JPM's $11bn Mortgage Probe Settlement Hits Skids on Washington Mutual Dispute

The imminent JPMorgan $11bn penalty, which is designed to put an end to a raft of government mortgage product related probes, has hit a roadblock following a dispute with the Federal Deposit Insurance Corp over responsibility for losses at the former Washington Mutual group.

According to unnamed sources cited in media reports, the dispute is over which institution was more responsible for mortgage related losses for the now-defunct Washington Mutual.

Settlement talks allegedly hit the skids as the FDIC could now be left on the hook for billions of dollars in payouts and therefore reduce the amount JPM has to pay in government penalties.

JPM acquired Washington Mutual at the height of the financial crisis for $1.9bn (£1.2bn, €1.4bn). However, it is disputing its responsibility to cover losses incurred by investors on the failed thrift's mortgage securities.

Mortgage-backed securities, also known as asset-backed securities (ABS), are financial products backed by a loan, lease or receivables against assets other than real estate.

They were largely to blame for credit crisis of 2007 and 2008.

Sources say that JPM is currently pegged to pay as much as $7bn in cash and $4bn in consumer relief to settle several mortgage-related probes.

However, while the fines seem hefty, it will only make a small dent in the bank's $21bn profit pool from 2012.

Imminent Settlement

JPMorgan's chief executive Jamie Dimon has met US Attorney General Eric Holder to thrash out an $11bn deal to end the investment bank's raft of mortgage-securities investigations.

The bank has already stumped up nearly $1bn in fines related to the London Whale trading scandal, which has cost the bank billions of dollars in legal losses.

On the same day JPM was ordered to refund $300m to customers after US regulators ruled that two million clients were harmed by the bank's debt collection and other credit card practices.

Regulators also said that there were errors in the way the investment bank pursued customers through the court.

However the refund order is not a fine, so regulators and prosecutors can still slap JPM with financial penalties in the future.