"Dine & Dash" Banksters Now Caught In The Middle Of Two-Front War With Homeowners, Bond Investors Over Faulty Foreclosures, Crappy Mortgage Loans

Bloomberg News reports:

• Shoddy mortgage lending has led bankers into a two-front war, pitting them against U.S. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion.

• While federal regulators and state attorneys general have focused on flawed foreclosures, a bigger threat may be the cost to buy back faulty loans that banks bundled into securities. JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. have set aside just $10 billion in reserves to cover future buybacks. Bank of America alone said this week that pending claims jumped 71 percent from a year ago to $12.9 billion of loans.

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• “It’s going to be trench warfare with years of lawyering,” Christopher Whalen, managing director of Institutional Risk Analytics, said in a telephone interview from White Plains, New York. “The banks can’t afford to lose.”

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• “It’s troubling that the people who caused the problem have walked away and left everybody else to fight over who gets stuck with the tab,” [Chapman University law professor Kurt] Eggert said in a telephone interview. “It’s like a massive game of dine and dash.”

For more, see Banks Face Two-Front War on Bad Mortgages, Flawed Foreclosures.

In a related column, see The New York Times: One Mess That Can’t Be Papered Over:

• When investors — like the New York Fed — contend that strict rules governing [complex Real Estate Mortgage Investment Conduit, or REMIC] structures aren’t met, they can try to force a company like Bank of America to buy them back.

• Which brings us back to the sloppy paperwork that lawyers for delinquent borrowers have uncovered: some of the dubious documentation may undermine the security into which the loans were bundled. For example, the common practice of transferring a promissory note underlying a property to a trust without identifying it, known as an assignment in blank, may run afoul of rules governing the structure of the security.