Large US banks fear lawsuit reprisals

Several big US banks had expressed their concerns that possible litigations over mortgage loans could trigger a financial loss to them.

The Bank of America, Citigroup and Wells Fargo had all said in their regulatory filings that investor suits could bring them another wave of financial setback.

US banks, such as Bank of America, JPMorgan Chase & Co. and GMAC’s mortgage had decided to put a moratorium on foreclosures after allegations over improperly handled loan accounts had emerged and tainted thousands of already instituted foreclosures. Since then, the entire foreclosure industry had brewed over this news and seemed to tether in balance as more paperwork irregularities were uncovered. Most of the loans affected were those that came from the subprime mortgages that were taken out even before the financial crisis leaked out.

Investors who have put in a substantial amount of money into mortgage-backed securities are either now threatening to sue or suing banks to compel them to repurchase defaulted mortgage loans. They claim that banks did not adhere to underwriting standards when they approved the mortgages and breached their terms of agreement when they halted thousands of foreclosures.

Banks are now worried that possible litigations and their costs could adversely impact their financial positions and incur expensive costs for them as they build up and prepare for their defense.

The Bank of America said it is expecting higher costs in its 4th quarter posting due to possible legal encounters in addition to their foreclosure expenses. BOA projects that their resources could be tied up to these litigations with possible suits from investors who have acquired more than $375 billion mortgage-backed securities.

Meanwhile, Citigroup is also facing a possible suit from several investors also over claims that it did not conform to underwriting standards.

Wells Fargo had also said that investors are suing the firm and that it has not yet determined the extent of the possible loss it might suffer from the litigation.