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JPMorgan Hid Reports of Defective Loans Before Sales ...
JPMorgan overrode an independent analysis of home loan portfolios by buying and selling defective loans to create a sanitized version of the pool, which was then securitized and sold, a court was told.
FSA Asset Management LLC, which bought the residential mortgage-backed securities that later collapsed in value, and its parent Franco-Belgian bank Dexia SA filed hundreds of e- mails and transcripts of employee interviews in federal court in Manhattan on Feb. 4, urging a judge not to throw out their lawsuit over the collateralized securities.
JPMorgan received reports from independent mortgage loan underwriters showing that 20 percent to 80 percent of the loans in samples used for testing didn’t meet the underwriting guidelines, including fraudulent home appraisals or missing documentation, FSA Asset Management, or FSAM, said in the filing.
“Rather than disclose these known defects to FSAM, defendants bought and sold massive quantities of defective loans,” FSAM said. “Defendants secretly overrode the independent loan underwriters’ determinations, creating a final, sanitized version.”
### From NYTimes ###
When an outside analysis uncovered serious flaws with thousands of home loans, JPMorgan Chase executives found an easy fix.
Rather than disclosing the full extent of problems like fraudulent home appraisals and overextended borrowers, the bank adjusted the critical reviews, according to documents filed early Tuesday in federal court in Manhattan. As a result, the mortgages, which JPMorgan bundled into complex securities, appeared healthier, making the deals more appealing to investors.
The trove of internal e-mails and employee interviews, filed as part of a lawsuit by one of the investors in the securities, offers a fresh glimpse into Wall Street’s mortgage machine, which churned out billions of dollars of securities that later imploded. The documents reveal that JPMorgan, as well as two firms the bank acquired during the credit crisis, Washington Mutual and Bear Stearns, flouted quality controls and ignored problems, sometimes hiding them entirely, in a quest for profit.
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