Banks had to buy back $7.1 billion in defaulted single-family loans in the third quarter to reimburse mortgage investors, up from $1.9 billion in the previous quarter. Federal Deposit Insurance Corp. Call Report information shows that most of the buyback demands fell on JPMorgan Chase and Bank of America. Chase repurchased $2.7 billion in defaulted loans and BoA repurchased $2.3 billion to satisfy investor demands.
Uh, let's see, that's a 270% increase in one quarter.
Oh, and this fun is just getting started.
Any loan falsely represented to have a certain level of underwriting that really didn't can be forced back on the originator. When the originator (such as some bucket shop with a warehouse line funded by someone like ex-Countrywide or similar) is gone, it travels up the line until the "last man still standing" winds up holding the hot potato, where it detonates.
The ugly here is that most of these are so far underwater that the ultimate loss will typically be 50% of face value and sometimes more.
No folks, this mess isn't over by any stretch of the imagination. Indeed, it is just getting started.