Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest U.S. banks as they near a settlement of a 50-state probe into the industry’s practices.
Wells Fargo & Co., Bank of America Corp., Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Ally Financial Inc., the five largest home lenders during the real estate boom, tallied at least $6.78 billion in new costs tied to mortgages during the second half of 2011, according to data compiled by Bloomberg. Bank of America, ranked second among U.S. banks by assets, contributes $41.8 billion of the overall total.
The mounting costs are pushing lenders and regulators to resolve investigations and lawsuits over faulty home lending, including a 50-state review of foreclosures. The wrangling over the status of old loans has made some banks more reluctant to make new ones, even as Federal Reserve Chairman Ben S. Bernanke appeals for action to increase lending and fix the U.S. housing market because it’s a drag on the economic recovery.
“It’s a colossal failure of basic banking,” said David Knutson, a credit analyst in Chicago with Legal & General Investment Management, a holder of bonds in some of the lenders involved. “It’s surprised everyone in terms of persistence and longevity and I think it will continue to surprise.”