Foreclosure Scandal Cost Banks $42 Billion

Big banks are reeling under the pressure of the burgeoning foreclosure mess. Toxic foreclosures resulting from faulty oversight practices have already caused a public relations disaster for banks, but now the scandal could hit big banks in the wallet, too – about $42 billion by one estimate.

That was the conclusion reached by analysts at Royal Bank of Scotland (Stock Quote: RBS). The bank ran the numbers and came up with the $42 billion tab for big banks linked to the foreclosure scandal. The number could be higher, depending the legal outcome (borrowers, investors and state attorney generals are all either already in court or are planning to bring charges against mortgage lenders in court).

RBS breaks it down like this:

  • Legal/settlement fees               $4.3 billion
  • Mortgage repurchases              $25 billion
  • Other claims                            $25 billion and up

RBS claims that up to 3% of all mortgage files kept by big banks may be "materially and adversely incomplete as a result of original documents that were never conveyed to the custodian."

The “fab four” banks that will pay the cost line up like this, according to RBS:

  • Bank of America (Stock Quote: BAC)
  • Citibank (Stock Quote: C)
  • JP Morgan Chase (Stock Quote: JPM)
  • Wells Fargo (Stock Quote: WFC)

For the record, Bank of America did suspend its foreclosures across the country in order to review its books, but will resume them in 23 states as of Oct. 25.

“Our initial assessment findings show the basis for our foreclosure decisions is accurate,” Bank of America said in a statement. “Our decision to review our process and later, to extend our review to all 50 states, has been an important step to give customers confidence they are being treated fairly.”

JP Morgan is still reviewing about 115,000 foreclosure cases in 41 states, but Citibank and Wells Fargo have kept the foreclosure wheel turning all along, with both firms claiming that their internal procedures were on the up-and-up.

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