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Outstanding mortgage buyback claims double at Chase in 2011

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JPMorgan Chase (JPM) must sort through more than $2.3 billion in claims to buy back defaulted mortgages sold mostly to Fannie Mae and Freddie Mac at the end of the fourth quarter, nearly double the $1.2 billion outstanding at the end of 2010, according to the bank's financial statements. Chase and other originators must comb through the mortgage file. "Claims are fact intensive," said CEO Jamie Dimon at an investor conference this past December. "There is no repurchase absent proof that an underwriting breach 'materially or adversely' affected value of the loan." He added at the time that for private-label investors, the process was often more difficult than with the GSEs. The bank's mortgage business swung to a $258 million loss in the fourth quarter with more than $390 million in losses directly from rep and warranty claims. That's up 12% from the same quarter a year ago. At Chase, the amount of outstanding rep and warranty claims from investors increased every quarter since the middle of 2010 when the bank reported more than $1.3 billion in claims. And the wave doesn't appear to be regressing, according to some analysts. "Rep and warranty repurchase related efforts will likely intensify further in 2012 and some decisions/settlements may happen before the end of next year," said Barclays Capital analysts in a recent report. "That said, we expect any benefit to be chunky and unlikely to boost prices at a generic level." Chase currently holds roughly $3.6 billion in reserves for mortgage repurchases. "That's another number that over time should come down materially," said the bank's Chief Financial Officer Doug Braunstein said in a conference call with investors in January. Write to Jon Prior. Follow him on Twitter @JonAPrior.

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