Mortgage problems could cost banks billions

It’s anyone’s guess how much but the consensus now is that it will not be cheap. (One industry analyst says it could be over $80 billion.) The longer it takes the banks to clean up their mess the more expensive it will be for the banks. The Obama administration is not interested in pursuing the banks or helping consumers beyond gentle requests but the state attorney generals are much more serious about this problem. Despite the “blame the buyers” approach by the banks, many see this as a serious legal issue for the banks. Time is money and there is a lot of time ahead before this is cleaned up.

Wall Street initially hoped the banks would do just that but as the political furor grew, a quick end to the crisis was looking less and less likely. On Wednesday, 50 state attorneys general announced they were investigating the practices of the mortgage servicing industry, while Florida’s attorney general subpoenaed the nation’s largest mortgage processor, L.P.S., as part of a broader investigation.

In some cases, officials at mortgage servicers signed hundreds of documents a day with barely a chance to review them — the so-called robo-signers — while doubts have arisen about the veracity of the original documents compiled as part of the foreclosure process.

“I don’t see how it can be cleared up in a short period of time,” said Richard X. Bove, an analyst with Rochdale Securities. “The moratorium won’t last that long but the problem will last at least four or five years, maybe a decade.” In the short term, he said, “it could easily cost $1.5 billion per quarter.”


An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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