J.P. Morgan to Pay $55 Million to Settle With U.S. Over Alleged Discrimination Against Minority Homeowners -- 4th 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 independent brokers used by 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" who weren't bank employees and whose fees were capped. She said 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 spokesman for the Manhattan U.S. attorney's office confirmed the existence of a settlement that is subject to judicial approval. He declined to comment on the amount of the settlement.

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, and down-payment size. However, mortgage brokers had discretion to deviate from those guidelines and to set the final price of the loans.

The complaint said an analysis of loan data that takes into account those objective factors shows there was still a disparity between the rates charged for white and minority mortgage holders.

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 Volkswagen AG, Takata Corp. and Moody's Corp.

Also on Wednesday, the U.S. Department of Labor sued J.P. Morgan for discriminatory pay practices against certain female employees.

The DOL's Office of Federal Contract Compliance Programs found that since May 2012, J.P. Morgan paid at least 93 women who worked in a technology unit in its investment bank less than men in the same positions.

J.P. Morgan spokeswoman Tasha Pelio said the bank is committed to "diversity in the workplace," a matter bank chief James Dimon has been vocal on for years.

Ms. Pelio added that J.P. Morgan tried to work with the DOL on the matter and resolve any concerns but was "disappointed" that it filed a complaint. The bank "looks forward to presenting our evidence to a neutral decision maker," she said.

The matter has been progressing for a few years, people familiar with the matter said, and the bank provided several responses to the DOL's requests disagreeing with the allegations, including an attempt to refute it late last year.

A DOL spokesman didn't have any further comment.

But with two days to go until Mr. Trump's inauguration, some agencies are moving to make long-running matters public.

The Southern District's Mr. Bharara has agreed to stay in his current role under the Trump administration.

This isn't the first time Mr. Bharara has gone head to head with J.P. Morgan on lending. 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 Federal Housing Administration and the Department of Veterans Affairs.

That FHA, different from the Fair Housing Act, 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 financial crisis. 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 and often pay higher rates than elsewhere in the mortgage world.

Wells Fargo & Co. last year 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 Federal Housing Administration 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 13:28 ET (18:28 GMT)

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