J.P. Morgan to Pay $55 Million to Settle With U.S. Over Alleged Discrimination Against Minority Homeowners -- 2nd Update

By Emily Glazer and Austen Hufford

J.P. Morgan Chase & Co. will settle with the U.S. Department of Justice for $55 million over allegations that independent brokers working for the bank discriminated against minority mortgage seekers, a person familiar with the matter said.

The settlement is related to a complaint U.S. attorney Preet Bharara filed Wednesday alleging that J.P. Morgan Chase Bank charged African-American and Hispanic borrowers higher rates than white borrowers from 2006 to 2009, in violation of the Fair Housing Act.

A J.P. Morgan spokeswoman said the bank agreed to settle "these legacy allegations that relate to pricing set by independent brokers." She added that the bank denies any wrongdoing and is committed to providing equal access to credit.

The complaint alleged that from 2006 until late 2009 the bank used a network of contracted mortgage brokers to bring in loan applications and that these "wholesale" loans had discriminatory rates.

The bank "could have, but failed, to better monitor its wholesale brokers to discourage discrimination," the complaint reads.

A spokeswoman for the U.S. attorney's office of the Southern District of New York declined to comment.

Using data analysis of loan records, the complaint alleges that at least 53,000 black and Hispanic borrowers sustained tens of millions of dollars total in higher payments.

At the time of the alleged actions, the bank had guidelines that dictated the mortgage rates to be paid based on objective measures such as credit score, down-payment size and other factors. However, mortgage brokers had discretion to deviate from those guidelines and to set the final price of the loans.

The bank allegedly charged black customers an average of $1,126 more on an average loan size of $191,100 and Hispanic customers $968 more on a loan size of $236,800, compared with white borrowers.

The move comes as the Obama administration has been working to settle several cases with companies in the waning days of his presidency, including settlements with Volkswagen AG and Takata Corp.

Mr. Bharara has agreed to stay in his current role under the Trump administration. Mr. Trump's inauguration is Friday.

This isn't the first time Mr. Bharara has gone head-to-head with J.P. Morgan on Federal Housing Administration matters. In February 2014, the bank paid a $614 million settlement for originating and underwriting mortgages that were submitted for insurance coverage and guaranteed by the FHA and the Department of Veterans Affairs.

J.P. Morgan has since pulled back sharply from FHA lending, which has provided a source of financing to first-time buyers and other borrowers with little wealth, especially minorities. It allows borrowers to make lower down payments than elsewhere in the mortgage world.

The FHA doesn't make loans but instead insures lenders against losses on mortgages that meet its standards. Most banks haven't been willing to offer many loans without some kind of government backing since the housing boom ended.

"We've lost a tremendous sum of money on FHA, and we're trying to figure out what to do going forward," Chief Executive James Dimon told analysts during a July 2014 earnings conference call.

Wells Fargo & Co. in August settled a similar-long-running civil suit, admitting to illegally cashing in on government-backed mortgages as part of a $1.2 billion settlement. As part of the settlement, the bank admitted to having wrongly certified loans as being eligible for mortgage insurance from the FHA with the actions dating back to 2001, according to the settlement.

Write to Emily Glazer at emily.glazer@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

January 18, 2017 10:46 ET (15:46 GMT)

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