We've noted that Fannie Mae and Freddie Mac are the best positioned of all MBS holders to force buybacks of mortgages and MBS. Indeed, they have already put back more than $13 billion in questionable mortgages. That number will likely go up, perhaps as high as $30 billion, according to Compass Point Research & Trading.

But the real action, as we've noted, is in private-label, or nonagency, MBS issues. The underlying mortgages for these bonds tend to be of poor quality, as they comprise sub-prime, Alt-A and option ARM mortgages that were not backed by a GSE, notes Barron's. This is where the movement is in terms of the putback push.

Losses on private-label securities by banks range from $23 billion to $180 billion. Compass Point's base-case estimate is $134 billion, which represents a massive hit over time that some might consider systemic. This certainly has to be figured into the stress tests for the top 19 banks, which will determine how ready they are to meet new capital requirements and ultimately pay dividends.

Lawsuits are raging. And while some think banks are better protected in private-label deals, it is hard to predict how litigation will end up. The list of plaintiffs reads like a who's-who, led by PIMCO and Blackrock. They will bring a lot of legal firepower to the table.

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