U.S. DoJ, JPMorgan Chase Closer to $13B Dollar Settlement

The U.S. Justice Department and JPMorgan Chase are nearing completion of a $13 billion settlement related to the bank's past mortgage practices, and a final deal is expected as soon as Tuesday, a person briefed on the negotiations told CNN.

Elements of the proposed pact are now being signed by states that are parties to the agreement, the person said. Only a few details remain to be completed.

The outlines of the deal were first tentatively agreed to in October in negotiations led by Attorney General Eric Holder and JPMorgan (JPM, Fortune 500) Chief Executive Jamie Dimon.

A spokesman for the bank declined to comment on Monday evening. In recent days, the parties finalized one of the last major pieces of the deal calling for $4 billion in money to help consumers.

Of that amount, at least $1.5 billion will go to reduce loan payments for homeowners mortgages are underwater, meaning the money owed on the loan exceeds the value of the home. Another $300 million to $500 million will pay for partial loan forgiveness and other aid for homeowners, with the goal of keeping them in their homes.

The remaining $2 billion could be used in a variety of ways, including funding new loans for low-income home buyers that the bank would be required to keep on its books instead of selling to investors. The bank could also use some of the money to pay for knocking down foreclosed homes in areas hard hit by the mortgage crisis.

An independent monitor will keep an eye on the bank to ensure compliance.

At issue in the deal are mortgage-backed securities and related derivatives that were blamed as a key cause of the financial crisis.

The $13 billion settlement includes an already-completed $4 billion deal with the Federal Housing Finance Agency to compensate Fannie Mae and Freddie Mac for allegedly misleading practices in loans sold to those agencies.

A federal criminal investigation based in Sacramento, California, would continue against the bank and several employees, and JPMorgan Chase has agreed to cooperate with that probe.

Key Fed Official Says U.S. Economy on Upswing

The U.S. economy could be doing better, and anemic growth could give way to stronger growth over the next two years, a top Federal Reserve official said Monday, as reported by MarketWatch’s Greg Robb.

William Dudley, the president of the New York Federal Reserve, said in a speech at Queens College that “I have to admit that I am getting more hopeful.”

Dudley said he saw signs that the drag from steep cuts in government spending and higher taxes was lessening at the same time that “fundamental underpinnings” of the economy are strengthening.

Dudley is a key ally of Janet Yellen, who is poised to take over the Fed after a smooth nomination hearing last week.

Although the New York Fed president included cautionary language that stronger growth is still a forecast and not a reality, there is no mistaking the upbeat nature of his remarks.

Fed officials have been frustrated that growth has averaged just above 2% since the financial crisis in 2008 despite their best efforts including three rounds of quantitative easing, and a roughly $4 trillion balance sheet.

The central banks has tried without success to get the economy into a virtuous cycle of employment growth followed by spending followed by more job growth. Economists generally say it would take 3% GDP growth for this “self-fulfilling recovery” to gain a foothold.

Dudley’s remarks suggest the economy could be poised to reach that higher plateau.

The Fed has been buying $85 billion per month in Treasurys- and mortgage -elated securities. Fed watchers are unsure when central-bank officials will feel the economy is strong enough for them to reduce the pace of purchases. Dudley did not address the taper timing question in his prepared speech, but his remarks will add to the sense that Fed officials will actively discuss the issue at their next policy meeting on Dec. 17-18. The New York Fed president is always a voting member of that committee.

Adding to the sense that a taper is approaching, another Fed official said later Monday that it was time to bring QE3 to an end.

Philadelphia Fed President Charles Plosser said the Fed should stop playing “this bond-buying game by ear” because it risks the central bank’s credibility. He said the Fed should tell the markets how many more assets it plans to purchase and stop when that amount is reached.

At the moment, the Fed’s asset purchase program is open-ended. Some Fed officials have said the central bank could reduce the pace of purchases and then reverse course and increase them if the economy stumbles, much like the central bank historically moved its short-term interest rate target.

But Plosser completely rejected that approach.

“We cannot continue to play this bond-buying game by ear and risk the Fed’s credibility while creating lingering uncertainty about the course of monetary policy,” he said in a speech to the Risk Management Association in Philadelphia.

“Based on this outlook and the improvement in labor market conditions, I believe it would be appropriate for the Fed to communicate the amount of assets it intends to purchase in the current program and bring it to an end,” he said.

Plosser is an inflation hawk on the central bank and has never been a supporter of the third round of asset purchases.

He said the Fed has indeed achieved the goal of a “self-sustaining recovery” albeit at a moderate pace, and said he sees 3% growth in 2014 and the unemployment rate dropping to 6.2% by the end of that year.

He will be a voting member of the Fed’s policy committee next year.

A gauge of home-builder confidence paused this month, missing forecasts, as sales expectations for single-family homes slightly declined, according to a report released Monday.

Home-builder Confidence Slows Pace

The National Association of Home Builders/Wells Fargo housing-market index was 54 in November, matching a downwardly revised reading for October, which was the lowest in four months.

Results above 50 signal that builders, generally, are optimistic about sales trends. November’s pause comes after the index declined for two months, though the confidence gauge is still up 20% from a year ago.

“The fact that builder confidence remains above 50 is an encouraging sign, considering the unresolved debt and federal budget issues cause builders and consumers to remain on the sideline,” David Crowe, NAHB’s chief economist told MarketWatch’s Ruth Mantell.

Economists polled by MarketWatch had expected a November level of 55, matching NAHB’s prior estimate for October.

In addition to partisan discord, builders face a market with volatile mortgage rates, which can hit demand. The Federal Reserve recently decided to maintain its massive-purchase plan, noting, among other factors, that the housing sector’s recovery has “somewhat slowed” in recent months.

Still, D.R. Horton DHI +0.26%, the country’s largest builder, recently reported that sales trends continue to show gains.

Pent-up demand has supported builder confidence over the past year. However, the confidence gauge has grown so quickly that it is far higher than levels typically associated with recent construction readings.

Looking at the components of builder confidence, a gauge of their views on sales of single-family homes over the next six months ticked down to 60 in November from 61 in October, and a gauge that looks at prospective-buyer traffic declined to 42 from 43. A barometer of their views on present sales remained at 58.

“The report still implies net improvement in sales relative to before mortgage rates started to rise in May, but activity has stalled in the last few months. Builders appear to be blaming Washington,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

By region, the builder-confidence index in November rose 14 points to 44 in the Northeast, and by one point to 55 in the South. There were drops of one point to 58 in the West, and eight points to 54 in the Midwest.

Rising Bitcoin Popularity, Value Trigger Senate Action

Just as the price of a Bitcoin reaches record highs, a U.S. Senate committee is taking a closer look at the world's favorite decentralized digital currency, reports CNN Money’s Jose Pagliery.

Are tight regulations to come? Do politicians see a currency they can't track or control as a threat -- or an asset?

It's anyone's guess. But it's clear bitcoins are growing in popularity. The price of the currency soared to a new all-time high of $675 Monday, up from only $12 a year ago. Without meddling banks in between transactions, bitcoins trade seamlessly and offer nearly as much privacy as cash.

That's why the Senate Committee on Homeland Security and Government Affairs is hearing from various sides Monday. According to prepared statements from the Justice Department, an official at the DOJ said it needs more help catching criminals who use the secretive currency. Meanwhile, Bitcoin users want the government to back off and let the system blossom.

Law enforcement doesn't like the anonymity: There are legitimate uses for bitcoins. But it's also being used to anonymously buy drugs, hire assassins, trade child porn and dodge taxes.

The nation's acting assistant attorney general, Mythili Raman, described the more notorious ways bitcoins are being used. She mentioned the recent FBI shutdown of Silk Road, an online black market. Illicit drugs and services -- like hacking -- were sold there using the (mostly) untraceable currency. The agency arrested its alleged founder and seized 170,000 BTC, valued at $101 million as of Monday afternoon.

The way bitcoins are transacted -- using coded wallets and special keys that don't need real names -- enables substantial privacy. Raman said that makes it more difficult to follow the money and catch criminals. It would be easier to fight crime with "appropriate anti-money laundering and know-your-customer controls," she said.

Along those lines, there are concerns that those making money from sex trafficking and pornography involving children have started to adopt Bitcoin.

The International Centre for Missing and Exploited Children noted how anonymity offered by Bitcoin has made it the currency of choice for predators. The nonprofit group's president, Ernie Allen, says he's not against the digital economy. But he wants it less private.

"If the perception of anonymity diminishes, we believe the criminal use will diminish with it," he said in prepared remarks.

Edward Lowery III, who leads the Secret Service's criminal investigative division, added that the technologically complex Bitcoin system makes it hard for everyday agents to stay on targets' tails. They need more tech-savvy investigators than the agency can currently afford.

Also chiming in was the potential regulator that could one-day ruin the unregulated Bitcoin party: The Treasury Department.

Treasury already issued guidance in March saying that groups exchanging bitcoins must register with the government and keep records. Everyday bitcoin users remain unregulated. Jennifer Shasky Calvery is head of the department's financial crimes unit and warned about leaving the bitcoin community untouched.

"One of our biggest challenges is striking the right balance between the costs and benefits of regulation," she said.

The Bitcoin community doesn't want too much regulation: Fans of Bitcoin say the currency is going mainstream, and it's not just for internet weirdos. That's why they want the government to give it a chance to grow and thrive without tacking on burdensome rules.

The Bitcoin Foundation, a group that seeks to strengthen the digital system, is trying to convince politicians the currency works as is.

"The American people have been reminded this year of reasons to be concerned for their privacy," says the group's attorney, Patrick Murck, referencing the recent disclosures about unwarranted government spying on innocent citizens.

The group also notes that meetings with financial regulators have gone well so far, but the Treasury Department should have met with Bitcoin supporters before taking a stance earlier this year.

Academic researchers say that coming down too hard on the digital currency could push its innovative potential abroad.

Jerry Brito, a senior research fellow at George Mason University's Mercatus Center, feels that entrepreneurs have a lot to gain from bitcoins. Without banks, they're also more accessible to the world's poorest. Plus, they're not controlled by a central bank that can run rampant printing money and bring on hyperinflation.

But regulators can't get their heads around it. They might want to treat it as a foreign currency, a commodity or a payments network -- but it's not any of those. However, stopping it would be a dumb move.

"Restricting the use of Bitcoin will only ensure that criminals alone will use the technology," Brito and research assistant Andrea Castillo wrote in a report to Congress.

MF Global Customers on Winning End of $1.2B Court-Ordered Repayment

More than two years after the failure of MF Global, customers are finally on the verge of getting all of their money back, reports CNN Money’s James O’Toole .

The defunct brokerage, which had been run by former New Jersey governor and senator Jon Corzine, was ordered by a federal court to pay back more than $1.2 billion.

MF Global's 2011 bankruptcy left a $1.6 billion shortfall for roughly 38,000 customers.

Monday's court order, combined with efforts by a liquidation trustee who tracked down the missing funds at other firms, ensures customers will receive 100% of their money back.

The firm went bankrupt two years ago, after its disclosure of billions of dollars’ worth of bets on risky European debt sparked a panic among investors.

In the days preceding the firm's failure, customers began withdrawing money from their accounts en masse, and trading partners called for increased margin payments, leaving MF Global scrambling to make good on its obligations. The firm tapped customer funds for its own use during the crisis and failed to replace them, in violation of industry rules. MF Global's customers included individual investors, as well as farmers who used commodity futures contracts to lock in crop sales at particular prices. The U.S. Commodity Futures Trading Commission secured Monday's court order.

"Division staff have worked tirelessly to ensure that 100 percent restitution be awarded to satisfy customer losses," CFTC enforcement director Gretchen Lowe said in a statement.

MF Global has also been ordered to pay a $100 million penalty after first satisfying its obligations to customers and certain creditors.

In addition to misusing customer funds, the CFTC also accused MF Global of making false statements in reports it filed with the agency that masked the shortfall. The CFTC has litigation still pending against Corzine and former MF Global assistant treasurer Edith O'Brien.

In Congressional hearings last year, Corzine denied wrongdoing and said he didn't learn about the shortfall in customer accounts until it was too late. O'Brien declined to answer questions from lawmakers, invoking the Fifth Amendment.

Although the firm's customers are now set to be repaid, that doesn't erase the hardship they've faced since the bankruptcy.

"Customers were deprived of their money for two years, and some people lost their businesses," said James Koutoulas, CEO of Typhon Capital Management and a vocal advocate for the customers.

"Farmers had all sorts of problems as well -- you had people who were shut out of trading."

Treasurys Gain Ground on Fed Policy Expectations

Treasury prices climbed on Monday, extending gains from last week as the bond market refined its expectations of an accommodative monetary policy under President Obama’s nominee to take over the Federal Reserve, reports MarketWatch.

Janet Yellen, currently the vice chairwoman of the Fed, appeared before the Senate Banking Committee last week as she sought confirmation to lead the central bank. After she defended the Fed’s $85 billion in monthly bond buying, the market began to expect a later time-frame for scaling back the pace of purchases.

Charles Plosser, president and chief executive officer of the Federal Reserve Bank of Philadelphia, speaks Monday.

The benchmark 10-year note yield, which moves inversely to price, fell 3.5 basis points to 2.668%, following a drop of roughly 3.5 basis points last week.

The 30-year bond yield fell 4 basis points to 3.757%, while the 5-year note yield fell 4 basis points to 1.312%.

“This is a continuation of what Yellen was saying last week,” said Matt Duch, portfolio manager at Calvert Investments. “She came out and sounded a lot like Chairman [Ben] Bernanke, saying the data is not good enough yet.”

Alongside the testimony from Yellen, the market has been bolstered by suggestions that the Fed could lower the unemployment rate threshold that could trigger a hike to the central bank’s policy rate. Dropping the threshold as part of its so-called forward guidance would imply that short-term interest rates would stay lower for longer.

The market is becoming more comfortable with separating the Fed’s policy tools and recognizing that the so-called tapering of bond purchases does not equate to hiking short-term interest rates, according to Gene Tannuzzo, senior portfolio manager at Columbia Management.

“Interest rates are near fair value here for the time being,” he said, adding that the long end of the yield curve has built in a healthy amount of term premium while still maintaining expectations that the Fed’s policy rate will stay low.

The Fed has said that changes to monetary policy depend on economic indicators, and data skewed to the negative side on Monday. The National Association of Home Builders/Wells Fargo housing-market index, a gauge of home-builder confidence, had an unchanged reading at 54 in October. Though a reading above 50 indicates general optimism, Wall Street economists had forecast a reading of 55.

New process aims to sideline vested interests, allow deeper reforms in special economic zones, says government adviser.

A number of Fed officials spoke Monday. New York Fed President William Dudley said in a speech at Queens College that he is becoming more optimistic about the pace of the U.S. economic recovery. “I believe a good case can be made that the pace of growth will pick up some in 2014 and then somewhat more in 2015,” Dudley said.

Philadelphia Fed President Charles Plosser said it’s time to end the Fed’s asset-purchase program.

Federal Reserve Bank of Boston President Eric Rosengren spoke about how international banks that have large broker-dealer businesses pose a risk to financial stability if they don’t hold capital as a buffer against risk, according to news reports.

The Treasury Department released international capital data on Monday, which showed that net foreign purchases of long-term U.S. securities totaled $25.5 billion in September, a rebound from the previous month.

Data on tap later this week include retail sales, consumer prices, and existing home sales, all due out Wednesday. The Federal Open Market Committee will also release the minutes from its October meeting on Wednesday.

The Treasurys Department will sell $13 billion of 10-year Treasury inflation-protected securities on Thursday at a time when many investors continue to shun the asset class.