The powerful Federal Reserve Bank of New York has entered the foreclosure fray, and that does not bode well for Bank of America (NYSE: BAC) and other top banks. The most powerful of regional Fed banks is stepping up its efforts to get big banks to buy back more mortgages that were supposedly misrepresented at the time they were sold as part of RMBSs, the New York Times reports. The stakes are high.

As of now, the Fed bank and the other bond investors are asking Bank of America to buy back a portion of the $47 billion in mortgages it originated, most of which were assembled by the tainted Countrywide Financial. Bank of America says put-back claims have hit nearly $13 billion.

It's obvious that the banks will have to buy back more bonds. The issue is how much.

JPMorgan expects put-backs to run at about $1 billion a year, which would be covered by a $3 billion set-aside. Bank of America's costs would be higher. In the third quarter, Bank of America logged an $872 million expense for put-backs.

The wildcard here may be the litigation. The banks do not want to buy back every single mortgage in question. But every mortgage that isn't bought back is a potential suit.

Bank of America is vowing a tough fight. But it may want to soften its combative rhetoric. No one is willing to give Countrywide the benefit of the doubt when it comes process and legality.

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