11 mortgage lenders facing losses of $133B

Bank of America Corp. and JPMorgan Chase & Co. are among 11 lenders that could suffer $133.8 billion in combined losses as mortgage-bond investors and insurers demand refunds for soured loans, according to an analysis by Compass Point Research and Trading LLC.

That's the base estimate by analyst Chris Gamaitoni, who told clients costs may range from $55.3 billion in a best-case scenario to $179.2 billion at worst. The losses would be in addition to $28 billion of buyback demands by Fannie Mae and Freddie Mac that Compass predicted.

Deutsche Bank AG and Goldman Sachs Group Inc. are among lenders confronting the biggest potential impact, according to the report.

Lenders have been barraged by claims from mortgage buyers and insurers who say banks sold housing debt to investors based on untrue or misleading data about home loans. The estimated losses exceed 10 percent of tangible book value at eight of the banks Mr. Gamaitoni cited.

While solvency isn't at risk, the drain on profit could last years, he said.

"The investor community overall doesn't understand the magnitude of the problem," he said.

Bond insurers including MBIA Inc. and investors including three of the government-chartered Federal Home Loan Banks have sued securities underwriters and issuers, citing inaccurate claims over property values and quality of underlying assets. Fannie Mae and Freddie Mac collapsed into U.S. conservatorship, while MBIA saw its stock price slide more than 80 percent.

Bank of America, the biggest U.S. lender by assets, doesn't comment on research reports, said Jerry Dubrowski, a spokesman. Spokesmen for Goldman Sachs and JPMorgan declined to comment. A spokesman for Deutsche Bank wasn't immediately available to comment.

Compass Point focused on the risks to underwriters of home-loan securities during the peak years of the housing boom, which included 2005 through 2007.

The conclusions were based on estimates of the amount of bonds underwritten by banks backed by so-called subprime and Alt-A mortgages, which typically had the worst repayment records, plus the average default rates on the loans and a base estimate that 80 percent of defaulted loans were invalid.