JPMorgan Chase has agreed to pay $5.1bn to resolve claims that it misled US mortgage giants Fannie Mae and Freddie Mac about risky home loans and mortgage securities it sold them before the housing market collapsed.
The Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, announced the settlement on Friday with New York-based JPMorgan, the largest US bank.
The settlement comes as negotiations continue between JPMorgan and the US Justice Department over a larger pact to resolve mortgage-related violations before the housing bust.
Under the terms of the settlement, JPMorgan admits no wrongdoing. JPMorgan will pay about $2.74bn to Freddie and $1.26bn to Fannie for the securities it sold.
It is also paying $1.1bn for home loans it sold to Fannie and Freddie before the crisis.
The settlement is the start of what could be the largest penalty the US government has extracted from a company for actions related to the financial crisis.
The crisis, caused by sales of risky mortgage securities, pushed the economy into the deepest recession since the Great Depression.
JPMorgan sold $33bn in mortgage securities to Fannie and Freddie between 2005 and 2007, according to the agency.
That was the second-most sold to Fannie and Freddie before the crisis, behind only Bank of America.
The securities soured after the housing bubble burst in 2007, losing billions in value.
Edward DeMarco, FHFA acting director, said the settlement "provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae's and Freddie Mac's assets on behalf of taxpayers".
"This is a significant step as the government and JPMorgan Chase move to address outstanding mortgage-related issues," he said.
A JPMorgan statement called Friday's agreement "an important step towards a broader resolution of the firm's [mortgage-backed securities]-related matters with governmental entities".
Last weekend, JPMorgan reached a tentative agreement with the Justice Department to pay $13bn over bad loans and mortgage securities the bank sold before the crisis.
The FHFA originally participated in those negotiations. It is unclear when the broader agreement will be finalised.
The FHFA sued 18 financial institutions in September 2011 over their sales of mortgage securities to Fannie and Freddie. The total price for the securities sold was $196bn.
The US government rescued Fannie and Freddie during the financial crisis when both were on the verge of collapse. The companies received taxpayer aid totalling $187bn.
They have since become profitable and repaid $146bn.
JPMorgan has enjoyed a reputation for managing risk better than its Wall Street competitors.
The bank came through the financial crisis in better shape than most of its rivals. But in recent months, it has been engaged in a number of embarrassing and costly settlements.
In September, JPMorgan agreed to pay $92m and admit that it failed to oversee trading that led to a $6bn loss last year in its London operation.
In another case, the company agreed to pay a $100m penalty and admitted that its traders acted "recklessly" with the London trades.
And in a first for a major company, JPMorgan admitted in the agreement with the Securities and Exchange Commission (SEC) over the trading loss in London that it failed in its oversight.