Faulty Mortgage and Sloppy Foreclosure Costs Top $72 Billion
On 23.02.12, In Legal Industry, by Blake Houser
Flawed mortgages and careless foreclosure costs reached $72 billion at the major U.S. banks as the settlement of a 50-state investigation into the practices of the industry nears.
JPMorgan Chase & Co., Ally Financial Inc., Wells Fargo & Co., Citigroup Inc. and Bank of America Corp., the five biggest home lenders during the time of the real estate boom, computed new costs of at least $6.78 billion linked to mortgages during the second half of last year. A total of $41.8 billion was contributed by Bank of America, ranked second among other U.S. banks by assets.
The rising costs are pushing regulators and lenders to come up with a decision in investigations and lawsuits over defective home lending, including the 50-state review of the foreclosures. The bickering over the old loans’ status has made a couple of bank a bit hesitant to grant new ones. This is despite the appeal of Federal Reserve Chairman Ben. S. Bernanke for action to boost lending and fix the volatile U.S. housing market because it is causing a drag on the economic recovery.
David Knutson, a credit analyst with the Legal & General Investment Management in Chicago, said, “It’s a colossal failure of basic banking. It’s surprised everyone in terms of persistence and longevity and I think it will continue to surprise.” Legal & General Investment Management is a holder of bonds in a few of the involved lenders.
A settlement said to be worth $25 billion is being negotiated by the banks with state attorneys general. Such move could later expand to include several smaller lenders that granted mortgage loans. Although an agreement could be announced this week, a number of states have been calling for tougher and more expensive terms, which includes the right to file legal claims in the future.