PIMCO (Pacific Investment Management), BlackRock, MetLife, and the Federal Reserve Bank of New York (Yes, the Federal Reserve Bank of New York wants its money back too) are working to force Bank of America (BAC) to buy back mortgages from its Countrywide Financial unit that were packaged into $47 billion in mortgage-backed securities.

The news hasn’t helped the financial sector today since it was announced by Bloomberg on October 19. From the close on October 18 to the close yesterday, October 21 the Financial Select Sector SPDR (XLF) is down 4.5%.

Last month the holders of the mortgage-backed securities asked Bank of New York Mellon, the trustee on the debt, to investigate the mortgages for problems that included insufficient record keeping. Bank of New York Mellon refused that request.

But the recent foreclosure moratorium and news of massive robo signing, where bank officials approved foreclosures without reading the paperwork, have encouraged the investor group to push harder. The group’s lawyer Kathy Patrick at Gibbs and Bruns told Bloomberg that she believed that the group could now bypass the trustee and seek repurchases directly from Bank of America if Countrywide doesn’t address problems with the foreclosure process within 60 days. (For more on what are called put backs see my post https://jubakpicks.com/2010/10/19/the-mortgage-foreclosure-crisis-could-cost-banks-big-money-because-of-put-backs/ )

Bank of America offered some detail on its mortgage liabilities and its exposure to demands for repurchases in its October 19 quarterly earnings report.

For example, from 2004-2008 the bank (and companies it acquired such as Countrywide) sold $1.2 trillion in loans to such companies as Fannie Mae and Freddie Mac. So far Bank of America has received $18 billion in repurchase claims on these mortgages. It has repurchased $11.4 billion of these mortgages and has experienced a loss of 22% on those repurchased mortgages. Bank of America projects that the repurchase claims to date from this category of buyer represents 2/3 of expected claims.

Another $160 billion in loans were sold with insurance from mortgage insurance companies. As of the end of September, the bank had received repurchase claims of $4.8 billion and approved $550 million for repurchase. The bank has rejected another $2.7 billion in repurchase claims.

The problem for Bank of America or any other mortgage originator is that the robo-signing furor has brought more claims for repurchase out of the woodwork. And no one knows if earlier estimates of the size of the problem or of the reserves that need to be put aside by banks are accurate any longer.