After all the financial chaos of the last two years, the big banks may be facing yet another crisis. Bloomberg reports that “Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit”.  Bondholders cited “servicing failures” by Countrywide Financial as a major reason they’re pushing for the repurchases. Remember that Countrywide Financial was once one of the largest mortgage originators in the country and was rescued by and absorbed into Bank of America in early 2008.  Bondholders allege that Countrywide failed to execute foreclosures in a timely manner because of “missing documents, process mistakes and insufficient staffing to evaluate borrowers for loan modifications”.

The “missing documents” theme has also been front and center in the so-called foreclosuregate or robosigning mess, which Bank of America has also been instigated in.  The bank recently halted foreclosures in 23 states because of documentation irregularities that called into question the validity of many of its foreclosures. Bank of America has since said it would resume foreclosures, but foreclosuregate is probably going to be an issue for a while.

ZeroHedge reports that Wells Fargo, one of the biggest originators of risky pay-option ARMs at the height of the housing bubble, could be facing some significant repurchase trouble as well.  From ZeroHedge:

The only pages in Wells Fargo’s typically labyrinthine earnings release were 26 through 30, in which Warren Buffett’s bank, which continues to be in denial over Fraudclosure and still refuses to admit it also was a RoboSigner, discloses its putback/repurchase liability. The total disclosed repurchase reserve liability as of September 30 was $1.3 billion. This compares to Bank of America‘s total Rep and Warranty liability of $4.4 billion, which as we disclosed yesterday took a tiny provision of $872 million in Q3. This means that when, not if, Wells is also subject to a comparable action by litigants such as the one from yesterday which included Gross, Fink and Dudley on the offensive, the hit to the bank will be that much more dire. And since Wells management now has zero credibility, and negative fiduciary duty to its shareholders, we are currently combing through the MaidenLane portfolio to determine which New York Fed securitizations include loans originated by Wells Fargo. We are confident quite a few will make the cut. After all, as the bank itself notes, of its $1.8 Trillion Resi Mortgage Servicing Portfolio, “8% [or $144 Billion] are private securitizations where Wells Fargo originated the loan and therefore has some repurchase risk.“

If Wells Fargo, Bank of America, and others are forced to repurchase large numbers of bad loans, its probably safe to conclude that bank financials and stock prices – and taxpayers – could be facing a big hit in the future.