BofA and JPMorgan: The Freddie & Fannie Pain (BAC, JPM, FRE, FNM)

Bad news for Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM), they are going to feel the pain to the tune of billions of dollars thanks to the delinquent loans of Freddie Mac (NYSE:FRE) and Fannie Mae (NYSE:FNM).

With $300B of delinquent loans, Fannie (FNM) and Freddie (FRE) are checking files for underwriting flaws and forcing banks to repurchase those loans. The biggest losers are likely to be BofA (BAC), JPMorgan (JPM) and the mortgage giants themselves, who will still be stuck with billions of dollars in properly-documented delinquent mortgages. 

Freddie Mac (FRE) shares closed at $1.18 on Friday and Fannie Mae (FNM) did even worse ending at 96 Cents. That's right, Fannie has now joined Stocks Under $1: Fannie Mae, Borders Group and PokerTek.  I'm sure Bank of America and JPMorgan shareholders can't wait for the fun on Monday when traders decide what to do with the Freddie/Fannie mess.

Via the WSJ.com:  Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine - click to continue>>

SOURCE: http://online.wsj.com/article/SB1000142405274870434310457503354388620094...

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