The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( TheStreet) -- It appears that several factors are still not priced into the market. Continued downward pressure on financial stocks could be expected as events unfold, especially the potentially disruptive forces that Europe may unleash, or the conclusion that the foreclosure and mortgage lawsuits are larger and more significant than currently believed. Here are the top seven reasons bank stocks may keep falling. Occupy Wall Street. Although not a cohesive movement, at least part of its birth can be traced to outsized Wall Street salaries and bonuses, especially since the taxpayer saved most of the Too Big to Fail (TBTF) banks.
Mortgages and Foreclosures. Foreclosures at the TBTF institutions are rising because moratoriums have expired and "robo" issues have been addressed. In addition, so called "Prime" loans in portfolios (usually "Jumbo" loans -- those that are larger than the FNMA limits) are becoming a big issue as there is a clear trend toward rising "strategic" foreclosures. In fact, Fitch recently downgraded many of these "prime" mortgage pools. This calls into question the quality of what may be on the TBTF balance sheets in the form of such jumbo loans. Furthermore, the fact that FNMA and FHLMC reduced their loan maximums on Oct. 1 is destined to have a huge negative impact in states like California and Florida, where the prices of higher-end properties will fall due to the unavailability of financing. So, expect "strategic" defaults to rise rapidly in these states. Lawsuits. Half of America's mortgages are on MERS (Mortgage Electronic Registration System), but, in many states, MERS has no standing in foreclosure. Theoretically every owner of a securitized pool should sign off on each foreclosure in the pool. There could be hundreds, if not thousands, of owners in these pools. In addition, many jurisdictions require that title transfers be recorded in county recorder offices. Since that did not occur, lawsuits are now being developed against the major TBTF players for lost recording/title transfer fees. The Dallas DA recently sued MERS and Bank of America ( BAC - Get Report) for $100 million of such fees. According to Mark Hanson, since MERS has been operating since 1995, there could be billions of dollars of such thwarted fees. Because nearly every local governmental entity is hungry for funds, this could catch on like wildfire. Bank of America's $8.6 billion global services settlement is in trouble, as Attorney General Eric Schneiderman says it should be closer to $25 billion, and he is getting support from other states, like Californai. The rumor mill has circulated the theory that if lawsuit settlements become outsized, BAC appears to have the option of bankrupting the old Countrywide unit, which it has kept as a separate legal entity since its purchase in 2008. Imagine, though, the market reaction to such a move!
Lawsuits on mortgage trustees are just starting. According to Bloomberg, US Bank, Bank of New York Mellon ( BK), Deutsche Bank ( DB), Wells Fargo ( WFC), HSBC ( HSBC), Bank of America and Citigroup ( C - Get Report) are the major mortgage trustees. Bloomberg speculates that since these institutions didn't underwrite, sell, securitize, service, or ship loans according to regulations, the odds are low that the trust departments got it right. So far, Schnedierman has requested documents from Deutsche Bank and Bank of New York Mellon. In early September the Federal Housing Finance Agency (FHFA), the receiver for FNMA and FHLMC, sued Bank of America, Citigroup, JPMorgan Chase ( JPM - Get Report), Barclays ( BCS), HSBC, Credit Suisse ( CS), and Nomura Holdings demanding refunds from these institutions for loans sold to FNMA and FHLMC that were based on false or missing information about the borrowers or the properties. The FHFA said that the two mortgage giants purchased $6 billion from Bank of America, $24.8 billion from Merrill Lynchwhich is now owned by Bank of America, and $3.5 billion from Citigroup. Lawsuits and foreclosure issues are making the TBTF banks sorry they are in the mortgage business. JPMorgan's Dimon announced that they are going to be leaving the mortgage business, and Bank of America that by year's end, they will stop buying mortgages from correspondents.