The nation's big banks could see billions in increased costs if the Federal Housing Administration (FHA) refuses insurance claims on soured mortgages, FBR Capital Markets said this week.
Analysts at the investment management unit of FBR Inc. said the federal agency could deny claims from lenders due to issues with the underwriting or securitization process of the loans. In a note to clients, Paul Miller of FBR Capital said refusals on claims could lead to $13.5 billion in losses if servicer claims are denied and $11.5 billion if lenders' claims are not accepted.
Such a move would impact all of the largest banks, including Wells Fargo, Bank of America, and JPMorgan Chase, FBR Capital said. FHA functions as a type of insurance provider for certain mortgages. When a home goes into foreclosure, a lender submits a claim to get reimbursement for the value of the loan. "In the past, claim denials were unusual and policies were paid out almost automatically," Miller said. "Today, due to the state of the FHA's financial position and the possibility of further home price declines, the agency is motivated to take a closer look at the life of a loan before paying out claims to conserve cash."
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