Banks brace for continued legal issues over mortgages

The legal headaches for the big banks over mortgages only grow after JPMorgan's (JPM -0.1%) $5,1B settlement with the FHFA - 12% of the original purchase amount. "My sense is, the industry is concerned about what’s happened,” says law professor Carl Tobias. “The size of the JPM settlement made people wake up and be more concerned than they were before.”

Fourteen banks still have similar suits pending with the FHFA, but most-exposed is Bank of America (BAC +0.5%). ISI's Glenn Schorr extrapolates the JPMorgan settlement and figures BofA will have to pay $6.8B, well beyond $5.1B in legal reserves (BofA disclosed last week that losses could go beyond this). Goldman (GS +0.1%) and Morgan Stanley (MS +0.3%) would be on the hook for $1.3B each, says Schorr, and Morgan analyst Betsey Graseck cut her estimates for both BofA and Goldman last week.

FHFA holds plenty of sway to get that 12% payout, but private investors have typically only gotten back 2% - looking at the government's fat payout might encourage them to lobby for a boost.

Then there's a new tool for prosecutors - a law called the Financial Institutions Reform, Recovery and Enforcement Act, or Firrea - "another arrow in the quiver of prosecutors, and it’s worked," says Tobias. It was central to a loss for BofA last month in a lawsuit over mortgages sold to the GSEs. Among its twists is a 10-year statute of limitations, and BofA discloses the DOJ is employing Firrea in a new suit about a certain 2008 mortgage offering.

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Comments (6)
  • chopchop0
    , contributor
    Comments (5271) | Send Message
    This is why I'll never in banks. So many better places to have had your money these last few years.
    4 Nov 2013, 12:06 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4911) | Send Message
    Why don't they just spin the mortgage operations off and the liabilities long with them?


    Maybe they are worth more than $5 billion or so but they certainly are a headache.
    4 Nov 2013, 02:04 PM Reply Like
    , contributor
    Comments (10804) | Send Message
    The question is the size of the loss they have to take if they did spin them off. Remember they suspended mark-to-market.
    4 Nov 2013, 04:07 PM Reply Like
    , contributor
    Comments (269) | Send Message
    BAC still has the option to put Countrywide, a non-consolidated sub
    into bankruptcy; they've been holding that out as an option for years. Maybe its time to do so and put all the ambulance chasers in line with other creditors. BAC stock would rally big time on the announcement.
    4 Nov 2013, 05:20 PM Reply Like
  • garyt01
    , contributor
    Comments (110) | Send Message
    The regulators would make BAC's life a living hell if this could even happen. BAC would never be allowed to buy another bank or line of business for the rest of their existence since all have to be approved by the regulators. These are the same regulators that did not stop Countrywide (and others) from originating the mortgages. As a banker for 30 years, I believe the regulators could have stopped most of the bad lending before the real estate collapse in the late 80's and the collapse in 2008 if they were doing proper examinations.
    4 Nov 2013, 08:17 PM Reply Like
    , contributor
    Comments (269) | Send Message
    Agreed but at a certain point there are degrees of "hell". If you have nothing to look forward but being endlessly shaken down like a cigarette manufacturer by the Dept. of Injustice with no end in sight, then at some point you have to ask which is worse; being endlessly beaten up by cowardly bullies like Holder or just biting the bullet.
    4 Nov 2013, 08:58 PM Reply Like
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