UPDATED to include a copy of the final settlement between New York and JP Morgan and an updated projection of the value of aid to New York consumers.
A $13 billion settlement reached this week between the U.S. Department of Justice, several states and financial giant JP Morgan is set to sweep a whole lot of aid to New York State.
So who exactly will benefit, and by how much?
“People harmed by JPMorgan, Bear Stearns and Washington Mutual” are due for $4 billion worth of relief directly from JP Morgan, which acquired the other two banks in mergers. Of that, New York borrowers have a claim on an estimated $387 million, in the form of reductions in mortgage principal owed, interest-rate reductions and other assistance.
JP Morgan may also meet its obligations by making home loans to low-and moderate-income households in areas the U.S. Department of Housing and Urban Development has designated as those hardest hit by the mortgage crisis, or sit in superstorm Sandy disaster areas. Aid to demolish or invest in housing in blighted communities also counts toward the settlement.
As for the other $613 million flowing into the state, that is governed by a separate settlement between New York Attorney General Eric Schneiderman and JPMorgan. Schneiderman co-chairs the Residential Mortgage Backed Securities Working Group, convened by the Obama administration to combat fraud in the industry.
The money goes straight to a fund administered by New York’s Attorney General, from which he can tap up to $163 million immediately and up to $150 million annually after that until the funds run dry.
Schneiderman is required to use at least 85 percent of the funds “to avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, to enhance law enforcement efforts to prevent and prosecute financial fraud or unfair or deceptive acts or practices.”
Among the ways the state plans to achieve these goals, according to the agreement between New York State and the bank as quoted by the attorney general’s office, is funding housing counselors, foreclosure assistance hotlines, legal assistance programs, financial fraud and consumer protection efforts, and the state’s eight existing land bank programs, which fight blight by buying up properties and either rehabbing or demolishing them.
This isn’t the first time New York’s attorney general has secured cash in a legal settlement with major players in the mortgage industry. An earlier deal reached between states’ attorneys general and five mortgage servicers — all divisions of major financial institutions that handled billing and other dealings with consumers — resulted in $600 million in relief for New York borrowers. The attorney general used $60 million of that to fund 94 organizations providing legal assistance and housing counseling.
Any of the remaining $91 million in the new JP Morgan settlement may be sent to the state’s general fund.
Unlike some other states involved in the JP Morgan case that are using settlement money to replenish state pension funds hit by investment losses, New York’s Common Retirement Fund is not directly exposed to the mortgage securities pools involved in the case.
At the Wednesday press conference announcing the deal, Schneiderman said New Yorkers should expect to see more money flow in. “Other banks will follow,” he said. “There are more big paydays to come.”