Reporting Profits, J.P. Morgan Sets Aside $1.3 Billion for Foreclosure Fraud Legal Costs

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Wednesday, October 13, 2010 at 11:53 am

Today, J.P. Morgan Chase revealed that it made a third-quarter profit of $4.4 billion, despite dwindling revenues. The bank set aside far less money — $6.6 billion, or 67 percent, less than it did at the same time last year — to cover losses on things like mortgages and credit cards.

But the outlook looks grim for the bank — and especially when it comes to mortgages. This afternoon, about 40 state attorneys general are set to announce a joint investigation into widespread foreclosure fraud. Some analysts argue that the scandal could engulf every mortgage securitized — that is, bundled and sold to investors — in the last seven years. All in all, the crisis could cost banks tens of billions.

And J.P. Morgan’s statement reveals it is battening down the hatches. The company said it has set aside an extra $1.3 billion for possible legal costs. It also said it is carefully reviewing 115,000 mortgage affidavits in an earnings call. (CEO Jamie Dimon tried to reassure call participants by saying there is “almost no chance we made a mistake” with foreclosures.) And it revealed that it increased its mortgage-repurchase reserves by $1 billion. The bank uses that money, now more than $3 billion, to buy back bad mortgages it packaged and sold to investors or the government-sponsored entities, Fannie Mae and Freddie Mac. (Often, the investor makes the bank buy the mortgage back because the documents are faulty.)

That implies J.P. Morgan alone is preparing for a multi-billion-dollar fallout. Watch for other banks to do the same when they reveal their third-quarter earnings, this week and next.

Follow Annie Lowrey on Twitter


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Fred Smith
Comment posted October 14, 2010 @ 2:18 pm

Nobody has brought up the distinct possibility that the loan servicers may well have bundled and sold each of these loans MORE THAN ONCE to differernt investors via the securitization process. THIS COULD BE THE REAL REASON THAT THERE IS NO DOCUMENTATION / PAPER TRAIL. The non-existent documentation and accounting is entirely consistent with this scenario. This means that the entire plan was a true Ponzi scheme in the worst sense. In other words, rather than selling the loan once to investors, as we have all naively been assuming, there is no reason to believe that they did not double-dip or quintuple-dip and sell the exact same loan to completely new buyers. THIS IS A LEVEL OF FRAUD THAT THE AMERICAN PUBLIC HAS NOT YET CONTEMPLATED.


Sherron2k
Comment posted October 14, 2010 @ 4:00 pm

THANKS FRED….YOU GET IT!!!!!


Sherron2k
Comment posted October 14, 2010 @ 4:15 pm

Furthermore, I sincerely think that all of the hype about the AG's offices coming together to investigate this whole thing could very well be just some diversionary hype (in most cases) to calm the people down when in fact it would simply serve the purpose of giving the banks and courts time to catch up on the backlog of foreclosures in the system nationwide and perhaps to retrofit paperwork. The violations, especially what you have described, are not/will not be that difficult to uncover. However, the fallout from a true investigation of this would most certainly implicate state and federal court judges across the board as they have stock in these banks and have played an integral part in perpetuating the process by rubber stamping foreclosures KNOWING that these cases violated the most fundamental requirement of establishing “real party in interest”…. “standing” to bring these foreclosure lawsuits in the first place. To have ruled correctly on these foreclosure lawsuits would have been tantamount to taking a little money out of their pockets and giving it to the homeowner on each and every case.

THESE JUDGES KNEW WHAT THEY WERE DOING!!!


Fred Smith
Comment posted October 14, 2010 @ 4:58 pm

Nobody has brought up the distinct possibility that the loan servicers may well have bundled and sold each of these loans MORE THAN ONCE to differernt investors via the securitization process. THIS COULD BE THE REAL REASON THAT THERE IS NO DOCUMENTATION / PAPER TRAIL. The non-existent documentation and accounting is entirely consistent with this scenario. This means that the entire plan was a true Ponzi scheme in the worst sense. In other words, rather than selling the loan once to investors, as we have all naively been assuming, there is no reason to believe that they did not double-dip or quintuple-dip and sell the exact same loan to completely new buyers. THIS IS A LEVEL OF FRAUD THAT THE AMERICAN PUBLIC HAS NOT YET CONTEMPLATED.


Fred Smith
Comment posted October 14, 2010 @ 5:14 pm

Sherron –

Does it all go back to the 'investors' aka Chinese Government bond holders? Is that what this is all about? One more question: what exactly is the difference between a 'campaign contribution' and a bribe?


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