While there are likely to be more settlements between the GSEs and mortgage lenders, a report from Keefe, Bruyette & Woods (KBW) said the price of a settlement "might be too high for some originators who believe that their underwriting standards were strong."

The settlements entered into between Fannie Mae and Ally Bank and Fannie Mae and Freddie Mac and Bank of America are in line with what KBW has previously forecast for the industry.
The Ally Bank settlement, at 55 basis points of the unpaid principal balance, would equate to approximately $26 billion in industry losses on loans sold to the GSEs; KBW’s previous estimate for base case losses was $28 billion.

The BofA settlement figures, KBW said, would place industry losses at $48 billion, equal to its stress case projection for such losses.

However, the impact of the settlement could be a positive for BofA, analysts said. KBW previously estimated BofA's overall exposure at $35 billion and GSE exposure at $18 billion. While it is not changing its estimate for the overall exposure, it said the post-settlement GSE exposure could be $15 billion.

For JPMorgan Chase, the exposure based on the settlements ranges between $2.1 billion and $3.9 billion; its previous estimate of $3.1 billion fits in the range.

Even though KBW's estimate of $2.0 billion for losses at Citigroup is at the low end of the range established by the settlements ($1.9 billion to $3.5 billion), analysts remain comfortable with their estimate given the nature of Citi's portfolio.

The settlement did cause KBW to increase its base case estimate for total losses for Wells Fargo slightly but the report said it does not expect it to enter into a similar settlement or build a large rep and warranty reserve.

As for the private mortgage insurers, the analysts said they believe that these companies will not see a shift of a larger burden of losses to them from the GSEs as a result of the BofA settlement.

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