The latest twist to the foreclosure crisis has turned out to be a headache for banks. The humble headache might soon swell to become a migraine.
But the additional agony is not coming because of any stand taken by the Obama government or the investigations started by the attorneys general – it is coming from individual persons who are bringing charges of being wrongly foreclosed upon. The worry is also because of institutional investors who had purchased house loans from pools of mortgages and then sold these as RMBS of Residential Mortgage Backed Securities. The investors were under the impression that they were purchasing investments that were solid. But the recent admissions of robo-signings have upset all their calculations and great doubts are emerging about the intrinsic value of the loans.
The investors are now trying hard to compel the banks to buy back these securities. This would expose the banks to losses amounting to billions if the plaintiffs are able to prove that errors have been made. Requests for repurchase are not something new. For years banks have been receiving these requests but this time it could be a deluge.
Professor Joseph Mason of Louisiana State University who focuses on the legal risks involved in financing and banking said, “It’s really going to be up to the courts to decide on this one… Certain investors will try to use this to avoid losses”.
Recently the New York Federal Reserve together with BlackRock, an investor firm as well as Pacific Investment Management Company dispatched a note to Bank of America charging that Countrywide, its subsidiary, had failed to service loans properly amounting to $47 billion. This letter is not the equivalent to legal steps but it does put the bank on notice, warning it of future litigation in near future.
One of the most affected by the recent turn to the crisis is Bank of America because of the sheer volume of its business operations. It has sold loans worth $1.2 trillion to Fannie Mae and Freddie Mac from 2004 to 2008. So far it has received requests for repurchase of loans amounting to $18 billion of these loans. The losses from these amounts to $2.5 billion said the bank. Charles Noski of the BofA said, “The risk is relatively sealed on this … the issue is how long the fight will take”.
The internal processing varies from one bank to another.
Kevin Simpson is a consultant with experience in http://www.cheaphomeslistings.com/. With his knowledge in the real estate market, he provides information over the best investments in California cheap homes listings for future owners and sellers.
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