JPMorgan Chase and the Justice Department have reached a tentative $13 billion settlement over the bank’s questionable mortgage practices leading up to the financial crisis, a record penalty that would cap weeks of heated negotiating and underscore the extent of the bank’s legal woes, people briefed on the talks said on Saturday. 

To resolve an array of federal and state investigations into the bank’s sale of troubled mortgage securities to investors, the bank would be expected to pay about $9 billion in fines, according to one of the people. JPMorgan, the nation’s largest bank, will also very likely provide about $4 billion in relief for struggling homeowners, another person briefed on the talks said. 

It would also deal a reputational blow to JPMorgan, which emerged from the crisis relatively unscathed. Until this month, when the bank reported a quarterly loss tied to its varied legal expenses, the bank continued to earn money at a record pace. ...

$13 billion here, $13 billion there, pretty soon that adds up to ... well, not really all that much money in the context of the Mortgage Meltdown.

Many of the cases involve mortgages that JPMorgan itself did not sell. Rather, the bank inherited the legal liabilities when it bought Bear Stearns and Washington Mutual at the height of the financial crisis.

It's worth taking a look back at Washington Mutual's TV commercials. Here's another one. Notice a theme?

On 2/1/09, I profiled Washington Mutual's CEO Kerry Killinger in VDARE. Killinger had built WaMu into a giant by buying 29 other financial institutions over the previous two decades:

How did the Community Reinvestment Act worsen imprudent lending to minorities? 

It's not a popular question even to ask. "I want to give you my verdict on CRA: NOT guilty", said FDIC Chairman Sheila Bair: 

"And 'Let me ask you. Where in the CRA does it say to make loans to people who can't afford to repay? Nowhere.' The facts are simple, Bair said. The lending practices that are causing problems today were driven by a desire for more market share and revenue growth, not because the government encouraged certain lending practices." (FDIC's Bair Sets to Shatter CRA "Myth", by Kelly Curran, HousingWire.com, December 5, 2008.) 

Okay–but how does a bank get more market share and revenue growth? 

One major way: by buying other banks. And to do that, you have to pass through the CRA gauntlet. If you aren't willing to lend to people the government wanted you to lend to, then you were out of luck at mergers and acquisitions game. 

So, the CRA implicitly selected for Kool-Aid Drinkers, such as WaMu's Killinger. They're the ones whom the government allows to build empires. (Unfortunately, their houses turned out to be built on sand.) 

I missed understanding the impact of the CRA because I kept asking myself: "How could the CRA force a banker who thinks lending more to minorities is a bad idea to lend more to minorities?" I kept trying to imagine the CRA's effect on the already crazy-stupid WaMu, and how that couldn't have been all that significant. 

But I should have been thinking about the other side of the coin: all the sane-smart banks that didn't get to get big like WaMu did because the government rigged the acquisition process so that crazy-stupid banks were more likely to get merger approval. WaMu got permission from the government to make 29 acquisitions from 1990 onward. A smart-sane bank wouldn't. 

That WaMu sincerely believed that it was going to make a fortune handing big mortgages to mariachi singers, illegal immigrants, and Department of Motor Vehicle clerks etc. etc. seems clear. After all, WaMu not only originated about one out of every eight mortgages in the U.S., but it also held on to a fair number of them instead of securitizing them and dumping them on Wall Street. 

WaMu explained its minority-oriented strategy over and over again. Robert O'Connor wrote in Mortgage Banking, October 2003: 

"… Porter says that Washington Mutual takes the CRA very seriously. But he adds the bank regards the CRA as a floor rather than a ceiling. He says the company, and its employees, want to surpass the regulatory standard for institutions to meet the credit needs of their communities. Porter points out, for instance, that the bank's $375-billion, 10-year lending commitment was not necessarily dictated by the CRA. 'It was good from the company's perspective,' he says. 'It was good from the community perspective, and it actually gives us a higher bar that we want to achieve.' … 

"Despite the strength of its portfolio operation, Washington Mutual is also committed to the secondary market. Early this year, it entered into a five-year strategic alliance with Fannie Mae Fannie Mae: to encourage home-buying among a number of groups, including immigrants, minorities, first-time buyers first-time buyer  first-time buyer and people with low and moderate incomes. The goal is to generate $85 billion in mortgage lending." 

And here's a 2003 WaMu press release that sounds like Dave Barry wrote it: 

"Helping to build strong, vibrant communities wherever Washington Mutual does business is integral to the company's long-term strategy. The Community and External Affairs Division oversees all community investment and development activities to ensure that Washington Mutual fulfills its community goals in the most strategic way possible." 

Why was WaMu, with its derisible strategy, able to buy out so many big lenders? 

To understand it, think about it the other way around: why didn't more prudent financial institutions outbid WaMu for acquisitions? ...

The CRA drives the climate of opinion in the entire mortgage industry. If you wanted to be able to buy other banks, you had to play ball.

... Over time, the madness infects the entire culture of finance, as the government labels the prudent bankers automatic losers in the great game of acquisitions.
WaMu's 2001 purchase of Dime Bank [when it promised $375 billion in minority and lower income lending] may have been its crowning excess. But in the history of the downfall of the American economy, it wasn't as important as WaMu's 1990s move into California. WaMu and California went together like a match and dynamite. 

In 1997, WaMu was the second biggest thrift. When the biggest thrift, Home Savings of America (owned by H.F. Ahmanson and Co. of Irvine, CA), attempted a hostile takeover of its Southern California rival, the number three thrift, Great Western, WaMu entered as a white knight. This set off a CRA bidding war. The two competed to see who could promise the most lending to the politically favored. 

The Seattle Times headline on April 10, 1997 read "Wamu Loan Plan Trumps Rival—$75 Billion Inner-City Proposal Eclipses Ahmanson Bid." Reporter Don Lee wrote: 

"In the largest inner-city loan program ever proposed by a U.S. banking institution, Washington Mutual said today it will lend $75 billion to mostly lower-income and minority borrowers over 10 years if it successfully acquires Great Western Financial. Washington Mutual said the majority of those mortgages, consumer and small-business loans would be made in California. The proposal eclipses a $70 billion community reinvestment commitment made three weeks ago by Home Savings of America." 

After winning Great Western, Washington Mutual then bid for Home Savings itself in 1998, upping its Community Reinvestment ante to $120 billion.  

Grabbing Home Savings made WaMu the nation's number one lender of adjustable-rate mortgages. ... 

Then, when WaMu bought Dime Bank in 2001, it made a binding promise to lend for Community Reinvestment Act credit $375 billion. Sure, why not? 

The only problem is that $375 billion here, $375 billion there, pretty soon you are talking about real money.

Read the whole thing there.