Can Mortgage Investors Force Banks to Buy Back Bad Loans?


More mortgage investors may soon join the fight to force banks to buy back bad loans, according to a Reuters story Thursday morning. According to the article, which cites an anonymous source, more than 50 large mortgage investors -- including Paulson, MetLife, Prudential and the Federal Reserve Bank of New York, met with securities attorneys David Grais and Talcott Franklin on Wednesday.

The news comes after another group of investors last week sent Bank of America (BAC) a letter suggesting that a mortgage-based securities lawsuit may be on the way. Those investors bought securities related to Countrywide, now owned by Bank of America. And Fannie Mae and Freddie Mac has requested billions in additional loan buybacks -- $18 billion from Bank of America alone -- after forcing banks to take back more than $4 billion in bad loans last year.

Banks' mistakes in foreclosure paperwork has fueled the effort to recoup mortgage-investors' losses from what they say were misrepresented loans. Meanwhile, banks are, understandably, reluctant to pay.