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The Financial Crisis' Final Hurrah Will Cost Bank of America Billions

And herein lies the problem facing banks today. From 2005 to 2007, the nation's nine biggest home equity lenders originated $131 billion worth of home equity lines of credit, all of which come due between 2015 and 2017. According to the OCC:

While the $18 billion that [began amortizing] in 2014 provided these banks with a sense of the implementation issues, 2015 is the start of a three-year period when roughly $131 billion, or almost half of outstanding HELOC balances, have scheduled transitions from draw period to repayment. For most accounts, this transition means that monthly payments change from interest-only to amortizing, though a large number require full payment under a balloon note.

How big of a problem is this for any individual bank? While the answer to this is institution-specific, you can get a sense for it by looking at Bank of America's regulatory disclosures. Just under half of the loans in its home equity portfolio were originated in 2006 and 2007, at the worst possible time for the housing market. Of its home equity loans that have started amortizing, moreover, 14% of them are nonperforming. That's an enormous proportion when you consider that a bank like Wells Fargo seeks to limit its credit losses to less than 0.5% through all stages of the credit cycle.

The net result is that, at least in Bank of America's case, there's reason to believe that loan losses will be higher than normal for two more years. This will come as a disappointment to bank investors who have long since relegated the financial crisis to the dustbin of history, but it's nevertheless the case.

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The article The Financial Crisis' Final Hurrah Will Cost Bank of America Billions originally appeared on Fool.com.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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