Mortgage rates slid further last week, as the lack of any economic “motivators” continue to make mortgage loans cheaper.
The dominant theme in the mortgage market this week is the fallout from the “robo-signing” scandal, where banks and lenders are battling toxic mortgage loan foreclosure procedures that have locked down the U.S. foreclosure market.
To mortgage lenders, that’s actually a best-case scenario. The downside is actually a lot scarier. Rochdale Securities Dick Bove ruffled up the mortgage market last Friday when he said that banks could face $80 billion in losses over the robo-signing issue.
Bove says that the losses won’t stem from any stalled foreclosures, but from the high number of lawsuits that should follow from both homeowners and mortgage-backed securities investors. He could be on to something. Throw the loaded term ‘fraud” into a public courtroom setting and not only will the fur fly legally, but nervous investors will begin to sell off bank stocks in advance of any big settlement payouts.
"Huge amounts of monies have been lost and there are very angry participants at every level of the system seeking to recover the funds that they have lost," Bove said in an analyst commentary.
Big bank stock investors are already rushing for the exits. The KBW Bank Index was down 3.3% last week, while big banks stocks like Bank of America (Stock Quote; BAC) and JP Morgan Chase (Stock Quote: JPM) saw their shares fall over nervousness from the foreclosure scandal.
The fear is that banks and lenders might have to repurchase billions in toxic home loans owned by investors holding mortgage-backed securities. The investment firm Branch Hill Capital estimates that Bank of America alone may have to buy back about $74 billion in faulty mortgages.