Bank of America: Will lawsuits hurt its profits?

Bank of America and other large banks say that investors' lawsuits could affect their bottom line.

Damian Dovarganes/AP
On Oct. 26, members of Alliance of Californians for Community Empowerment protested outside Bank of America offices to demand banks' accountability, foreclosure moratorium and loan modifications. Lawsuits tied to mortgages could cause losses, major banks warned Friday.

Large U.S. banks are saying they could face rising costs related to litigation related to mortgage loans.

In regulatory filings Friday, Bank of America Corp., Citigroup Inc., and Wells Fargo & Co. warned that they are being sued by investors which could lead to losses.

The foreclosure crisis has heated up in recent weeks as BofA, JPMorgan Chase & Co. and GMAC Mortgage halted foreclosures after evidence emerged of improper paperwork on foreclosure documents. Many of the the foreclosures stem from sub-prime mortgages that were issued during the real estate bubble prior to the financial crisis.

Many large investors who bought the mortgage-backed securities are suing banks, saying that the banks didn't conform to underwriting standards when they wrote the mortgages. Those investors are now trying force the banks to buy those investments back. The lawsuits have worried investors because of the still unknown amount of costs that will be involved for the banks as they defend the lawsuits.

BofA, the largest U.S. bank, said on Friday it is facing several lawsuits from investors who bought more than $375 billion mortgage-backed securities. The bank also said it expects costs to rise in the fourth quarter and to continue through next year from legal expenses and as it deploys more resources to foreclosures.

Citigroup too said it was being sued by several investors including Charles Schwab Corp., the Federal Home Loan Banks of Chicago and Indianapolis, for its underwriting process of residential mortgage-backed securities.

Wells Fargo also said in its quarterly regulatory filing that it was being sued, and that it "cannot estimate the possible loss or range of loss" from the mortgage-related litigation.

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