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Mortgage, foreclosure crisis cost five lenders $65 billion

NEW YORK — Faulty mortgages and foreclosure abuses have cost the nation's five biggest home lenders at least $65.7 billion, according to a tally by Bloomberg News, and new claims may push the industrywide total to twice that amount.

Bank of America, the largest U.S. lender, had the biggest costs, totaling $39.1 billion since the start of 2007, according to data compiled by Bloomberg. JPMor­gan Chase, ranked second by assets, followed with $16.3 billion, and Wells Fargo, the biggest U.S. home lender, had $5.09 billion, the data show.

The costs have eclipsed predictions from bankers and analysts that lenders would suffer only modest damage. Paul Miller, an FBR Capital Markets analyst, said costs for all banks could surpass $121 billion as the bill comes due for lax lending practices.

"You're not talking about improperly stapling together two documents; you're talking about systematic fraud in the system," said Neil Barofsky, the former special inspector general for the U.S. Treasury's Troubled Asset Relief Program. "What this shows is that before the financial crisis, the banks were essentially lying to the purchasers of the mortgages about the quality."

Bloomberg's tally was compiled from regulatory filings, company statements and financial presentations by the nation's five biggest mortgage lenders. The data cover provisions and expenses attributable to repurchases, foreclosure errors and abuses, payments to reimburse investors for lost value on faulty mortgages, legal settlements and litigation expenses.

The compilation also includes writedowns of assets, such as mortgage servicing rights, when the company attributed the loss in value to problems in mortgage underwriting or foreclosures and the costs of remedies. The figures may increase as more detailed breakdowns become available.

Under Miller's $121 billion estimate, which covers only repurchase costs, Bank of America, Wells Fargo, JPMorgan and Ally Financial will bear 60 percent of the burden, with Bank of America alone paying 33 percent.

Ally, previously known as GMAC, has been hit with $3.28 billion in costs.

The Detroit-based financer of auto loans and leases lost $10.3 billion in 2009 and required a government bailout totaling more than $17 billion, largely due to losses from its Residential Capital mortgage unit. Ally is now 74 percent owned by the U.S. Treasury Department.

Costs at Citigroup, ranked third by assets among U.S. lenders, totaled $1.9 billion. The New York-based lender needed a $45 billion bailout as bad bets on subprime loans drove the company to post a 2008 net loss of $27.7 billion. The bailout has since been repaid.

Most of Bank of America's costs have been tied to mortgages written by Countrywide Financial, the leading subprime lender, which Bank of America rescued from collapse in 2008.

Banks typically made home loans and bundled them into securities sold to private investors and government-backed enterprises.

They usually offered "representations and warranties" in which lenders promised to buy back the mortgages or cover losses if the loans turned out to be based on inaccurate or missing data on criteria such as the borrower's income, the property's value or whether it would be used as a primary residence.

"The impact of the reps and warranties was completely underestimated for a long time," said Laurie Goodman, a senior managing director at Amherst Securities Group in New York who specializes in mortgage-backed securities. "It's not anymore."

Mortgage, foreclosure crisis cost five lenders $65 billion 09/16/11 [Last modified: Friday, September 16, 2011 11:29pm]

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