Banks' Mortage Buyback Costs May Be Lower Than Expected

Bank losses from buying bad mortgages back from dissatisfied bondholders won't be as bad as previously expected, according to recent reports from JPMorgan Chase (JPM) analysts. They estimate those repurchases will cost about 25% less than previously forecast, Bloomberg News reported.

JPMorgan Chase, Bank of America Corp. (BAC) and other mortgage sellers will collectively take losses of as much as $90 billion, down from a previous estimate of as much as $120 billion, when they repurchase the debt, according to the reports. Analysts lowered their loss estimates because of the failures of such debt issuers such as New Century Financial and Lehman Brothers Holdings, and also noted that private-label bondholders will have to meet a high burden of proof to show that any alleged breach had a material effect on the value of the loan in question, according to Bloomberg.

In a separate report, Bank of America mortgage-bond analysts estimated that loan repurchases would cost the company as much as $46 billion, assuming that private-label companies seek buybacks on half of the delinquent loans and are successful on half of those requests, Bloomberg reported.