Major Bank Admits to Illegal Practices and Compensates Homeowners

by on Mar 16, 2015 in Debt News, Debt Settlement

In early March 2015, JPMorgan-Chase agreed to a settlement with the Justice Department's U.S. Trustee Program. It requires the bank to compensate thousands of homeowners, adopt new business practices and accept additional oversight. Chase also had to admit that it violated federal cease and desist orders that were issued in 2011. The financial institution confessed to improper conduct in bankruptcy courts as well.

Wrongdoing

Chase admitted to filing over 50,000 potentially inaccurate documents in the nation's bankruptcy courts. These notices supplied details about changes to mortgage payments. Bank employees and contractors signed the papers without reviewing them to ensure that they contained accurate information. This conduct may have adversely affected the outcomes in thousands of homeowner bankruptcy cases.

The federal government ordered JPMorgan-Chase to bring an end to several unlawful or unethical practices in 2011. Regulators discovered that the bank had filed affidavits without confirming their validity. This means that the lender went to court with questionable facts about mortgage amounts, fees and ownership. They also revealed that it had repeatedly filed loan documents without correctly notarizing them.

The national bank was cited for generally poor management of its foreclosure actions. Regulators found that it didn't establish proper oversight of the staff, contractors or lawyers who foreclose on homes. The lender also created problems by assigning inadequate funds and too few employees to its foreclosure tasks. Despite these findings and the associated cease and desist orders, JPMorgan-Chase continued to engage in such harmful practices.

Settlement

Among other things, the 2015 agreement requires Chase to make the changes it originally agreed to in 2011. It must develop new policies that will provide adequate oversight and put an end to questionable court filings. The U.S. Trustee Program also designated an independent reviewer who will monitor the bank and ensure that it consistently obeys the agreement's terms.

Commenting on the settlement, the trustee program's director said that Chase's actions were "deeply disturbing" and continued long after such behavior was originally uncovered. Cliff White noted that the associated penalties would send a message to lenders about the consequences of abusing borrowers and ignoring bankruptcy laws. He cautioned other banks that they could also face serious penalties if they decide to engage in similar activities.

An associate attorney general spoke about the settlement as well. Stuart Delery said it was "shocking" that the bank's harmful behavior persisted for so many years. He highlighted the fact that Chase personnel certified the accuracy of many important documents without ever examining them. The official warned that the federal justice system would not allow lenders to maintain policies that create unfair conditions for homeowners who need to file for bankruptcy.

Compensation

Approximately 39,000 homeowners can expect to be compensated by JPMorgan-Chase as a result of the 2015 settlement. The bank will have to pay a total of around $50 million. Over 18,000 individuals will gain compensation for delayed or inaccurate escrow statements. They'll receive an average of $265 per person. The mortgage lender also needs to supply refunds and credits to at least 12,000 bankrupt homeowners.

Nearly $5 million will go to people who provided the bank with escrow money that it improperly applied. This portion of the settlement affects over 8,000 property owners, according to the Department of Justice. JPMorgan-Chase must also give about $7 million to programs that educate people about finances and help them resist abusive lending practices.

Analysis

This is not the first time that Chase has been forced to admit wrongdoing and agree to a settlement. In 2014, the bank acknowledged that it had issued VA and FHA mortgages that didn't meet the agencies' standards. It engaged in this practice for at least 10 years. Chase paid $614 million in compensation because its irresponsible lending caused the federal government to lose money by insuring risky loans.

Although previous agreements have not forced major banks to change their ways, increasing regulatory and court action may convince them to adopt more ethical policies. The 2015 settlement provides numerous homeowners with hundreds or thousands of dollars in much-needed compensation. However, it doesn't bar anyone from seeking further restitution from JPMorgan-Chase. The bank's admissions of wrongdoing may actually provide a basis for additional lawsuits.