Fair Game: $13 Billion, Yes, but What Took So Long?

“Without a doubt,” Eric H. Holder Jr., the attorney general, said in a statement, “the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown.”

Eager to see what the Justice investigation had found, I consulted the statement of facts that accompanied the settlement and that JPMorgan had to acknowledge. There, I reckoned, would be some juicy, new evidence of the bank’s mortgage misdeeds “uncovered” by assiduous investigators armed with subpoena power and other government might.

Perusing the 11-page document, I quickly saw that I’d reckoned wrong. Much of it was the same-old-same-old, a not-very-lively description of a corrupted Wall Street mortgage factory, based largely on some facts that have been in the public domain for years.

In other words, although it took the Justice Department more than five years to pursue a major bank for its role in the mortgage mania, the investigation seems to have unearthed material that, by and large, could have been dug up with a spoon.

“The facts here are all stuff we knew years ago,” said Kurt Eggert, a professor at the Chapman University law school who testified about mortgage woes before the Financial Crisis Inquiry Commission in 2010. “So you have to ask, ‘Why has it taken so long to hold a bank accountable?’ ”

A good question. A spokeswoman for the Justice Department did not return a phone call seeking comment.

Of course, the government is to be commended for taking action. “Expectations had gotten so low for the Justice Department that I can’t help but be a little pleased that they’ve done something,” said Jeff Connaughton, author of “The Payoff: Why Wall Street Always Wins,” who was chief of staff to Ted Kaufman, a former Democratic senator from Delaware. “Yes, it’s thin and weak, but it’s also the first time in five years they haven’t completely rolled over.”

Still, the meager set of facts cited by the government is surprising. And when you compare the Justice Department’s statement with some of the meaty lawsuits that have been filed against banks by investors and some state securities regulators, it’s thin gruel indeed.

The earlier suits, for example, are brimming with facts, figures and telling accounts from former bank insiders turned confidential witnesses. A case brought against Morgan Stanley more than three years ago by Martha Coakley, the Massachusetts attorney general, was especially revelatory and damning in its details. For example, when a mortgage originator threatened to take its business elsewhere after Morgan Stanley questioned the quality of its loans, the bank quickly capitulated and accepted the loans. Morgan Stanley paid $102 million to settle that one state complaint in June 2010.

Among the many private lawsuits is one filed in January 2012 by Dexia, a European bank that lost money on mortgage securities. That case, like the Justice Department matter, was aimed at JPMorgan as well as its Bear Stearns and Washington Mutual units.

Reading the Dexia suit alongside the Justice Department’s fact statement is an interesting exercise. For example, lawyers for Dexia cited 23 confidential witnesses in their complaint. By contrast, the Justice Department cited one unnamed former employee in its account.

Then there’s the surprisingly narrow breadth of the securities scrutinized by the Justice Department. While the Dexia case reviewed 53 different securitizations underwritten and sold by JPMorgan, Bear Stearns and WaMu, the government examined only 10. By the way, six of the 10 troubled mortgage pools cited by Justice also figured in the Dexia case.

The 10 securities examined by the Justice Department totaled $10.28 billion. That might sound like a lot, but it’s a drop in the $325 billion flood of mortgage securities packaged and sold by Bear Stearns, WaMu and JPMorgan Chase from 2005 to 2007.

Among the few figures cited by the Justice Department were those from due-diligence reports provided to JPMorgan by outside firms examining mortgages that were destined for securitization. These reports were supposed to be a quality-control mechanism so underwriters could be assured that they were selling investors the kinds of loans they expected. But in actuality, banks often ignored the analyses.

In its statement of facts, the Justice Department highlighted one such report covering all of 2006 and the first half of 2007. It said the report showed that more than 6,000 of the loans purchased by JPMorgan in that period had not met the underwriting standards promised to investors. Yet, the department said, the bank accepted 3,238 of those loans for use in its pools.

These are disturbing figures, but they aren’t new. Although the Justice Department doesn’t identify where it got them, they appear to have come from a report provided to the crisis inquiry commission more than three years ago. The report has been available on the Internet since then.

The facts emerged at a commission hearing in Sacramento on Sept. 23, 2010, in testimony by two officials from Clayton Holdings, a major due-diligence firm. D. Keith Johnson, a former president of the firm, was one of them, and his presentation was explosive.

Providing private data from a Clayton report, he showed how over a dozen institutions disregarded the problems identified by the due-diligence firm. The institutions accepted thousands of loans that should have been rejected for use in the securities sold to investors.

It’s hard to analyze whether the $13 billion is a good deal for the government or for JPMorgan. There’s nothing wrong, of course, with the government recycling well-known facts to drag a bank that behaved badly to the negotiating table. Had the Justice Department aggressively investigated the banks’ practices using its full array of powers, who knows how much more it could have generated?

Byron S. Georgiou, a lawyer and former member of the crisis commission who runs Georgiou Enterprises, said he was glad the commission’s findings helped the Justice Department pursue JPMorgan.

“It is much better late than never that the Justice Department has extracted from JPMorgan Chase the largest financial penalty ever paid by any private-sector entity to any government anywhere in the world,” Mr. Georgiou said. “I look forward to the conclusion of more such prosecutions of the many other financial institutions that remain at large, and are just as deserving to be held accountable to the American people for their knowing, deliberate deceptions.”