Thursday, November 21, 2013

The Much-Ballyhooed JP Morgan Settlement Is Just a Scam!

Here's how this so-called "big" fraud settlement is itself a big fraud.
Photo Credit: pcruciatti/Shutterstock.com
 
David Dayem
Alternet
 
The first thing you need to know about JPMorgan Chase’s long-awaited  $13 billion dealwith the Justice Department — to settle a number of civil lawsuits related to the fraudulent sale of mortgage-backed securities — is that it’s not a $13 billion deal. $4 billion of this figure, over 30 percent, was  announced almost a month ago as the conclusion of a lawsuit between JPMorgan and the Federal Housing Finance Agency. 
 
Attorney General Eric Holder, wanting to stand at a podium and give out a really big settlement number, simply folded the FHFA settlement into the Justice Department’s. Why news editors who have  already reported on the FHFA settlement would let the Justice Department use it again in its headline figure is completely beyond me. They aren’t obligated to do the Justice Department’s P.R. for them. We don’t say the Miami Heat beat the San Antonio Spurs 200-98, but 100 of those points came from a previous game.

So, let’s talk about this $9 billion settlement. Even that headline number doesn’t really reflect the actual penalty to JPMorgan Chase’s bottom line. Nearly half of the figure comes in the form of “mortgage relief,” which an independent monitor (and what’s so independent about a monitor chosen by the bank?) has four years to distribute. Any time you extend the time horizon of a penalty, you’re reducing its real value. And in this case, there’s not much value here to begin with.

The bank only has to put $1.2 billion of the $4 billion into first-lien principal reductions for homeowners facing foreclosure. $300 million goes toward extinguishing second liens, like a home equity line of credit. Another $300 million is earmarked for principal forbearance, where the homeowner still owes the money but gets to skip a few immediate payments. $2 billion would go toward interest-rate reductions or refinancing or even writing new mortgages for moderate-income borrowers (that’s a penalty, writing mortgages that pay the bank interest?), and the balance toward anti-blight provisions like bulldozing homes or buying out properties where the bank has delayed foreclosure.

Read More