As part of a tentative $13 billion settlement, sources say the U.S. government is set to impose a deadline for JPMorgan Chase to deliver consumer relief. The bank would face an additional penalty if that timetable is not met. Federal prosecutors have been working with JPMorgan for some time to resolve allegations that it knowingly sold securities comprised of low-quality mortgages in the build-up to the economic meltdown.
As of October, the bank had agreed to a deal that would include $4 billion in aid to consumers, with an additional $7 billion allocated for investors and $2 billion in fines. Now the Justice Department, HUD, and JPMorgan have hammered out additional terms for the consumer segment of the deal. At least $1.5 billion of consumer aid will reportedly go to reduce loan payments for cash-strapped borrowers, including those whose home loan balances exceed the value of their residences. An additional $300 million will go toward other forms of forbearance. The rest of the money will be used for several types of restitution to help other borrowers or communities hit hard by the mortgage crisis. For instance, JPMorgan could slash interest rates on existing loans. Another option is that it could originate new mortgages to low- and moderate-income borrowers and keep those loans on their books rather than sell them to investors.