Mortgage buybacks may cost lenders $120 billion: JPMorgan
Forced repurchases of soured U.S. mortgages may be the “biggest issue facing banks” even as errors in the foreclosure process draw attention to other industry risks, according to JPMorgan Chase & Co. analysts. Future losses from repurchases of home loans whose quality failed to meet sellers’ promises will likely total $55 billion to $120 billion, or potentially $10 billion to $25 billion for the next five years, the New York-based mortgage-bond analysts led by John Sim and Ed Reardon wrote in a Oct. 15 report. While a “firestorm of news” sparked by some loan servicers’ decisions to halt action on defaulted loans is drawing renewed attention to banks’ mortgage-repurchase risks, the foreclosure issues themselves are mostly “process-oriented problems that can be fixed,” the analysts wrote. “Putback risk may be the biggest issue facing banks,” the analysts wrote, referring to items such as faulty appraisals that can be used to force lenders to repurchase mortgages under sales contracts. The analysts declined to comment beyond the report.