JPMorgan Mortgage Deal Criticized for Not Involving Trustees









JPMorgan Chase Co.’s $4.5 billion settlement with mortgage-bond investors over claims of faulty home loans should be reviewed closely because it was negotiated without the involvement of the securities’ trustees, objectors to the pact told a New York State judge.

The deal resolved claims relating to the underwriting and servicing of loans in more than 300 residential mortgage-backed securitization trusts. It was negotiated by New York-based JPMorgan and a group of 21 institutional investors, including BlackRock Inc. and Pacific Investment Management Co., that held more than $24 billion, or 32%, of the securities issued by the trusts, according to court papers.

JPMorgan, the largest U.S. bank, announced the accord in November 2013, a week before it agreed to a record $13 billion settlement with the U.S. over faulty mortgage securities. The bank entered into the lawsuit settlement as part of its effort to move past cases tied in part to the housing crisis.

The Federal Home Loan Bank of Boston and other objectors to the deal told New York State Supreme Court Justice Marcy Friedman in Manhattan today that the settlement was negotiated by a group of investors with ties to JPMorgan and that the bank paid for the evaluation of the pact by the securities’ trustees, who weren’t a party to the talks. They’re asking for more information about the deal.

“We see the settlement as a race to the bottom to flush those massive losses down the drain,” Derek W. Loeser, an attorney with Keller Rohrback LLP representing the Federal Home Loan Bank of Boston, said in court. His client paid almost $2 billion for securities issued by 37 of the more than 300 trusts.

The trustees, including U.S. Bank NA and Bank of New York Mellon Corp., filed a petition in August seeking approval of the settlement.

Matthew Ingber, an attorney for Bank of New York Mellon with Mayer Brown LLP, said the trustees completed an “exhaustive evaluation process” of the settlement and notified investors in the trusts six times before requesting approval.

The trustees agreed to the accord to avoid litigation “that could take many years and produce no certain outcome,” Ingber told the judge.

Pools of home loans securitized into bonds were central to the housing bubble that helped send the U.S. into the worst recession since the 1930s. The housing market collapsed and the market for the securities evaporated.

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