U.S. Banks Haunted by Mortgage Demons That Won’t Go Away
Lenders like Bank of America Corp and Wells Fargo & Co say they are facing mounting pressure to buy back bad mortgages they sold to investors, signaling that banks’ home-loan headaches could continue for years.
Investors like Fannie Mae and Freddie Mac have been pressing banks to buy back bad mortgages for years, but in recent months those requests have intensified, the banks have said in recent second-quarter earnings reports.
These comments from banks provide a fresh reminder of the loose ends that remain from the housing bust that started five years ago. The threat of new expenses and litigation is dampening bank share prices, and the problem could linger for some time, analysts and experts said.
“This is not done yet,” said Paul Miller, analyst with FBR Capital Markets. “There will be continued surprises in the industry.”
The most pain will likely be felt by Bank of America, which said on Wednesday its total outstanding claims from investors surged more than 40 percent to about $22 billion in the second quarter. The bank’s shares fell nearly 5 percent as investors worried about future losses and dropped again on Thursday.
At a time of low interest rates, U.S. banks are making many new loans to borrowers buying homes and refinancing, but anxiety about the costs of old loans is overshadowing some of this success.