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Bank of America's Latest Legal Tab Would Be Cheap at $12B

Tickers in this article: BAC FMCC FNMA JPM
NEW YORK ( TheStreet) --  Bank of America's   last big mortgage dispute with regulators now has a number on it: $12 billion.

That figure, reported in The Wall Street Journal late Thursday and drawn from anonymous sources, would be on the cheap side, considering that JPMorgan Chase   settled a similar issue for $13 billion. Bank of America's responsibility for shoddy mortgages underwritten during the housing bubble far exceeds that of JPMorgan, by several measures.

However, the rationale being floated by either regulators (wanting to avoid being seen as soft) or possibly the bank itself (trying to negotiate the lowest figure it can) is that Bank of America already agreed in March to pay $6 billion to the Federal Housing Finance Authority.

According to this logic, in other words, the $13 billion paid by JPMorgan, which covers misdeeds by Washington Mutual and Bear Stearns (both acquired by JPMorgan) should really be compared to $18 billion.

On the face of it there are a few problems with this math. First of all, JPMorgan paid $5.1 billion to the FHFA, the overseer of Fannie Mae   and Freddie Mac  . So why does Bank of America pay 18% more than JPMorgan to the FHFA but 52% more  to all the other state and federal entities involved?

How many more bad mortgages did Bank of America sell than JPMorgan? This is a difficult question to answer largely because each bank acquired other sellers of problem mortgages.

The bulk of Bank of America's problems come from Countrywide, which it agreed to buy in January 2008. Countrywide, easily the most prolific seller of bad mortgages, was fading at that time but Bank of America didn't have the slightest idea what it was buying. That acquisition could go down in M&A history as the largest destruction of shareholder value ever for a financial company.

By contrast, JPMorgan bought Bear Stearns and Washington Mutual when those institutions were on the verge of failure. Whether or not you consider it fair to hold JPMorgan responsible for the misdeeds of Bear Stearns and WaMu, you must at least acknowledge it is a different question from whether to hold Bank of America responsible for Countrywide. JPMorgan knew about the problems, but probably underestimated the extent to which regulators would go after them for those legacy issues. Bank of America, on the other hand, underestimated the extent of Countrywide's problems when it bought the company.

Figuring how much all these giant institutions have paid already for the mortgage crisis is difficult enough, so figuring out what they ideally ought to pay could easily occupy the entire careers of scores of legal scholars.