WASHINGTON (CBS/AP) JPMorgan Chase (JPM) has agreed to pay $5.1 billion to resolve claims that it misled Fannie Mae (FNMA) and Freddie Mac about risky mortgage securities it sold them before the housing market collapsed.
The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the settlement Friday with JPMorgan, the largest U.S. bank. A broader deal with the Justice Department is still being negotiated.
"The satisfactory resolution of the private-label securities litigation with J.P. Morgan Chase & Co. provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae's and Freddie Mac's assets on behalf of taxpayers," said FHFA acting director Edward DeMarco. in a statement. "This is a significant step as the government and J. P. Morgan Chase move to address outstanding mortgage-related issues."
JPMorgan sold tens of billions in mortgage securities to Fannie and Freddie, according to the agency. The securities soured after the housing bubble burst in 2007, losing billions in value.
The FHFA's claims centered on securities sold to Fannie and Freddie by JPMorgan, Bear Stearns & Co. and Washington Mutual. JPMorgan acquired Bear Stearns, an investment bank, and Washington Mutual, once the country's largest savings and loan, in 2008 after the companies collapsed because of their mortgage-related losses.
Under the settlement, Freddie will receive $2.74 billion and Fannie will get $1.25 billion.
The government rescued Fannie and Freddie during the financial crisis when both were on the verge of collapse. The companies received taxpayer aid totaling $187 billion. They have since become profitable and repaid $146 billion.
"Today's settlements totaling $5.1 billion are an important step towards a broader resolution of the firm's MBS-related matters with governmental entities, and reflect significant efforts by the Department of Justice and other federal and state governmental agencies," JPMorgan said in a statement.
JPMorgan is also said to have a tentative agreement in place with the Justice Department under which the company will pay $13 billion to settle charges that it sold fraudulent mortgage securities in the run-up to the housing crash.
The banking firm in September agreed to pay $920 million and admit wrongdoing in connection with a $6 billion trading loss in the company's London unit in 2012. Two former traders with the bank face criminal charges related to the case, which remains under investigation.
JPMorgan said earlier this month that it had set aside $9.2 billion in the July-to-September quarter to cover the company's mounting legal bills. Those costs pushed the company into a loss for the period.
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