During the housing boom, banks underwrote over $2 trillion in subprime, alt-A and option-adjustable rate mortgages underwriting could have losses as high as $700 billion, according to Amherst Securities research.

The problem is, they weren’t particularly careful in how they performed their duties.

Administrative and substantive errors, missing trust documents, misleading placement memorandums, all create a potential liability for the banks. The speed over quality underwriting procedures in securitizing and processing that $2 trillion in sketchy mortgages is well over $100 billion dollars. That’s according to an article in Barron’s this weekend, citing research from Compass Point Research & Trading, looking at potential putbacks to the banks.

The folks who bought this mostly AAA rated junk as mortgage-backed securities are not simply going to swallow the losses quietly. These investors –including Fannie Mae, Freddie Mac, Pacific Investment Management (PIMCO) and BlackRock (BLK) are seeking redress. Under certain circumstances, the terms of their purchase agreements allow them to “put back the mortgages to the banks.”

Bank of America, with its still awful Countrywide and Merrill acquisitions, has the greatest exposure, at over $35 billion. Citigroup somehow has a mere $8B in potential putback losses.


A Potentially Big Hit

Big banks could lose $134 billion if mortgage securities are put back to them, according to Compass Point Research & Trading.

Company/Ticker Estimated
Loss (bil)
% Tangible
Book Value
Bank of America /BAC $35.2 $2.11 17%
JPMorgan Chase /JPM 23.9 3.59 13
Deutsche Bank /DB 14.1 12.56 21
Goldman Sachs /GS 11.2 12.43 11
RBS Greenwich /RBS 9.4 0.10 12
Credit Suisse /CS 8.9 4.50 22
UBS /UBS 8.4 1.32 15
Morgan Stanley /MS 7.9 3.37 14
Citigroup /C 7.8 0.16 4
Barclays /BCS 3.6 0.18 3
HSBC /HBC 3.5 0.22 2
Total 133.8
* After-tax.

Sources: Compass Point Research & Trading LLC; Bloomberg; Inside MBS & ABS Asset Backed Alert



One caveat: Chris Whalen of Institutional Risk Analytics has looked at the full run of exposure of banks as both underwriters, processors, and trustees. He thinks the exposure is much much greater . . .


Banks Face Another Mortgage Crisis
Barron’s, NOVEMBER 20, 2010

Category: Credit, Derivatives

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “Barron’s: Putbacks to Banks Could Be $134 Billion”

  1. myopia says:

    That’s a pretty big caveat.

  2. “Big banks could lose $134 billion if mortgage securities are put back to them”

    IF is a huge word in that sentence.

    Kind of looks like the issue is overblown, rescission rates on putback claims were around 50% and loss severities were 20-30%.


    p12 talks about the putback claims for the GSE, 18 billion requested for 2.5billion in losses.

    p13 750billion in whole loans, 40% which are repaid, $3.9 billion in claims .6 billion in losses

    p14 & 15, similiar stories

    Now of course BofA will put a brave face on it but the point being the losses to date have been manageable and there hasnt been a huge spike in claims or anything like that. It will take a major lawsuit ruling or law change for me to start thinking this will get anywhere near as bad as some analysts claim.

  3. curbyourrisk says:

    $134 billion is just the starting point. I can’t wait to watch this unfold!!!!

  4. Bill W says:

    Does anyone understand the NY FED’s motivations for getting involved in all this. It’s not that I disapprove, quite the opposite. I’m just surprised they might help drive the final nail in BOA’s coffin.

  5. “He thinks the exposure is much much greater . . .” –from, above, Post

    He shouldn’t be the only one..

    also, as Whalen points out, below, there are, as per usual, much more important issues that continue to percolate ‘offstage’..

    “…What AFG illustrates is that the financial system is literally one event of default away from a global meltdown.

    We disagree with Mr. Dilweg’s pessimistic assessment of the sequestration options available to the State of Wisconsin to void all financial claims. Indeed, this case again illustrates where the Fed failed with AIG, namely to focus on the financial claims rather than taking the classical position of protecting only insurance policy holders. The investors objecting to the State of Wisconsin plan for rehabilitation of AAC correctly argue that the CDS parties were not insurance policyholders at all because AAC guaranteed AFG’s obligations (the CDSs) and not the CDS parties directly.

    While the State of Wisconsin does have final say in these situations because of the fact of the guarantee fund supported by all insurers licensed in the state, the apparently illegal preference given to the guarantees of parent-company CDS exposures and the unequal treatment of policy holders of the AAC insurance unit may yet cause some legal shock waves. If Mr. Dilweg and the State of Wisconsin had the courage to segregate all of the financial claims, ring fence the municipal insurance policies and dare the banks to come sue them in WI state court, we would be applauding and the markets would understand that there are still rules in some parts of America…”

    Whalen is one of the, far too few, good ones..

  6. Mike in Nola says:

    I think the a lot of putbacks aren’t going to happen as this runs counter to the bailout policy of the Fed and Federal government.

    First, a large portion of potential putbacks are from Fannie and Freddie. They are controlled by the Federal Government, which is controlled by ?

    Next, Blackrock has deals with the Feds, e.g. Maiden Lane. Bill Gross appears to have some inside information pipelines to the Fed. This will be made up to them in other ways.

    My guess is that state pension plans holding this trash will get paid back to some extent by the US as part of whatever bailout eventually happens to keep state and local governments from wholesale defaults and cutbacks that will further sink the economy, and more importantly, the stock market.

    The only ones that will push for the max will be private investors with no prospect of a bailout and who are not fortunate enough to have political pull in DC and NY.

  7. rktbrkr says:

    Tbig banks just did a big putback on Ireland the eq of 70-80T for the US

    The table has been set for another massive US bailout of the TBTF 19, Geithner et al have already set the precedent, the banks come first and the US taxpayers bear financial responsibility.

    Watch what happens to Ireland for a preview of whats headed our way. Jingle mail is just starting to take root in Ireland

  8. AHodge says:

    we cant know putbacks as we do not know terms agreed
    but this looks low
    the bigger losses i know related to putbacks is the 2nd mortgages.
    these are tied in
    the state Atty generals are trying to come up w deal that concedes claim details in order to free up the system
    that would include telling the 2nd mortgages to go away, or close
    losses there are about 1/2 trillion total and 1/4 trillion for the big 4
    which makes that estimated putback part look small

  9. Can this be true? A small dose of justice is a good start.
    I continue to believe these banks should not have been allowed to survive.

  10. b_thunder says:

    $134 billion – not quite enough for TARP 2.0…. TARP 1.5 perhaps?

  11. ToNYC says:

    Wells smells well after all Wachovia ex-GoldenWestFinancial pick n’ pay later baggage?

  12. gordo365 says:

    Kind of a Frankenstein story isn’t it. They created a monster that may come back and kill them.

    Live by the MERS die by the MERS.

  13. jeff in indy says:

    this turd has a ways to go down the hill. wonder who’s at the bottom?

  14. dsucher says:

    Personal note on the mortgage documentation mess:

    A number of sources — including this one, I think — has encouraged people to find out who owns their note.

    So I checked and the mortgage servicer wrote to mer with a copy of my note and copy of SOMEONE ELSE’s mortgage. Some folks back east and with no similar name or address etc etc.

    So don’t worry! :)

  15. cognos says:

    Yeah, f-ing right.

    TARP was supposed to “cost” up $700B. Turns out we made money.

    DId anyone see the stats on PPIP / TALF programs? Something like 36% annual return over the first year.

    All these costs are overstated… and the govt employees are using the “crisis” and “fear” to justify their jobs. Sad, sorry but classic politicos. And the people love it!

  16. [...] How much exposure do the banks have to mortgage putbacks?  (Big Picture) [...]

  17. ewmayer says:

    Thanks as ever for the laugh, cognos – now go fetch your master Timmay’s slippers, that`s a good boy…

    Anyway, please show us the precise breakdown of the $700B plus interest and huge gains which has been repaid, according to your claim.

    Re. “The folks who bought this mostly AAA rated junk as mortgage-backed securities are not simply going to swallow the losses quietly.”

    …except if their name is “The Federal Reserve”, you mean?

  18. farmera1 says:

    “this turd has a ways to go down the hill. wonder who’s at the bottom?” Jeff 12:57PM

    Jeff, stand about two feet in front of the biggest mirror you have. Take note of who is staring back at you.
    When you figure out who is staring at you, the person on the bottom has been identified.

    (I’m trying to make a point with humor, not being mean or nasty. Just making a point, we are all in this together and we are on the bottom as it all roles down hill towards us).

    As the old high school saying goes; little boy so spick and span, where were you when the shit hit the fan.