JP Morgan Chase 2013 Annual Report Download - page 324

Notes to consolidated financial statements
330 JPMorgan Chase & Co./2013 Annual Report
federal and state courts in New York and are in various
stages of litigation.
Underwriter Actions. In actions against the Firm solely as an
underwriter of other issuers’ MBS offerings, the Firm has
contractual rights to indemnification from the issuers.
However, those indemnity rights may prove effectively
unenforceable in various situations, such as where the
issuers are now defunct. There are currently such actions
pending against the Firm in federal and state courts in
various stages of litigation.
Repurchase Litigation. The Firm is defending a number of
actions brought by trustees or master servicers of various
MBS trusts and others on behalf of purchasers of securities
issued by those trusts. These cases generally allege
breaches of various representations and warranties
regarding securitized loans and seek repurchase of those
loans or equivalent monetary relief, as well as
indemnification of attorneys’ fees and costs and other
remedies. Deutsche Bank National Trust Company, acting as
trustee for various MBS trusts, has filed such a suit against
JPMC, Washington Mutual and the FDIC in connection with a
significant number of MBS issued by Washington Mutual;
that case is described in the Washington Mutual Litigations
section below. Other repurchase actions, each specific to
one or more MBS transactions issued by JPMC and/or Bear
Stearns, are in various stages of litigation.
In addition, the Firm received demands by securitization
trustees that threaten litigation, as well as demands by
investors directing or threatening to direct trustees to
investigate claims or bring litigation, based on purported
obligations to repurchase loans out of securitization trusts
and alleged servicing deficiencies. These include but are not
limited to a demand from a law firm, as counsel to a group
of 21 institutional MBS investors, to various trustees to
investigate potential repurchase and servicing claims. These
investors purported to have 25% or more of the voting
rights in as many as 191 different trusts sponsored by the
Firm or its affiliates with an original principal balance of
more than $174 billion (excluding 52 trusts sponsored by
Washington Mutual, with an original principal balance of
more than $58 billion). Pursuant to a settlement agreement
with the group of institutional investors, JPMC and the
investor group have made a binding offer to the trustees of
MBS issued by JPMC and Bear Stearns that provides for the
payment of $4.5 billion and the implementation of certain
servicing changes to mortgage loans serviced by JPMC, to
resolve all repurchase and servicing claims that have been
asserted or could have been asserted with respect to the
330 MBS trusts. The offer, which is subject to acceptance by
the trustees, and potentially a judicial approval process,
does not resolve claims relating to WaMu MBS. JPMC and
the trustees have agreed to toll and forbear from asserting
repurchase and servicing claims with respect to most of the
JPMC and Bear Stearns trusts subject to the settlement
during the pendency of the settlement approval process.
There are additional repurchase and servicing claims made
against trustees not affiliated with the Firm, but involving
trusts that the Firm sponsored, which have been tolled.
Derivative Actions. Seven shareholder derivative actions
relating to the Firm’s MBS activities have been filed to date
against the Firm, as nominal defendant, and certain of its
current and former officers and members of its Board of
Directors, in New York state court and California federal
court. In one of the actions, the Firm’s motion to dismiss
was granted and the dismissal was affirmed on
appeal. Defendants have filed, or intend to file, motions to
dismiss the remaining actions.
Government Enforcement Investigations and Litigation. The
Firm resolved actual and potential civil claims by the DOJ
and several State Attorneys General relating to residential
mortgage-backed securities activities by JPMC, Bear Stearns
and Washington Mutual, in addition to resolving litigation by
the Federal Housing Finance Agency, the Federal Deposit
Insurance Corporation and the National Credit Union
Administration. The Firm paid a total of $9.0 billion, which
is comprised of a $2.0 billion civil monetary penalty and
$7.0 billion in compensatory payments (including $4.0
billion to resolve the Federal Housing Finance Agency
litigation) and made a commitment to provide $4.0 billion
in borrower relief before the end of 2017. In connection
with this settlement, including the resolution of litigation by
the Federal Housing Finance Agency, the Federal Deposit
Insurance Corporation and the National Credit Union
Administration, the Firm agreed to waive its right to seek
indemnification from the Federal Deposit Insurance
Corporation, in its capacity as receiver for Washington
Mutual Bank and in its corporate capacity, with respect to
any portion of this settlement relating to residential
mortgage-backed securities activities of Washington Mutual
Bank. The Firm retained its rights to seek indemnification
from the Federal Deposit Insurance Corporation for all other
liabilities relating to the residential mortgage-backed
securities activities of Washington Mutual Bank.
Simultaneously with the resolution of litigation by the
Federal Housing Finance Agency, the Firm also agreed to
resolve Fannie Mae’s and Freddie Mac’s repurchase claims
associated with whole loan purchases from 2000 to 2008,
for $1.1 billion.
The Firm is responding to an ongoing investigation being
conducted by the Criminal Division of the United States
Attorney’s Office for the Eastern District of California
relating to MBS offerings securitized and sold by the Firm
and its subsidiaries. The Firm has also received other
subpoenas and informal requests for information from
federal and state authorities concerning the issuance and
underwriting of MBS-related matters. The Firm continues to
respond to these MBS-related regulatory inquiries.
In addition, the Firm is responding to and cooperating with
requests for information from the U.S. Attorney’s Office for
the District of Connecticut, subpoenas and requests from
the SEC Division of Enforcement, and a request from the
Office of the Special Inspector General for the Troubled
Asset Relief Program to conduct a review of certain
activities, all of which relate to, among other matters,
communications with counterparties in connection with
certain secondary market trading in MBS.