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JPMorgan Chase & Co. (JPM - Analyst Report) recently agreed to settle a mortgage related lawsuit by shelling out $18.3 million. The settlement comes on the back of Bear Stearns’ failure to divulge the actual interest rates on mortgage documents with adjustable-rates. Bear Stearns was acquired by JPMorgan in Jun 2008.

The mortgage lawsuit was filed in 2007 by complainants who had opted for home loans carrying an adjustable interest rate. At that time, the loans were provided by Bear Stearns unit, EMC Mortgage, based in Lewisville, Texas. This firm specialized in purchasing and servicing troubled mortgages. However, the firm was taken over by JPMorgan during the recent economic meltdown.

The charges against JPMorgan and Bear Stearns alleged that the companies deliberately refrained from revealing the resetting of introductory interest rates. The documents related to mortgages deceived customers by concealing the fact that the borrowers’ principal balance on loan would rise on the payment of the minimum monthly amount.

Further, the lawyers representing the litigants are trying to resolve two similar cases against JPMorgan in connection with option adjustable rate mortgages. Recently, in August, JPMorgan had agreed to disburse $10 million in order to settle a similar lawsuit in connection with loans provided to its customers by Washington Mutual, which was acquired by JPMorgan in 2008.

Additionally, JPMorgan agreed to expend a further $2 million to settle charges against Lending 1st Mortgage associated with the sale of a small set of mortgage loans. However, in 2012, Lending 1st had agreed to compensate by paying $150,000 in order to settle charges filed against it. Nevertheless, the case awaits a ruling in the US District Court in Oakland, Calif.

The lawsuit is expected to heighten JPMorgan’s legal woes. The bank is already burdened with a series of regulatory investigations pertaining to the sale of risky MBS preceding the financial crisis as well as the $6 billion trading loss it incurred in the London Whale derivatives scandal. All these factors are expected to add to JPMorgan’s anticipated legal expenses in the near term.

Apart from JPMorgan, other banks including Bank of America Corporation (BAC - Analyst Report), Citigroup, Inc. (C - Analyst Report) and UBS AG (UBS - Analyst Report) are also combating similar lawsuits associated with the sale of mortgage backed securities, prior to 2008.

JPMorgan currently carries a Zacks Rank #3 (Hold).

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