JPMorgan Chase, Justice Department reach tentative $13 billion deal over mortgage-backed securities

Updated at 9:21 p.m. ET

WASHINGTON A tentative agreement has been reached between the Justice Department and JPMorgan Chase to settle for $13 billion allegations surrounding the quality of mortgage-backed securities sold in the run-up to the 2008 financial crisis, a person close to the talks told CBS News Saturday.

If the agreement is finalized it would be the government's highest-profile enforcement action related to the financial meltdown that plunged the economy into the deepest recession since the Great Depression of the 1930s.

The person close to the talks told CBS News' Stephanie Lambidakis that the tentative settlement was sealed Friday during a 6 p.m. phone call between Attorney General Eric Holder and JPMorgan CEO Jamie Dimon along with their top lawyers.

As part of the tentative agreement, JPMorgan dropped its demand for the Justice Department to take a "non-prosecution agreement" off the table, the person said, which means a criminal investigation of the bank's conduct being handled by federal prosecutors in Sacramento, Calif., continues.

In a way, the deal came about like a real estate negotiation. JPMorgan was holding steady at $11 billion, saying it would not go higher unless the government got rid of the criminal exposure, the person close to the talks said. Holder refused, calling it "a non-starter." The breakthrough came when Dimon agreed to Justice's terms.

Of the $13 billion, $9 billion is fines or penalties and $4 billion will go to consumer relief for struggling homeowners, the person said.

JPMorgan also agreed to provide cooperation in investigations against individuals in the company, the person said.

The two sides were finalizing the details during the weekend, and the final agreement won't be announced for a few days, the person said.

When the housing bubble burst in 2007, bundles of mortgages sold as securities soured and the investors who bought them lost billions. In the aftermath, public outrage boiled over that no high-level Wall Street executives had been sent to jail. Some lawmakers and other critics demanded that the big bailed-out banks and senior executives be held accountable.

In response, the government in January 2012 set up a task force of federal and state law enforcement officials to pursue wrongdoing with regard to mortgage securities.

In September, JPMorgan agreed to pay $920 million and agreed to pay a $100 million penalty and admitted that its traders acted "recklessly" with the London trades.

In August, the Justice Department accused Bank of America Corp., the second-largest U.S. bank, of civil fraud in failing to disclose risks and misleading investors in its sale of $850 million in mortgage bonds in 2008. The Securities and Exchange Commission filed a related lawsuit. The government estimates that investors lost more than $100 million on the deal. Bank of America disputes the allegations.

The latest action against the beleaguered JPMorgan brought the weight of the Obama administration against the bank, which has enjoyed a reputation for managing risk better than its Wall Street competitors. JPMorgan came through the financial crisis in better shape than most of its rivals and Dimon, its CEO, charmed lawmakers and commanded the attention of regulators in Washington.

A number of big banks, including JPMorgan, Goldman Sachs and Citigroup, previously have been accused of abuses in sales of securities linked to mortgages in the years leading up to the crisis. Together they have paid hundreds of millions in penalties to settle civil charges brought by the SEC, which accused them of deceiving investors about the quality of the bonds they sold.

JPMorgan settled SEC charges in June 2011 by agreeing to pay $153.6 million and reached another such agreement for $296.9 million last November.

The banks in all the SEC cases were allowed to neither admit nor deny wrongdoing - a practice that brought criticism of the agency from judges and investor advocates.

But in a first for a major company, JPMorgan admitted in the agreement with the SEC over the $6 billion trading loss in its London operation that it failed in its oversight. The admission could leave the bank vulnerable to millions of dollars in lawsuits. JPMorgan also reached settlements over the trading loss with the Federal Reserve, the U.S. Office of the Comptroller of the Currency and Britain's Financial Conduct Authority.

The Justice Department is still pursuing a criminal investigation of the trading loss and a possible cover-up at the bank. Two of the bank's former traders in London are facing criminal charges. The SEC also is investigating individuals involved in the trading loss.

Mounting legal costs from government proceedings pushed JPMorgan to a rare loss in the third quarter, the first under Dimon's leadership. The bank reported Oct. 11 that it set aside $9.2 billion in the July-September quarter to cover a string of litigation stemming from the financial crisis and its "London Whale" trading debacle. JPMorgan said it has placed a total of $23 billion in reserve to cover potential legal costs.