JPMorgan Securities and Credit Suisse Securities have agreed to pay more than $400 million combined to settle charges brought by the Securities and Exchange Commission (SEC) that the banks gave misleading information in RMBS offerings.
The charges come as part of an investigation led by the SEC in coordination with the federal-state RMBS working group.
The SEC alleges that JPMorgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS offering in which it was the underwriter. JPMorgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans.
JPMorgan is also charged for Bear Stearns' failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts. The proceeds from this bulk settlement practice were at least $137.8 million. JPMorgan has agreed to pay $296.9 million to settle the SEC's charges.
According to the SEC's order against Credit Suisse, the firm also failed to accurately disclose its practice of retaining cash for itself from the settlement of claims against mortgage loan originators for problems with loans that Credit Suisse had sold into RMBS trusts and no longer owned.
Credit Suisse is also charged with making misstatements in SEC filings about when it would repurchase mortgage loans from trusts if borrowers missed the first payment due. The firm made $55.7 million in profits and losses avoided from its bulk settlement practice, and its investors lost more than $10 million due to Credit Suisse's practices concerning first payment defaults. Credit Suisse has agreed to pay $120 million to settle the SEC's charges.
"In many ways, mortgage products such as RMBS were ground zero in the financial crisis," said Robert Khuzami, director of the SEC's division of enforcement, in a press release today. "Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed. Today's actions involving RMBS securities are a continuation of the SEC's strong efforts to pursue wrongdoing committed in connection with the financial crisis."