<div class="KonaFilter image-container display-table center float_right"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/585026eda1a45e9f018b5769-452/undefined" alt="Svetlana Lee" data-mce-source="Svetlana Lee" />Svetlana Lee</div></div></div>A small hedge fund that is having a knockout year just gained the backing of a big-name investor.Svetlana Lee's $25 million fund, New York-based Varna Capital, is receiving an investment from Paul Leff, cofounder of Perry Capital. "Svet is going to do fantastic," Leff told Business Insider in a phone interview. "She is a very, very good investor. I'm hoping this is going to be a long-term relationship."Leff declined to say how much money he was investing with Varna, which runs a long-short equity special situations strategy.Leff, a minority owner in the Oakland Raiders, left Perry Capital in 2014. He has since been managing his own money within a family office.Perry Capital is an iconic name in the hedge fund industry, with a 28-year run that ended this year when the firm <a href="http://www.businessinsider.com/report-iconic-hedge-fund-perry-capital-is-closing-its-flagship-fund-2016-9">announced it would shut down after suffering poor performance and management changes</a>. Leff knows Lee from the late 1990s and early 2000s when Lee worked as an analyst at Perry. Lee later worked at Seth Klarman's Baupost Group and David Einhorn's Greenlight Capital before launching Varna Capital in 2008.Varna is up about 34.4% net of fees through the end of November, bolstered by a knockout November. Varna gained about 16% on the back of President-elect Trump's win."We are in a good place now," Lee said.The fund was already having a good year before the election, but Trump's win bumped performance."I owned a number of companies in coal mining and industrials that were suffering from regulation that was put in place by the Obama administration that I thought was unlikely to continue to be implemented in its current form, regardless of who won the election," she said. "It just so happened that when Trump won the election, he was very clear that deregulation was going to be part of his presidency."<div class="KonaFilter image-container display-table float_left"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/584e8d3eca7f0cf3008b4e70-971/undefined" alt="Donald Trump" data-mce-source="REUTERS/Shannon Stapleton" data-mce-caption="U.S. President-elect Donald Trump speaks at the USA Thank You Tour event at the Iowa Events Center in Des Moines, Iowa, U.S., December 8, 2016." />REUTERS/Shannon StapletonU.S. President-elect Donald Trump speaks at the USA Thank You Tour event at the Iowa Events Center in Des Moines, Iowa, U.S., December 8, 2016.</div></div></div>Lee had long positions in Arch Coal, a coal producer which recently emerged from bankruptcy, and EnPro, which makes parts for chemical plants and pipelines, she said. A position in Fannie Mae and Freddie Mac, meanwhile, was the biggest winner for Varna in November, she said. The stocks got a big bump after Trump's election, with <a href="http://www.institutionalinvestor.com/article/3646151/asset-management-regulation/steven-mnuchin-meets-fannie-and-freddie.html">his Treasury secretary pick Steven Mnuchin supporting privatizing the mortgage giants</a>."At the end of the day, I like to invest in US-based small cap companies," she added. "A lot of the things that the incoming president is talking about favor US based smaller companies via deregulation."Her investments would have also worked if Democratic candidate Hillary Clinton won, she said."I didn't know for sure who would be the president, but there were certain areas I stayed out of, namely healthcare," she said, adding that such stocks would have had a much more binary reaction.Lee is also one of the <a href="http://www.businessinsider.com/this-is-why-hedge-funds-have-few-women-investing-for-them-2016-8">few women who run hedge funds</a>, and Varna has been around since 2008."I've had my ups and downs on the business side more so than the portfolio side," Lee said.One of the firm's seed investors, FRM Holdings Group, left the seeding business after it was aquired by Man Group in 2012, for instance.Performance has also been rocky in the past, with 20% plus losses in 2011 and 2015. Still, the firm has also posted strong returns, notably in 2009, 2010 and 2013.<ul><li>2014: 5.1%</li><li>2013: 19.5%</li><li>2012: 5.6%</li><li>2011: - 21.5%</li><li>2010: 10.3%</li><li>2009: 16%</li><li>2008: 0.10%</li></ul> <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/martin-shkreli-twitter-students-recreate-daraprim-drug-2016-12">Martin Shkreli goes on a raging tweetstorm in response to high school students recreating his $750 drug for $2</a></h3> <div> <div> <script src="http://player.ooyala.com/v3/6e12e8b3387a44daacfb73afba25a76e"></script> <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="dxcWMwODE6FE8iQECd1zMjLLo9Zq2px_" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div> <script> if (typeof RunFunctions === 'undefined') { var RunFunctions = []; } RunFunctions.push(function() { var ooyalapopvideo = OO.Player.create('ooyalaplayer_popvideo', 'dxcWMwODE6FE8iQECd1zMjLLo9Zq2px_',{ autoplay: 'false' }); }); </script> <noscript><div>Please enable Javascript to watch this video</div></noscript></div> </div> <script>(function() { function createPlayer() { OO.ready(function() { RunFunctions.forEach(function(ooyalaFunction) { ooyalaFunction(); }); RunFunctions = [];}); } createPlayer(); }()); </script> </div>

A small hedge fund that is killing it on the back of Trump's win just won the backing of a big-name investor

<div class="image-container float_right" style="width:400px"><div class="image"><img src="http://static1.businessinsider.com/image/513a685869bedd8d1f000014-501-376/iditarod-dog-rests-1.jpg?maxX=400" border="0" alt="iditarod dog rests" width="400" /></div>REUTERS/Nathaniel Wilder</div>The <keyword id="1759531" type="UNKNOWN" weightage="60" keywordseo="Iditarod">Iditarod</keyword> is a 1,000-mile dog sled race through the Alaskan wilderness that has been happening for 40 years.
This week <a href="http://www.businessinsider.com/best-iditarod-photos-2013-3">we ran a slideshow of heartwarming photos from the race</a> — pictures of happy-looking <keyword id="32596" type="UNKNOWN" weightage="60" keywordseo="Dogs">dogs</keyword> rolling in the snow, kissing their owners, etc.
This afternoon <keyword id="25253" type="ORGANIZATION" weightage="60" keywordseo="PETA">PETA</keyword> took the time to respond via email. In the email, PETA says that the race is inherently cruel, and results in the deaths for innocent dogs. 
"Mushers are chasing money and glory, but in the 40 years since the first Iditarod race was held, not one dog has ever signed up to participate," they argue.
Humans sign up for the race in an attempt to endure the cruel elements, dogs cannot sign up for the race.
Here's the entire email:
Mushers are chasing money and glory, but in the 40 years since the first Iditarod race was held, not one dog has ever signed up to participate.
Already this year, musher Martin Buser pushed his team of 16 dogs to run for 20 hours with barely an hour of rest. Another dog, Mae, went missing along the trail on Wednesday afternoon and has yet to be found.
Last year, after musher Bruce Linton was knocked off his sled, the dogs continued down the trail on their own. After catching up to them, Linton discovered that one was lying stretched out on the ground and motionless with gang line wrapped around his neck. Almost miraculously, the animal hadn't choked to death.
Another dog, a 9-year-old named Marshall, was pulling a sled operated by Scott Janssen, then suddenly collapsed and stopped breathing. Only a special resuscitation technique saved Marshall's life.
In 2011, a dog also collapsed with no discernible pulse and had to be revived by a veterinarian. Many dogs,including many of the ones used by musher Lance Mackey, have also developed kennel cough, which can lead to pneumonia. 
Common injuries and conditions afflicting dogs forced to run the Iditarod include everything from sore wrists and frostbitten lips to bleeding paws and hypothermia to gastric ulcers and being run to death.
At least 20 dogs used in the 1,000-plus–­mile race have died just since 2005, including 3-year-old Kate, who was allegedly beaten and kicked by her musher because she sat down and refused to get up; Thong, a 3-year-old male, who apparently died of acute pneumonia; and Snickers, a 6-year-old female, who died from an acute hemorrhage caused by a gastric ulcer. On average, more than half the dogs who start the race don't make it across the finish line, and 81 percent of those who do finish have lung damage, according to a report published in the American Journal of Respiratory and Critical Care Medicine.
Finally, please keep in mind that much of the abuse and neglect of dogs used in the Iditarod takes place out of sight. Dogs who don't make the grade are usually killed—sometimes by bludgeoning. Many who survive the cull spend their lives in cramped, substandard kennels that are rarely—or never—inspected by any regulatory agency. Kennel operators often keep dogs constantly tethered on short ropes or chains.
"The proof is in 40 years of suffering and death: The only way to make the Iditarod safe for dogs is to cancel it permanently," says PETA Senior Vice President of Cruelty Investigations Daphna Nachminovitch. "While mushers are consumed with chasing sponsorship money and the cash prize, it's the dogs who pay the ultimate price."

PETA: The Iditarod Is Rife With Dog-Killing, And There's Nothing Heartwarming About It

101 Inspirational Quotes From Super Successful People

<div class="KonaFilter image-container float_right"><div class="image"><img src="http://static1.businessinsider.com/image/52fde618eab8eaca6a063b8a-1200-924/wells-fargo-atm-2.jpg?maxX=480" border="0" alt="Wells Fargo ATM" width="480" />Reuters</div></div>(Reuters) - Wells Fargo &amp; Co, the largest U.S. mortgage lender, is tiptoeing back into subprime home loans again.
The bank is looking for opportunities to stem its revenue decline as overall mortgage lending volume plunges. It believes it has worked through enough of its crisis-era mortgage problems, particularly with U.S. home loan agencies, to be comfortable extending credit to some borrowers with higher credit risks.
The small steps from <a class="cite">Wells Fargo</a> could amount to a big change for the mortgage market. After the subprime mortgage bust brought the banking system to the brink of collapse in the financial crisis, banks have shied away from making home loans to anyone but the safest of consumers.
Any loosening of credit standards could boost housing demand from borrowers who have been forced to sit out the recovery in home prices in the past couple of years, but could also stoke fears that U.S. lenders will make the same mistakes that had triggered the crisis.
So far few other big banks seem poised to follow <a class="cite">Wells Fargo</a>'s lead, but some smaller companies outside the banking system, such as <a class="cite">Citadel Servicing Corp</a>, are already ramping up their subprime lending. To avoid the taint associated with the word "subprime," lenders are calling their loans "another chance mortgages" or "alternative mortgage programs."
And lenders say they are much stricter about the loans than before the crisis, when lending standards were so lax that many borrowers did not have to provide any proof of income. Borrowers must often make high down payments and provide detailed information about income, work histories and bill payments.
<a class="cite">Wells Fargo</a> in recent weeks started targeting customers that can meet strict criteria, including demonstrating their ability to repay the loan and having a documented and reasonable explanation for why their credit scores are subprime.
It is looking at customers with credit scores as low as 600. Its prior limit was 640, which is often seen as the cutoff point between prime and subprime borrowers. U.S. credit scores range from 300 to 850.
Lenders remain cautious in part because of financial reform rules. Under the 2010 Dodd-Frank law, mortgage borrowers must meet eight strict criteria including earning enough income and having relatively low debt. If the borrower does not meet those hurdles and later defaults on a mortgage, he or she can sue the lender and argue the loan should never have been made in the first place.
Those kinds of rules have helped build a wall between prime and subprime borrowers. Lenders have been courting consumers who are legally easier to serve, and avoiding those with weaker credit scores and other problems. Subprime borrowers accounted for 0.3 percent of new home loans in October 2013, compared with an average of 29 percent for the 12 months ended February 2004, according to <a class="cite">Mark Fleming</a>, the chief economist of CoreLogic.
With <a class="cite">Wells Fargo</a> looking at loans to borrowers with weaker credit, "we believe the wall has begun to come down," wrote Paul Miller, a bank analyst at FBR Capital Markets, in a research note.
Lenders have an ample incentive to try reaching further down the credit spectrum now. Rising mortgage rates since the middle of last year are expected to reduce total U.S. mortgage lending in 2014 by 36 percent to $1.12 trillion, the <a class="cite">Mortgage Bankers Association</a> forecasts, due to a big drop in refinancings.
Some subprime lending can help banks, but it may also help the economy. In September 2012, then Federal Reserve Chairman <a class="cite">Ben Bernanke</a> said housing had been the missing piston in the U.S. recovery.
A recent report from think tank the <a class="cite">Urban Institute</a> and Moody's Analytics argued that a full recovery in the housing market "will only happen if there is stronger demand from first-time homebuyers. And we will not see the demand needed among this group if access to mortgage credit remains as tight as it is today."
Subprime mortgages were at the center of the financial crisis, but many lenders believe that done with proper controls, the risks can be managed and the business can generate big profits.
MAKING UP WITH THE AGENCIES
For <a class="cite">Wells Fargo</a>, one of the critical factors in the new strategy was its clearing up of disputes with Fannie Mae and Freddie Mac, said <a class="cite">Franklin Codel</a>, <a class="cite">Wells Fargo</a>'s head of mortgage production in <a class="cite">Des Moines</a>, <a class="cite">Iowa</a>. The 2013 settlements for $1.3 billion resolved a few battles in a half-decade war between banks and government mortgage agencies over who was responsible for losses from the mortgage crisis.
The bank still has mortgage problems to clear up with the agencies, including a lawsuit linked to the <a class="cite">Federal Housing Administration</a>, but <a class="cite">Wells Fargo</a> officials believe the worst is over.
<a class="cite">Wells Fargo</a> avoided many of the worst loans of the subprime era: It did not offer option adjustable-rate mortgages, for instance. But when it acquired <a class="cite">Wachovia</a> in 2008, the bank inherited a $120 billion portfolio of "Pick-A-Pay" mortgages where borrowers could defer payments on their loans. Those loans have suffered big losses.
One of the reasons for banks being so cautious in mortgage lending now is that Freddie Mac, Fannie Mae and the FHA have been pressing lenders to buy back home loans that went bad after the crisis. The agencies guaranteed the loans, and argued that the banks overstated the mortgages' quality, or made mistakes like omitting required documents.
Banks feel that the agencies were using trivial mistakes as a club to pressure banks to buy back loans. But after its settlements, <a class="cite">Wells Fargo</a> is more confident about the underwriting flaws the agencies consider material and the quality of the documentation needed to avoid such costly battles.
"As things become clearer and we are more comfortable with our own processes and controls, it gets easier" to extend more credit, Codel said.
Still, <a class="cite">Wells Fargo</a> isn't just opening up the spigots. The bank is looking to lend to borrowers with weaker credit, but only if those mortgages can be guaranteed by the FHA, Codel said. Because the loans are backed by the government, <a class="cite">Wells Fargo</a> can package them into bonds and sell them to investors.
The funding of the loans is a key difference between <a class="cite">Wells Fargo</a> and other lenders: the big bank is packaging them into bonds and selling them to investors, but many of the smaller, nonbank lenders are making mortgages known as "nonqualified loans" that they are often holding on their books.
<a class="cite">Citadel Servicing Corp</a>, the country's biggest subprime lender, is trying to change that. It plans to package the loans it has made into bonds and sell them to investors.
Citadel has lent money to people with credit scores as low as 490 - though they have to pay interest rates above 10 percent, far above the roughly 4.3 percent that prime borrowers pay now.
A TRAILER PARK IN VEGAS
As conditions ease, borrowers are taking notice. <a class="cite">Gary Goldberg</a>, a 63-year-old automotive detailer, was denied loans to buy a house near <a class="cite">Rancho Cucamonga</a>, <a class="cite">California</a>. Last summer he was forced to move into a trailer park in <a class="cite">Las Vegas</a>.
Going from 2,000 square feet to 200 - along with his wife and two German shepherd dogs - was tough. He longed to buy a house. But a post-crash bankruptcy of his detailing business had torched his credit, taking his score from the 800s to the 500s.
"There was no way I was going to get a mortgage," said Goldberg. "No bank would touch me."
But in December, he moved into a 1,000-square-foot one-story home that he paid $205,000 for. His lender,<a class="cite">Premiere Mortgage Lending</a>, did not care about his bankruptcy or his subprime credit score. That is because Goldberg had a 30 percent down payment and was willing to pay an 8.9 percent interest rate.
To be sure, credit is still only trickling down to subprime borrowers. Jamie Dimon, chief executive of the second-largest U.S. mortgage lender JPMorgan Chase &amp; Co, said on a conference call last month that he did not envision a "dramatic expansion" of mortgage credit because of a continued lack of clarity from the government agencies on their repurchase demands.
But smaller, non-bank lenders are making more loans. One such company, <a class="cite">ACC Mortgage</a> in <a class="cite">Maryland</a>, is offering a "Low Credit Score Debt Consolidation Program" as well as a "Second Chance Purchase Program." Low credit scores don't matter. Neither do bankruptcies, foreclosures or short sales.
"I think that is going to be the wave of the future, basically making non-prime mortgages, carving that out into a profitable niche," said <a class="cite">Guy Cecala</a>, publisher of newsletter Inside Mortgage Finance.
"Right now we're at the infant stage."
(Reporting by Peter Rudegeair and Michelle Conlin in New York; Editing by Dan Wilchins, Martin Howell and Richard Chang)

Wells Fargo Is Getting Back Into Subprime Mortgage Lending

<div class="KonaFilter image-container float_right"><div class="image on-image"><img src="http://static1.businessinsider.com/image/52d3d614eab8ea7769bd2f24-1049-787/no-pants-subway.png?maxX=480" border="0" alt="no pants subway" width="480" />REUTERS/ Eric ThayerA man takes part in the annual No Pants Subway Ride in New York January 12, 2014.</div></div>Good morning! Here's what you need to know.
- In exchange for relief from sanctions, Iran and six world powers <a href="http://www.businessinsider.com/main-points-of-the-iran-nuclear-deal-2014-1">agreed on a nuclear enrichment deal</a> first struck in November. Iran says it will not enrich uranium over 5% for six months beginning January 20 and allow daily UN inspection, freeing up $7 billion in sanctions while a "comprehensive solution" is reached.
- Three of America's "big four" banks <a href="http://www.businessinsider.com/bank-earnings-preview-2014-1">will report earnings this week</a>, but analysts are expecting to see falling revenue due to decreased loan activity. Fines from regulators could also prove a drag on business, but not to the extent that it will decrease bonus activity.
- Workout apparel giant Lululemon has <a href="http://www.businessinsider.com/lululemon-cuts-forecasts-2014-1">cut its earnings forecast</a> after store traffic dropped off in December. "We were on track to deliver on our sales and earnings guidance through the month of December; however, since the beginning of January, we have seen traffic and sales trends decelerate meaningfully," said Lululemon CFO John Currie. "Based on this recent performance and assuming these trends continue through the remainder of January, we are reducing our outlook for the fourth quarter."
- As the cannabis industry lights up Washington and Colorado, the <a href="http://www.nytimes.com/2014/01/12/us/banks-say-no-to-marijuana-money-legal-or-not.html?ref=business&amp;_r=0">biggest issue facing budding marijuana businesspeople is banking</a>, according to a New York Times report from Serge F. Kovaleski. Pot merchants "are grappling with a pressing predicament: Their businesses are conducted almost entirely in cash because it is exceedingly difficult for them to open and maintain bank accounts, and thus accept credit cards," Kovaleski reports. "Banks, including state-chartered ones, are reluctant to provide traditional services to marijuana businesses. They fear that federal regulators and law enforcement authorities might punish them, with measures like large fines, for violating prohibitions on money-laundering, among other federal laws and regulations." As a result, perfectly legal businesses are hoarding dangerous amounts of cash and stashing suitcases around town.
- Target <a href="http://www.businessinsider.com/target-significant-changes-in-security-2014-1">will make "significant changes" after its high-profile data breach</a> debacle over holiday season, the company's CEO Gregg Steinhafel said in an interview with CNBC. The company has installed malware on point of sale registers and is working to figure out who is responsible for the hack that resulted in the stolen personal information of at least 70 million Target customers. 
- Asian markets were mixed in overnight trading, with Japan's Nikkei and Korea's KOSPI up 0.20% and 0.54% respectively, while Shanghai was down 0.51%. European markets were all trading higher, but U.S. futures were pointing south.
- Thailand continues to inch toward a civil war, as <a href="http://www.businessinsider.com/thailand-is-heading-towards-a-civil-war-2014-1">protestors "shut down" the capital Monday</a> in protest of Prime Minister Yingluck Shinawatra. "Protesters led by former opposition politician Suthep Thaugsuban started blocking major intersections late on Sunday, aiming to create traffic chaos in a city of an estimated 12 million people where roads are clogged at the best of times," Reuters reports. 
<a class="cite"></a>- This afternoon at 2:00 p.m., the Treasury will make its monthly budget statement for December. Economists are expecting a $44.0 billion surplus. "Underlying improvement continues as payroll and income tax hikes boost receipts and spending remains restrained by sequester caps, but the main contributor to the positive swing from last year in December is GSE dividend payments," <a href="http://www.businessinsider.com/monday-scouting-report-jan-13-2013-2014-1">Morgan Stanley's Ted Wieseman wrote clients</a>. "With regular earnings running near record levels and Freddie Mac making an additional one-off payment for a deferred tax asset accounting reversal (which Fannie Mae did in June), Treasury received a $39 billion GSE dividend on December 31, up from $5 billion a year ago. For all of fiscal year 2014, we see the deficit narrowing to $585 billion, or 3.4% of GDP, from $680 billion, or 4.1% of GDP, in FY 2013."
- Bulls beware, the <a href="http://www.businessinsider.com/goldman-market-valuation-is-lofty-2014-1">market is getting a little pricey</a>, according to Goldman Sachs' David Kostin. In a new note to clients, Kostin writes that the "biggest surprise is how many investors expect the forward P/E multiple to expand to 17x or 18x." The current aggregate forward P/E multiple is at 15.9. While market participants tend to believe a 15x P/E multiple is the long-term average, "The common perception is wrong." In fact, "Most investors are surprised to learn that since 1976 the S&amp;P 500 P/E multiple has only exceeded 17x during the 1997-2000 Tech Bubble and a brief four-month period in 2003-04. Other than those two episodes, the US stock market has never traded at a P/E of 17x or above."
- Leonardo DiCaprio <a href="http://www.businessinsider.com/list-of-golden-globes-winners-2014-2014-1">took home the Best Actor for Musical or Comedy prize</a> at last night's Golden Globes for his performance as Jordan Belfort, the drug-addicted 90s-era pump-and-dumper, in Martin Scorsese's The Wolf of Wall Street. Matthew McConaughey, Cate Blanchett, and Amy Adams were among the other winners. 
Analysts are still weighing how last week's surprisingly terrible jobs report will affect the Federal Reserve's decision-making going forward. Here's Brown Brothers Harriman's Marc Chandler in a new note to clients this morning:
At the risk of oversimplifying, there seems to be a single overriding driver of the global capital markets in the coming days. It is how investors see the implications of last week's dismal jobs data. In particular, many observers are suggesting that it raises doubts over the Fed's willingness to continue to pull back from its asset purchases, as generally outlined alongside last month's tapering decision. Some observers have linked it to arguments that the economy has become dependent on QE and at the first sign of withdrawal, there is a loss of activity... We expect the Fed to go ahead with slowing of QE purchases. Fed officials have argued that there has been a cumulative improvement in the labor market. A month's disappointment will not change that understanding, though a second dismal report may be harder to shake off. Moreover, one does not have to venture much beyond the weather is seen mitigating factors.

10 Things You Need To Know Before The Opening Bell

<div class="KonaFilter image-container float_right"><div class="image on-image"><img src="http://static1.businessinsider.com/image/528bc42769bedd7a164ad03a-1200-924/jamie-dimon-justice-4.jpg?maxX=480" border="0" alt="jamie dimon justice" width="480" />REUTERS/Gary Cameron</div></div>The mammoth $13 billion settlement between <keyword id="111830" type="CITY" weightage="60" keywordseo="JPMorgan-Chase">JPMorgan Chase</keyword> and the government over mortgages is official. 
Of that settlement, $4 billion of it will go to consumer relief, the press release states.
Here's the statement from Eric Schneiderman's office: 
A.G. SCHNEIDERMAN-LED STATE &amp; FEDERAL WORKING GROUP ANNOUNCES $13 BILLION SETTLEMENT WITH JPMORGAN CHASE
Settlement Includes An Expected $1 Billion For New York
RMBS Task Force, Co-Chaired By Schneiderman, Produces Largest Settlement Ever Levied Against A Financial Institution 
Settlement Comes Thirteen Months After Schneiderman Sued JPMorgan For Fraudulent Residential Mortgage-Backed Securities Packaged And Sold By Bear Stearns
Schneiderman: "Today's Settlement Is A Major Victory In The Fight To Hold Those Who Caused The Financial Crisis Accountable"
NEW YORK - Attorney General Eric T. Schneiderman today joined the members of a state and federal working group he co-chairs in announcing a $13 billion settlement with JPMorgan Chase. The agreement - the largest settlement with a single entity in American history - resolve federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to January 1, 2009. 
The settlement requires JPMorgan to pay $9 billion and provide $4 billion in consumer relief, including mortgage modifications for homeowners at risk of foreclosure. New York State will receive more than $1 billion of the $13 billion settlement, including $613 million in cash and approximately $400 million in consumer relief for struggling New Yorkers. Among other uses, the cash portion will be directed to provide additional legal services and housing counseling for those affected by Superstorm Sandy. The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal working group formed in 2012 to share resources and continue investigating wrongdoing in the mortgage-backed securities market prior to the financial crisis. Attorney General Schneiderman co-chairs the RMBS working group.
"Since my first day in office, I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy," said Attorney General Schneiderman, co-chair of the RMBS working group. "This historic deal, which will bring long-overdue relief to homeowners around the country and across New York, is exactly what our working group was created to do. We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten, and as a result we've won a major victory today in the fight to hold those who caused the financial crisis accountable."
The settlement resolves a lawsuit filed by Attorney General Schneiderman in October 2012 against J.P. Morgan Securities LLC (formerly known as Bear Stearns &amp; Co. Inc.), JP Morgan Chase Bank, N.A., and EMC Mortgage LLC (formerly known as EMC Mortgage Corporation) alleging fraud under the Martin Act in the packaging and sale of residential mortgage-backed securities by Bear Stearns. As part of the global settlement, JPMorgan acknowledged it made serious, material misrepresentations to the public - including the investing public - about numerous RMBS transactions.
The global settlement includes a Statement of Facts, in which JPMorgan acknowledges that it regularly misrepresented to RMBS investors that the mortgage loans in various securities complied with underwriting guidelines. Contrary to those representations, as the Statement of Facts explains, on a number of different occasions, JPMorgan employees knew that the loans in question did not comply with its own guidelines and were not otherwise appropriate for securitization, but they allowed the loans to be securitized - and those securities to be sold - without disclosing this information to investors. This conduct, along with similar conduct by other banks that bundled toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis. 
Attorney General Schneiderman was elected in 2010 and took office in 2011, when the five largest mortgage servicing banks, all 50 state attorneys general, and the federal government were on the verge of agreeing to a settlement that would have immunized the banks - including JPMorgan - from liability for virtually all misconduct related to the financial crisis. Attorney General Schneiderman refused to agree to such sweeping immunity for the banks. As a result, Attorney General Schneiderman secured a settlement that preserved a wide range of claims for further investigation and prosecution. 
In his 2012 State of the Union address, President Obama announced the formation of the RMBS Working Group. The collaboration brought together the Department of Justice (DOJ), other federal entities, and several state law enforcement officials - led by Attorney General Schneiderman - to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. 
Today's settlement is a product of the RMBS Working Group.
Michael P. Stephens, Acting Inspector General of the Federal Housing Finance Agency, said, "JP Morgan and the banks it bought, Bear Stearns and Washington Mutual, sold hundreds of billions of dollars of defective mortgages into the securities markets helping to precipitate the financial crisis. Investors, including Fannie Mae and Freddie Mac, suffered enormous losses by purchasing RMBS from JPMorgan, Washington Mutual and Bear Stearns not knowing about those defects. Today's settlement is a significant, but by no means a final step by FHFA-OIG, DOJ the NYAG, and our other law enforcement partners to hold accountable those who committed acts of fraud and deceit. We are proud to have worked on this case with Attorney General Eric Schneiderman and his outstanding staff in New York and we look forward to our continued work together, as well as with the other federal and state agencies that have contributed significantly to this case."
New York State Comptroller Thomas P. DiNapoli said, "With today's historic settlement, Attorney General Eric Schneiderman is delivering accountability and real relief for New York homeowners at risk of foreclosure." 
Suffolk County Executive Steve Bellone said, "I am grateful to Attorney General Eric Schneiderman for securing a settlement with JPMorgan that will provide welcome relief to thousands of Long Island homeowners. Families that are currently at risk of foreclosure will instead be able to modify their mortgages and keep their homes as a result of today's settlement."
Erie County Executive Mark Poloncarz said, "I commend Attorney General Schneiderman for his continued pursuit of international lending institutions that use predatory lending practices to target our citizens. It is my hope that these recovered funds will be used to rebuild our communities and help to repair the damage done by this deceptive lending." 
Congressman Brian Higgins said, "The reckless and irresponsible actions of some of our largest banks helped cause the financial crisis. Their greed did great damage to our state and national economy. I commend Attorney General Schneiderman for his relentless pursuit to bring accountability and restore trust in our financial system."
Congressman Jerry Nadler said, "Attorney General Eric Schneiderman's announcement of a $13 billion settlement today is a landmark moment in effort to hold accountable those who engaged in fraud and/or malfeasance that led to the financial crisis. I have been extremely impressed that when others gave up or threw obstacles in his path, Attorney General Schneiderman insisted that federal and state prosecutors keep digging, and as a result, the people of New York will see the largest settlement to date in this matter."
Syracuse Mayor Stephanie Miner said, "Attorney General Eric Schneiderman not only made sure that JPMorgan was held accountable for its role in the financial crisis. He made sure that today's settlement will deliver real relief to homeowners in Syracuse and other hard hit cities around New York State."
Christie Peale, Executive Director of the Center for New York City Neighborhoods, said, "This is an incredible victory for New York homeowners, tens of thousands of whom have been struggling to negotiate their own settlements with banks-many with little success. Attorney General Schneiderman's willingness to stay in this fight and stand side by side with homeowners throughout the state to secure the benefits of this historic settlement demonstrates the kind of leadership we need at all levels of government. We are grateful for his commitment to delivering to New Yorkers the tools they need to restructure their mortgages and rebuild their lives. 
Kirsten E. Keefe, Senior Staff Attorney at the Empire Justice Center, said, "Once again, Attorney General Eric Schneiderman is at the helm, fighting for New York's working class and holding a big bank accountable for its illegal behavior. Today's settlement with Chase is historic and will keep thousands of homeowners in their homes. It has been patently unfair, and harmful to our housing recovery, that lenders have continually refused to forgive debt even on homes that lost their value as a direct result of the financial collapse caused by the banks. The principal reduction afforded by this settlement instills fairness in the system and will help ensure thousands of homeowners keep their homes."
Josh Zinner, Co-Director of the New Economy Project, said, "We thank Attorney General Schneiderman for his efforts to hold the too-big-to-fail banks accountable to communities. The big banks' central role in fraudulently securitizing predatory mortgages fueled the financial crisis - this settlement is an important acknowledgement that these fraudulent practices caused great harm to homeowners and communities, and not just investors."
Jennifer Ching, Director of Queens Legal Services, said, "Today's historic settlement is designed to provide real and direct relief to New York homeowners who have been victimized by fraudulent practices that have destabilized neighborhoods throughout our state. We thank Attorney General Schneiderman for holding JPMC accountable and look forward to working with his office to connect thousands of homeowners - many of whom have struggled for years to obtain sustainable mortgage modifications - with the resources created by today's agreement."
Under the settlement, JPMC will be required to:
<ul style="padding-left: 30px;">
<li style="padding-left: 30px;">Provide $2 billion in principal reductions to borrowers, including first and second liens and forbearance;</li>
<li style="padding-left: 30px;">Provide an additional $2 billion in financial relief for borrowers and communities, including: 
<ul style="padding-left: 30px;">
<li style="padding-left: 30px;">Refinancing at lower interest rates; </li>
<li style="padding-left: 30px;">Donation of bank-owned properties or bank-controlled distressed mortgages to nonprofits or land banks; and</li>
<li style="padding-left: 30px;">New mortgage loans to low-and moderate-income families harmed by the financial crisis. </li>
</ul>
</li>
</ul>
Compliance with the settlement will be overseen by an independent monitor. It is expected that of the $4 billion in consumer relief, approximately $400 million will flow as creditable relief to New York homeowners. 
The New York Attorney General's Office investigation and litigation was conducted under the supervision of Deputy Attorney General Virginia Chavez Romano who, together with Chief of the Investor Protection Bureau Chad Johnson, worked closely with the New York Attorney General to achieve this historic settlement.

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