Repurchase requests from investors, including the government-sponsored enterprises Fannie Mae and Freddie Mac, could end up costing banks a total of $43 billion through 2012.
According to a new report released Thursday by Standard & Poor's, six top banks have already accounted for about $12.4 billion of losses from repurchases since 2009, leaving about $31 billion more of possible losses.
Bank of America Corp. and JPMorgan Chase & Co. are exposed to the biggest portion of those losses, S&P said, followed by Wells Fargo & Co., Citigroup Inc., U.S. Bancorp and PNC Financial Services Group Inc.
"One of the more contentious — and costly — issues that lenders are working through in the U.S.'s real estate muddle is the repurchase obligation that may arise from any breaches of representations and warranties that banks make as part of the mortgage underwriting process," according to the report, authored by S&P credit analyst Vandana Sharma.
At an analyst conference Thursday, Bank of America said that as of Sept. 30, it has recorded $2.5 billion of losses on resolutions of GSE repurchase requests on loans from 2004 through 2008.
The bank said it believes it is roughly two-thirds of the way through GSE claims on those vintages. About $6.6 billion of claims remained outstanding on loans from those years at the end of the third quarter, B of A said. It has set aside $4.4 billion to cover future repurchases.
JPMorgan Chase, meanwhile, said Thursday during the same conference that it has received $2.9 billion of repurchase demands so far this year, both from the GSEs and private investors, compared with $3 billion in all of 2009.
JPMorgan Chase said it expects demands and realized losses to remain high through next year, with losses of between $250 million and $350 million per quarter over the next several quarters.
Buybacks have been a point of contention between banks and the GSEs, and requests have picked up in recent quarters.
Freddie Mac reiterated Wednesday that it would stand firm on collecting outstanding repurchase requests. The GSE has been requiring servicers to agree to complete repurchases or face financial consequences as part of its annual contract renewals. At Sept. 30, the unpaid principal balance of loans on which repurchases had been requested stood at $5.6 billion, a third of which had been outstanding for more than four months, Freddie said.