WASHINGTON — JPMorgan Chase & Co. has tentatively agreed to pay $13 billion to settle allegations about the quality of mortgage-backed securities it sold before the 2008 financial crisis, a person familiar with the negotiations between the bank and the federal government said Saturday.
If the agreement is finalized it would be the highest-profile enforcement action related to the financial meltdown that plunged the economy into the deepest recession since the Great Depression of the 1930s.
The person, who spoke on condition of anonymity because the deal has not been finalized, said Attorney General Eric Holder, Associate Attorney General Tony West, JPMorgan CEO Jamie Dimon and the bank's general counsel, Stephen Cutler, negotiated the tentative settlement in a Friday night phone call.
The person said the tentative agreement does not resolve a criminal investigation of the bank's conduct.
On Friday night, Holder told the bank that a non-prosecution agreement was a nonstarter — meaning that the Justice Department will continue the criminal investigation, said the person. As part of the deal, the Justice Department expects JPMorgan to cooperate with the criminal probe of the bank's issuance of mortgage-backed securities between 2005 and 2007.
Spokesmen for JPMorgan and the Justice Department declined to comment.
Of the $13 billion, $9 billion is fines or penalties and $4 billion will go to consumer relief for struggling homeowners, the person said.
When the housing bubble burst in 2007, bundles of mortgages sold as securities soured and the investors who bought them lost billions. In the aftermath, public outrage boiled over that no high-level Wall Street executives were sent to jail. Some critics demanded that big bailed-out banks and senior executives be held accountable.
In response, the government in January 2012 set up a task force of federal and state law enforcement officials to pursue wrongdoing with regard to mortgage securities.