7 reasons bank stocks may keep falling
7. Lawsuits. Half of America’s mortgages are on MERS (Mortgage Electronic Registration System), but, in many states, MERS has no standing in foreclosure. Theoretically every owner of a securitized pool should sign off on each foreclosure in the pool. There could be hundreds, if not thousands, of owners in these pools. In addition, many jurisdictions require that title transfers be recorded in county recorder offices. Since that did not occur, lawsuits are now being developed against the major TBTF players for lost recording/title transfer fees.
The Dallas DA recently sued MERS and Bank of America (BAC) for $100 million of such fees. According to Mark Hanson, since MERS has been operating since 1995, there could be billions of dollars of such thwarted fees. Because nearly every local governmental entity is hungry for funds, this could catch on like wildfire.
Bank of America’s $8.6 billion global services settlement is in trouble, as Attorney General Eric Schneiderman says it should be closer to $25 billion, and he is getting support from other states, like California. The rumor mill has circulated the theory that if lawsuit settlements become outsized, BAC appears to have the option of bankrupting the old Countrywide unit, which it has kept as a separate legal entity since its purchase in 2008. Imagine, though, the market reaction to such a move!
Lawsuits on mortgage trustees are just starting. According to Bloomberg, U.S. Bancorp (USB), Bank of New York Mellon (BK), Deutsche Bank (DB), Wells Fargo (WFC), HSBC (HSBC), Bank of America and Citigroup (C) are the major mortgage trustees. Bloomberg speculates that since these institutions didn’t underwrite, sell, securitize, service, or ship loans according to regulations, the odds are low that the trust departments got it right. So far, Schneiderman has requested documents from Deutsche Bank and Bank of New York Mellon.
In early September, the Federal Housing Finance Agency (FHFA), the receiver for FNMA and FHLMC, sued Bank of America, Citigroup, JPMorgan Chase (JPM), Barclays (BCS), HSBC, Credit Suisse (CS), and Nomura Holdings demanding refunds from these institutions for loans sold to FNMA and FHLMC that were based on false or missing information about the borrowers or the properties. The FHFA said that the two mortgage giants purchased $6 billion from Bank of America, $24.8 billion from Merrill Lynch, which is now owned by Bank of America, and $3.5 billion from Citigroup.
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