JPMorgan’s mortgage-backed migraine

In a conference call in July on JPMorgan’s second-quarter results, Chief Financial Officer Doug Braunstein told banking analysts that JPMorgan had reached “an inflection point” on mortgage repurchase claims by investors alleging that the bank and its acquirees, Washington Mutual and Bear Stearns, breached representations and warranties about the loans underlying mortgage-backed securities. JPMorgan has paid out $3.4 billion in reps and warranties claims, Braunstein said, but decided to reduce reserves going forward by $215 million, in anticipation of a third-quarter “net repurchase number” of “approximately zero.”

I’m not sure exactly how to interpret Braunstein’s comment, since it’s not clear to me what’s packed into JPMorgan’s “net repurchase number”; MBS issuers often assert their own put-back claims against mortgage originators, for instance. But JPMorgan still has an enormous put-back claim by a group of major institutional investors in almost $100 billion of mortgage-backed notes hanging over its head. And lately, the MBS headlines have all been about repurchase claims against JPMorgan. I’ve said it before: Bank of America’s MBS woes are so 2011. These days, at least when it comes to private-label litigation, it’s all about JPMorgan.

Read on.

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