JPMorgan Urged to Pay More in Mortgage Deal

The Justice Department is moving closer to striking a multibillion-dollar settlement with JPMorgan Chase over questionable mortgage practices, after authorities urged the bank to raise its offer and the bank’s chief executive took the rare step of meeting with Attorney General Eric H. Holder Jr. in Washington to discuss the deal.

Mr. Holder’s nearly hourlong meeting on Thursday with the chief executive, Jamie Dimon, followed days of intense negotiations during which JPMorgan ultimately offered to pay a roughly $7 billion fine and provide $4 billion in relief for struggling homeowners, according to people briefed on the talks. While the Justice Department has largely agreed to the $4 billion in relief, which requires the bank to reduce the size of certain mortgages and refinance others, it seeks more than the proposed $7 billion in penalties and is now waiting for JPMorgan to prepare a new, larger settlement offer, the people said.

The latest push on the size of the penalties indicates that the talks are entering their final stages. After JPMorgan raised its total offer to $11 billion earlier in the week, the disparity in negotiating positions narrowed significantly.

And the size of the fine is not the central negotiating point for the bank: JPMorgan is instead focused on using the wide-ranging pact to resolve many of the mortgage-related investigations it faces. Most important, the bank is asking that prosecutors in California drop a criminal investigation into the bank’s mortgage practices — a request that the Justice Department has yet to meet.

Despite the progress, the people briefed on the talks cautioned that the terms were shifting and that the discussions could still fall apart. The people spoke on the condition of anonymity because they were not authorized to discuss private negotiations.

If the settlement talks proceed on the current course, the people said, the deal would most likely resolve all federal investigations into whether JPMorgan duped investors into purchasing mortgage securities from 2005 to 2007 — the height of the housing bubble. The deal would not prevent the government from suing over mortgage securities originated in 2008 and beyond, after the housing market crashed.

Under the current contours of the settlement, the Justice Department will also not include an investigation from the United States attorney’s office in Manhattan. The bank, the people said, is in advanced stages of negotiating that deal, which involves violations of the rules of the Federal Housing Administration’s mortgage insurance program.

The Justice Department’s potential settlement pact, however, would be likely to resolve a 2011 lawsuit from another housing agency. The deal would require JPMorgan to pay from $3 billion to $6 billion to settle with the Federal Housing Finance Agency, which accused JPMorgan of selling shoddy loans to Fannie Mae and Freddie Mac, the government-controlled housing organizations, the people briefed on the talks said. That case was one of the largest threats to JPMorgan.

The Justice Department’s settlement deal, if approved, is also likely to force JPMorgan to pay hundreds of millions of dollars to settle a lawsuit filed by Eric T. Schneiderman, the New York attorney general, and close an investigation from prosecutors in Pennsylvania. Both cases involve mortgages that the bank inherited from firms it bought in 2008; Mr. Schneiderman’s case involves Bear Stearns, and the Pennsylvania investigation is focused on Washington Mutual.

Another front in the settlement talks, and a significant worry for the bank, is a lawsuit that federal prosecutors in California have readied against JPMorgan over mortgage securities it sold to investors in the run-up to the housing crash. The prosecutors, from the United States attorney’s office for the Eastern District of California, are also conducting a parallel criminal investigation. Although it is unclear whether the bank will be charged, the criminal investigation continues to focus on JPMorgan employees involved in the mortgage deals.

JPMorgan declined to comment, as did a Justice Department spokeswoman.

The mortgage talks, which represent only a sliver of JPMorgan’s legal woes, coincide with the bank’s broader effort to resolve these problems and mend frayed relationships in Washington. JPMorgan faces investigations from at least seven federal agencies, several state regulators and two foreign governments.

As the investigations linger, the bank incurs significant legal costs. Bracing against potentially hefty payouts to the authorities, JPMorgan recorded a $678 million expense for additional litigation reserves in the second quarter, up from $323 million in the same period a year ago, according to a filing in August.

In its filing, JPMorgan estimated it could incur as much as $6.8 billion in losses beyond its reserves. That figure is up nearly $1 billion from the first quarter of the year. One possible silver lining, however, is that the fines and penalties could be tax deductible.

The inquiries run the gamut of the bank.

The Securities and Exchange Commission is investigating the bank’s decision to hire the children of Chinese officials, and whether those hires violated federal bribery laws. The Consumer Financial Protection Bureau is examining the bank’s debt collection practices. And federal prosecutors in Manhattan are scrutinizing whether the bank failed to sound alarms about Bernard L. Madoff’s Ponzi scheme.

Last week, JPMorgan began to clear one of the largest legal clouds hanging over the bank. The bank agreed to pay $920 million to four regulatory agencies investigating the bank’s multibillion-dollar trading loss in London last year. The agencies — the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve and the Financial Conduct Authority in London — cited the bank for “severe breakdowns” in internal controls surrounding the losses. (That same day, JPMorgan agreed to pay $80 million to regulators over accusations that it charged credit card customers for identity-theft products they never received.)

In the mortgage case, settlement talks heated up this week after news reports on Monday indicated that the federal prosecutors in California were poised to sue the bank. That day, people briefed on the matter said, Mr. Dimon reached out to Mr. Holder’s office and floated the idea of an in-person meeting.

The lawsuit from California apparently frozen, that meeting was convened on Thursday morning in Mr. Holder’s fifth-floor conference room. Two of Mr. Holder’s top lieutenants — James M. Cole and Tony West — also attended the meeting.

Mr. Dimon had his own entourage: Stephen M. Cutler, the bank’s general counsel; Stacey R. Friedman, another senior attorney; and Matthew E. Zames, the bank’s chief operating officer.

While it is common for chief executives to meet with Justice Department officials, it is rare that they meet directly with Mr. Holder. When the chairman of UBS, for example, visited the Justice Department last year to discuss its plans to extract a guilty plea from the bank’s Japanese unit, he met with an assistant attorney general and staff lawyers.

At a news conference on Thursday, Mr. Holder declined to discuss the details of the meeting.

“I will say that I did meet with representatives from JPMorgan Chase,” Mr. Holder said. “That is an ongoing matter.”