Misleading Investors With Mortgage Securities: Why JPMorgan Did It Wrong

by Isaac Benmergui, Esq on January 29, 2014

Be still my heart, this news about the major player in the financial game, JPMorgan Chase – they screwed up? How? To think that such a heavy hitter crossed the line in any way would echo that of some corporate Armageddon, a rupture in the real estate law continuum where a reputable corporation can sink into the depths of lawlessness. What did Chase do wrong? There are about 13 billion things Chase actually did wrong.Chase

Specifically, 13 billion dollars in a fraud settlement required by the courts for Chase to pay – that’s what they did wrong. This is in regards to a settlement action over a 2006 meeting over the purchase of some suspect mortgages. The way it began was the recruitment of a third party serving to review such mortgages purchased for securitization from many lenders. The problem was this: many of those mortgages were questionable at best. After reviewing 23K loans, 27% of them didn’t even meet the underwriting guidelines without compensation factors to justify the credit.

Typically a financial institution would cut those bad apples out. Chase didn’t. The company reclassified or simply accepted those faulty mortgage loans, spreading them out among several offerings, allegedly stating that it would lessen the impact considerably. In a sense, Chase was being careless.

Chase did receive warnings, too, from several due diligence employees. But it didn’t matter. Despite all those red flags, they kept selling the messed-up mortgage loans without even considering the repercussions. I call that bad business, and for sure, Chase didn’t chase what really mattered to the benefit of the company.

Previous post:

Next post: