
creditworthy loans meeting certain requirements and must maintain a
quality control program that can prevent and correct any deficiencies in
the lender’s underwriting practices.  The VA’s Loan Guaranty Program
provides similar assistance to veterans, service members and qualifying
surviving spouses.

“I commend the efforts of the United States Attorney’s Office for
the Southern District of New York to hold lenders accountable for
conduct that defrauds the government and deserving veterans who rely on
VA’s Loan Guaranty Program to purchase their homes,” said Acting
Inspector General for the Office of Inspector General, Department of
Veterans Affairs Richard J. Griffin.

The settlement resolves allegations in a complaint filed by a private whistleblower.

Today’s settlement is part of efforts underway by President
Obama’s Financial Fraud Enforcement Task Force (FFETF), which was
created in November 2009 to wage an aggressive, coordinated and
proactive effort to investigate and prosecute financial crimes.  With
more than 20 federal agencies, 94 U.S. Attorney’s Offices and state and
local partners, it is the broadest coalition of law enforcement,
investigatory and regulatory agencies ever assembled to combat fraud. 
Since its formation, the task force has made great strides in
facilitating increased investigation and prosecution of financial
crimes; enhancing coordination and cooperation among federal, state and
local authorities; addressing discrimination in the lending and
financial markets; and conducting outreach to the public, victims,
financial institutions and other organizations.  Over the past three
fiscal years, the Justice Department has filed more than 10,000
financial fraud cases against nearly 15,000 defendants, including more
than 2,700 mortgage fraud defendants.  For more information on the task
force, visit www.stopfraud.gov .

This settlement was the result of a coordinated effort among the
U.S. Attorney’s Office for the Southern District of New York , the
department’s Civil Division, the Department of Housing and Urban
Development’s Inspector General and the Department of Veterans Affairs’
Inspector General.