Major Banks Could Possibly Be Accountable For As Much As $60 Billion In Bad Mortgages

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Mortgages which were packed up into investments didn’t always perform well. For investors, there ended up being a poor deal. A few lines in contracts imply something important, though. The bad home loans could actually be the responsibility of the banks. A term published into many of the investments could mean banking institutions have to spend $60 billion to re-buy home loans gone terribly. Thousands have lost their homes while others struggled through pay day loan after payday loan just to stay on top of their home loans.

Mortgage security clauses

Home loan 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 poor credit loans, however. The investments also contained a clause that said if the loans go south, the financial institution would re-purchase the loans. It didn’t seem to matter in the home loan bubble. Banking institutions are not happy about the buybacks being forced with all the properties in foreclosure.

60 billion dollars lost

Credit rating and value drops have triggered by mortgage-backed securities buyback. Credit ratings agencies estimate the nation’s six largest banking institutions face about $60 billion worth of buyback liability. The legal responsibility is not all on the banks though. Freddie Mac and Fannie Mae own another half of it. B of A paid Fannie and Freddie in January to purchase back many mortgages. About $2.5 billion was paid for this. The mortgages are all over the country right now. States like NV have an even higher foreclosure rate though.

For a long time, buybacks will happen

Bank of America and JPMorgan Chase have to do a lot of buybacks. They have the “highest exposure” to it. Insurers, mortgage finance corporations and private investors are considering suing banks. This is because they won’t buy home loans back though. The loans will probably not be bought back with all included even though banks might repurchase some of them. Investors could have bad loans their contracts say shouldn’t be there while banks may have many years of bad loans and lawsuits to package with.

Citations

New York Times

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

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