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Put-Back Exposure: The Only Thing That Matters

I hope you really, really like the phrase "put-back exposure."

Mortgage
CNBC.com
Mortgage

Because for the next few weeks, it's all you are going to hear about.

For the financial sector, this is about to become the only thing that matters. It will dominate the Q & A portions of conference calls. It'll be all over the blogs. Eventually, the phrase will probably make the front page of the Wall Street Journal. Or, at least, the front of the section you read first: Money & Investing.

What everyone will be trying to figure out is which banks have the most liability to investors who purchased mortgage-backed securities based on faulty loan pools. The issue of repaying investors—or put-backs—has been quietly simmering on the back burner since 2007. But now the pot has boiled over. This matters right now. In the minds of many, it is pretty much all that matters.

One thing that seems certain at this point: no one really knows much about put-back exposure. It is unexplored territory, both legally and financially. Some of our biggest banks may have put-back exposure from the acquisitions they made during the financial crisis. Bank of America may have inherited put-back exposure from Merrill Lynch and Countrywide. JP Morgan from Washington Mutual and Bear Stearns. Wells Fargo from Wachovia.

Right now you can count on executives to tell you that they don't expect put-backs to amount to much. That will almost certainly be taken as a contrary indicator. "We have limited put-back exposure" will be the new "we have plenty of liquidity."

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Companies mentioned in the post

Bank of America

JPMorgan

Wells Fargo

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