* Federal Housing Authority could deny claims: analyst
* Mortgage insurance agency under pressure from defaults
* Wells Fargo, JPMorgan and Bank of America could be hurt
* House prices could take "another leg down," says Miller
Oct 3 A federal housing insurance program may
be forced to deny bank claims for money lost in home loan
foreclosures, costing them another $13.5 billion in
mortgage-related losses, according to a report on Monday from
bank analyst Paul Miller of FBR Capital Markets.
Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N)
and Wells Fargo (WFC.N), three of the four largest U.S. banks,
are at risk for the biggest losses, the analyst estimated.
The Federal Housing Authority, which insures about 10
percent of all mortgage debt outstanding, faces financial and
political pressure to deny claims that in the past it paid
almost automatically, Miller wrote in the report.
FHA claims could be "the next shoe to drop," on banks and
the mortgage market after, he said. The banks have already been
hit by claims from government-run mortgage finance companies
Fannie Mae FNMA.OB and Freddie Mac FMCC.OB, as well as from
private investors, for selling them bad mortgage loans and
Banks servicing mortgage loans could be hit with as much as
$13.5 billion in losses under a scenario in which the agency
contends the banks made mistakes in those processes, Miller
wrote. Or, the FHA may deny claims based on mistakes in
lending, in which case the losses could reach $11.5 billion.
Miller pegged possible losses at about $3 billion for Wells
Fargo, $2 billion for Bank of America and $1 billion for
It could take time for either scenario to unfold, he said.
"Until there is more widespread evidence of FHA claim denials,
we believe that the risk is more of a headline risk than a
capital concern," Miller wrote.
Battles with the FHA over losses could prompt banks to
further tighten lending standards and "ultimately result in
another leg down in housing prices as borrowers find it harder
to access credit," Miller said.
While the FHA has taken steps to strengthen its finances,
it could come under mounting pressure from rising mortgage
defaults to limit its payouts.
The FHA may also seek punitive damages from the banks by
alleging they made false claims for reimbursement of losses on
foreclosed properties, Miller said.
(Reporting by David Henry in New York; Editing by Tim Dobbyn)