Compliancex

The new Financial Crimes Unit that President Obama announced during Tuesday’s State of the Union Address could jeopardize negotiations involving a deal between the Obama administration, states attorney generals and five large banks over mortgage fraud and wrongful disclosures, the Huffington Post reports.

The unit “has a pretty good chance of derailing” the deal, JPMorgan Chase CEO Jamie Dimon said   Thursday. JPMorgan is one of the five large banks taking part in the negotiations.

The banks want a settlement to protect against future liability. If a bank agrees to pay $25 billion to ensure that protection, then end up having to deal with the exact same cases from the new investigative unit, it would not make sense to sign on to the settlement.

Under such a settlement, it appears likely that investigators would be able to pursue cases no earlier than January 2008.

The Financial Crimes Unit will be empowered to investigate mortgage fraud dating back at least 10 years.

Senior officials at the Department of Justice insisted that the new investigative unit has no relation to the settlement talks. “We have certainly heard criticisms that the settlement would give immunity for all [the mortgage-related misconduct], but that’s simply not true …This [unit] is addressing a very different problem than the servicing settlement,” said one official.

According to Justice officials, the new unit will deal with origination and also securitization of mortgage loans. In addition, the unit will investigate loans sold to, as well as insured by, government agencies.  Investigators will look into cases that include mail and wire fraud, false statements and failure to comply with 1989’s Financial Institutions Reform, Recovery and Enforcement Act.

New York attorney general Eric Schneiderman, is one of the five co-chairs of the new unit. Last year, Schneiderman espressed concern that the pending deal would be too lenient toward the five big banks, which are accused of creating false mortgage documents and inappropriately denying struggling homeowners loan modifications. Schneiderman was specifically concerned that states would have to drop legal cases against the five banks as a condition of the settlement.

Jon Lewin is a contributing writer for CompliancEX and Wall Street Job Report.