Feb 09 2011

Tip of the Iceberg

Banks face $60 billion mortgage hit: S&P

Cleaning up the mortgage mess isn’t getting any cheaper.

Posted by Colin Barr, Fortune

February 8, 2011 12:48 pm

The banking industry could find itself picking up a $60 billion tab for souring home loans, Standard & Poor’s Ratings says in its latest report on so-called mortgage putbacks.

When S&P last looked at the issue in November, it said the six biggest U.S. lenders faced $43 billion in mortgage-repurchase costs. That was itself up from July’s estimate, which held that the leading banks would have to build their reserves to the tune of $24 billion.

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February’s estimate stems largely from rising projected costs to settle claims by private mortgage securities investors and monoline insurers.

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S&P has been raising its forecasts for the costs of settling disputes with private investors and monoline insurers who promised to pay when borrowers fell behind. The rating agency now estimates the cost of settling those cases at $29 billion, evenly split between the two categories.

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Rising projected costs for settling the private label and monoline claims could hit bank earnings at a time when tighter rules and slow economic growth are already weighing on profits. What’s more, the report highlights the risk that the banks could yet take more lumps, depending on how various cases turn out and whether investors become more aggressive in pressing their grievances.

The world’s dumbest banks

Ireland’s disastrous banks continue to punch above their weight.

Posted by Colin Barr

February 9, 2011 6:36 am

(A) list of the most reckless banks wouldn’t be complete without a mention of Merrill Lynch, which was sold in distress to Bank of America (BAC) with $668 billion in assets just before Lehman Brothers failed, or Wachovia, which was raffled off to Wells Fargo (WFC) a couple weeks later with $764 billion worth.

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The good news is that one of the guys who made out like a bandit while running into the ground, former CEO Sean FitzPatrick (of Anglo Irish Bank), has already reached this acceptance state. This after he took 80 million euros in loans from the bank without telling shareholders, then declared he had frittered it all away.

“I am very happy to put my hands up,” he told the Irish Sunday Times last month. “I am very happy to apologize to all my creditors. I don’t feel ashamed, but I do feel regret, very serious regret, and I am sorry that it is going to cause people losses.” Talk about an understatement.

I repeat my offer to lose $24 Billion for a much more reasonable rate than 80 Million Euros.  I bet I could manage to do it for a mere Million or 2 a year.

2 comments

    • on 02/09/2011 at 14:23
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    • on 02/09/2011 at 22:59
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    From David Dayen at FDL:

    The bankruptcy bill of 2005, strongly supported by Republicans, bank lobbyists and the Democrats who own them (see Joe Biden, D-MBNA), forces households with higher incomes who file for bankruptcy into a means test that does not allow them to discharge their unsecured debts under Chapter 7, but instead puts them into Chapter 13, where they must still pay unsecured lenders. While mortgages are not unsecured, the money freed up through the discharge of the other debts could have gone to mortgage payments, thereby saving the home. In addition, bankruptcy judges were not allowed under the new reform to modify the terms of a primary residence mortgage, even though they could modify a yacht, a vacation home or the loan on most other assets. That was a longstanding practice that didn’t change in the 2005 law; however, under the new rules, bankruptcy filers under Chapter 13 are not able to cram down auto loans, either, again raising their monthly payments post-bankruptcy.

    The Democrats supported this and then got offended when called out by liberals, via digby today.  

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