We assisted the U.S. Attorney’s Office, Southern District of New York, in conducting an investigation of JPMorgan Chase Bank, N.A., and JPMorgan Chase & Co. (Chase).  The investigation began due to a qui tam filing in the U.S. District Court for the Southern District of New York.  The False Claims Act allows private persons to file suit for violations of the False Claims Act on behalf of the Government.  A suit filed by an individual on behalf of the Government is known as a qui tam action, and the person bringing the action is referred to as a “relator.”  The relator alleged that Chase had not followed Federal Housing Administration (FHA) requirements when underwriting loans under the FHA insurance program, and the insurance fund incurred significant losses when the borrowers defaulted on the loans.

On February 4, 2014, the U.S. Attorney’s Office of the Southern District of New York filed suit against Chase for not complying with FHA requirements based, in part, on our review of the underwriting and refinancing of FHA loans.  The U.S. Attorney’s Office sought damages and civil penalties under the False Claims Act and common law.  The lawsuit alleged that during the period January 1, 2002, through February 4, 2014, Chase routinely approved loans for FHA insurance and refinancing that did not meet applicable underwriting requirements and were, therefore, ineligible for insurance.  However, FHA had insured the loans based on per loan certifications submitted by Chase that it had complied with FHA requirements when underwriting the loans.  When the borrowers defaulted on the loans, FHA incurred substantial losses. 

On the same date, February 4, 2014, Chase entered into a settlement agreement to pay $614 million to end the lawsuit.  Of the settlement total, $564.6 million was attributable to FHA’s direct endorsement lender program.  The FHA insurance fund was to receive $336 million of the $564.6 million, before incurring related costs; and the remaining $228.6 million was to be remitted to other Federal entities and the relator.  As part of the settlement, Chase admitted, acknowledged, and accepted responsibility for certain conduct; and agreed to comply with all rules of HUD’s direct endorsement lender program and implement an enhanced quality control program to review FHA loans that it underwrites using TOTAL (a HUD program that works with lender underwriting programs to assess the credit worthiness of FHA borrowers).