The top consumer banks have been fairly aggressive about reserving against potential losses stemming from the foreclosure fiasco. In particular, they reserved proactively against losses on mortgages themselves and the likely hood of more putbacks. We assume these reserve actions encompassed legal costs.

But Citigroup, Bank of America and Wells Fargo are now noting in their regulatory filings that they face some additional "sizable financial penalties" as a result of federal and state investigations into their foreclosure practices, the New York Times reports. These fines would likely be used in part to finance restitution funds or funds that would be deployed to help in modifications.

Bank of America put it this way: state and federal inquiries "could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, and result in significant legal costs." It also warned of reputational risk.

My sense is the eventual fines will be more than manageable. What regulators really want to do is to establish best practices that will impose some order on the ad hoc foreclosure and modification processes. There are plenty of signs that we should be hearing something in a few weeks.

For more:
- here's the article

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