Faulty mortgages would cost lenders dearly -- Bloomberg News report

The new claims may push the industry-wide total to a double of this amount, cautioned Bloomberg News.

These costs defy the earlier prediction of analysts and bankers that the lenders would suffer a modest damage only.

Rising costs incurred by financial institutions
Bloomberg News collected the figures from company statements, regulatory filings, and the financial presentations given by the top five mortgaged lenders.

The expenses and provisions for repurchases, foreclosure errors and abuses, and payments needed to reimburse the investors for the lost value on these faulty mortgages were also added in this data. It also included the expenses on legal settlements and litigations.

The Bank of America alone will be paying 33 percent of the estimated $ 121 billion costs and 60 percent out of the total burden will be borne by Bank of America, JP Morgan, Wells Fargo and Alley Financial Inc.

The figures also included the write-down of assets like the mortgage services rights, when the companies attribute the loss in value to the problems in mortgage underwriting or foreclosure and the cost of the remedies.

The analysts believe that the figures could rise as more details become available. Paul Miller, an analyst at the FBR Capital Markets & Co., said that the costs for the banks could exceed $121 billion. In his earlier predictions, Miller has said that the costs for the banking industry could range between $54 billion to $106 billion.

In his new estimate, the Bank of America alone will be paying 33 percent of the estimated $121 billion costs, and 60 percent out of the total burden will be borne by Bank of America, JP Morgan, Wells Fargo, and Alley Financial Inc.

Most of the costs incurred by the Bank of America are linked with the mortgages written by Countrywide financial, which was taken over by the Bank of America in 2008. BOA spokesman Jerry Dubrowski said, “The reserves that we have established are part of the efforts to address legacy and countrywide issues and put them behind us.”

The banks are negotiating a settlement that may go up to $20 billion with the attorneys general of all the 50 states. The attorneys general are investigating the charges that the banks relied upon missing or inaccurate documents to cease properties.

In an interview, Neil Barofsky, former special inspector general of the Troubled Assets Relief Program of the U.S. Treasury said, “You are not talking about improperly stapling together two documents, you’re talking about systematic fraud in the system. What this shows is that before the financial crises, the banks were essentially lying to the purchasers of the mortgages about the quality.”