Major banks could possibly be compelled to purchase $60 billion in mortgages

The repackaging of home loans into securities, for many investors, turned into a poor deal. A few lines in contracts imply something significant, though. The poor mortgages could actually be the responsibility of the banks. The banks might be forced to re-purchase loan securities gone terribly. A single term published into most contracts might mean the banking institutions will owe over $60 billion. Thousands have lost their homes while others struggled through payday loan after pay day loan just to stay on top of their mortgages.

Conditions in home loan securities

Mortgage securities were packaged, sold and re-packaged by banking institutions. Billions of dollars were made this way. Many of these mortgage securities were more than just bad credit loans, however. The investments also contained a terms that said if the loans go south, the bank would re-purchase the loans. During the height of the home loan bubble, this seemed like a minor issue. Banking institutions are not happy about the buybacks being forced with all the homes in foreclosure.

Sixty billion dollars lost

The mortgage backed securities buyback was triggered by values dropping. Credit ratings dropping didn't help either. Credit ratings agencies estimate the nation’s six largest banks face about $60 billion worth of buyback liability. Fannie Mae and Freddie Mac own about half of the legal responsibility. In order to buy back a ton of home loans, Fannie and Freddie got about $2.5 billion from B of A in January. These home loans are spread all over the country, with a high number in high-foreclosure states such as Nevada.

A lot of buybacks for years to come

The "highest exposure" to buybacks were in banks like Chase and B of A. There are three groups of businesses seeking to sue banking institutions that aren’t buying back mortgages — insurers, mortgage finance companies and private investors. Some of the loans may be repurchased by the banking institutions. They surely will not all be bought back though. In the end, that means that banking institutions could have many years of possible lawsuits and poor loans on the books, all while the investors are stuck with foreclosed properties that their contracts say they ought to not have.

Citations

New York Times

dealbook.nytimes.com/2011/02/09/banks-could-face-60-billion-tab-on-bad-loans/