The Breakdown

Explaining Southern California's economy

Q&A: What the $13 billion JPMorgan settlement means to Southern California

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California will be a big beneficiary of the Justice Department's record breaking settlement of $13 billion with JPMorgan Chase & Co., announced on Tuesday. The penalty came after state and federal agencies raised allegations against the lender's practices in mortgage-backed securities.

Southern Californians were hit hard by the housing crisis. From January 2007 to October 2013, there have been more than 497,000 foreclosures in Southern California - 43 percent of them in Riverside and San Bernardino counties, according to San Diego-based research firm DataQuick. 

The settlement requires JPMorgan to help bankroll consumer relief efforts, including reducing the principal on loans and other mortgage modifications for homeowners facing foreclosure.

With  nearly $300 million of the settlement going to California, according to a press release from state Attorney General Kamala Harris, we asked how that money will reach those harmed by the mortgage crisis.

Q: How much money will end up in the hands of homeowners?

A: The state attorney general's office said $4 billion of the $13 billion settlement will go toward helping consumers nationwide. That could come in the form of mortgage payment reductions or loan modifications for homeowners, the office said in a press release. The office said they had no estimate on how much of the $4 billion borrower's relief would go to California homeowners, but they believe the state will receive a "good amount of relief." 

JPMorgan declined to comment on the percentage that will be directed to Californians.

Separate from the borrower's relief, California did receive nearly $300 million in damages out of the $13 billion settlement that will go to public employee and teacher pension funds, CalPERS and CalSTRS.

Q: What will determine which homeowners get money from the $4 billion portion of the settlement?

A: The state attorney general's office said Californians who may qualify for the relief would likely have gotten mortgages with Washington Mutual and Bear Stearns, which are now part of JPMorgan.

Stuart Gabriel, director of the Ziman Center for Real Estate at UCLAsaid he thinks state agencies may reach out to individuals who are in danger of foreclosure and offer some mortgage modification, such as interest rate relief.

Q: When will homeowners receive this money?

A: It's unclear how soon Californians could qualify to receive a portion of the borrower's relief. The state attorney general's office said the agency that will handle those decisions hasn't been determined yet.

Q: Will the settlement have an effect on the housing market?

A: Gabriel said he doesn't think there will be any perceptible effect on the direction of the housing market as a result of the settlement. He said what's notable is that JPMorgan had to pay a large fine. The $13 billion JPMorgan settlement is roughly three times more than what BP paid to settle criminal charges related to the Deepwater Horizon oil spill, according to Gabriel.

"It's a big deal for JPMorgan and it's a big win for the U.S. government," Gabriel said. "It's a win for the point of view that there were fraudulent practices in the packaging of mortgages into mortgage-backed securities on the part of major investment houses."

Gabriel said he doesn't think this is the end of such settlements and the government is "in all likelihood working its way around Wall Street now with the precedent of a very big settlement in its back pocket." 

Q: Is the foreclosure crisis over?

A: Reports show the number of foreclosures has steadily declined. But Peter Kuhns of the Alliance of Californians for Community Empowerment said it's still a major problem.

"It's massive." Kuhns said. "There are estimates that somewhere close to a third of all California homeowners with mortgages are underwater on their loans, that they owe more money than their house is worth."

Kuhns said he hopes that the $4 billion borrower's relief will go toward helping homeowners reduce the amount of money they owe on their mortgage payments.

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