“I don’t see how it can be cleared up in a short period of time,” said Richard X. Bove, an analyst with Rochdale Securities. “The moratorium won’t last that long but the problem will last at least four or five years, maybe a decade.” In the short term, he said, “it could easily cost $1.5 billion per quarter.” 
 
 Meanwhile, the foreclosure machinery in many states has ground to a halt. Major institutions like Bank of America, JPMorgan and GMAC Mortgage have halted foreclosures in many states, and have not said when they would resume. As a result, foreclosed homes will remain on the bank’s books while racking up thousands of dollars a month in extra costs. 
 
 Until Thursday, Wall Street regarded the foreclosure issue as a risk to the banks’ reputations, rather than their bottom lines. Indeed, some analysts insisted it was unlikely that wide-scale abuses would be found. 
 
 Photo 
 
 “It’s inexcusable that the banks didn’t staff up to meet the surge in foreclosures,” said Christopher Kotowski, an analyst with Oppenheimer. “On the other hand, we need to look at whether they are filing foreclosures on a massive basis against people who are not delinquent. So far, I haven’t seen any evidence that they are.” 
 
 Inside the investment houses, several traders said nerves were frazzled further by worries that banks could face much bigger mortgage related losses, not from foreclosures, but because of questions about how the money was lent in the first place. If it turns out that mortgages were bundled together and sold improperly, more holders could sue the banks and force them to buy back tens of billions in mortgage-backed securities. 
 
 An alarming report on Bank of America, compiled by Branch Hill Capital, a San Francisco hedge fund, circulated widely on Wall Street on Thursday. Branch Hill suggested that the bank, the nation’s largest, could be facing more than $70 billion in losses from mortgage securities that it may have to repurchase from Fannie Mae and Freddie Mac, as well as private investors. 
 
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 “We think this is a very important issue, and the liability will be substantial,” said Manal Mehta, a partner at Branch Hill. “There has been pervasive bad behavior throughout the system.” The fund is betting that Bank of America shares could decline because of the potential liability. 
 
 Bank of America declined to comment Thursday. But the company’s chief executive, Brian T. Moynihan, said last month at an investor conference that adequate reserves had been taken to protect against any losses that could materialize if it was forced to repurchase mortgage securities. “This will be manageable over time, but it has cost us a lot of money so I’m not making light of it,” he said. “We’ll continue to manage it.” 
 
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 On Wednesday, JPMorgan said it had added $1 billion to its reserves to cover faulty home loans that it was obligated to repurchase from Fannie Mae, Freddie Mac and private insurers. It has set aside a total of $3 billion for potential repurchases. 
 
 Even if the larger losses envisioned by Mr. Mehta do not materialize, the foreclosure issue remains a worry. In a report, Paul Miller, an analyst with FBR Capital Markets, forecast that the controversy would cost the banking industry $6 billion to $10 billion. He estimated that each month’s delay cost the banks $1,000 per home loan, so if there was a three-month delay on the roughly two million homes currently in foreclosure, that translated into a $6 billion hit. 
 
 In addition to the losses directly caused by the delay, Mr. Miller foresees additional charges totaling $3 billion to $4 billion to cover lawsuits stemming from faulty foreclosure procedures. 
 
 For now, bank executives are not making any predictions how long the foreclosure halt will last. 
 
 “If you’re talking about three or four weeks it will be a blip in the housing market,” said Jamie Dimon, chief executive of JPMorgan Chase, in a conference call on Wednesday. “If it went on for a long period of time, it will have a lot of consequences, most of which will be adverse on everybody.” ||||| Stock Chart for Wells Fargo & Co (WFC) 
 
 Mortgage lenders including Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) that feasted on refinancings as interest rates reached all-time lows are now warning that the drop in demand may be steeper than expected. 
 
 Even Bank of America Corp., which fell to fourth in U.S. mortgages last year as it scaled back after buying Countrywide Financial Corp., is reducing capacity further as surging interest rates crimp demand. The Charlotte, North Carolina-based firm is eliminating 2,100 jobs and closing 16 offices by Oct. 31, said two people with direct knowledge of the plan. 
 
 Home lenders are tempering forecasts after interest rates rose amid signs the Federal Reserve may scale back stimulus efforts. Wells Fargo, the top U.S. home lender, said yesterday that third-quarter originations may fall 29 percent to $80 billion. JPMorgan, ranked No. 2, said it expects to lose money on home lending in the second half as volumes drop as much 40 percent from the year’s first six months. 
 
 “There was speculation, I’m sure by Wells but a lot of other people, that there would be second-quarter momentum that would carry through to the third quarter,” said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Maryland. Yesterday’s comments and Bank of America’s job cuts show “that some of that stuff appeared very quickly in terms of people dropping out of the market. That clearly doesn’t bode well.” 
 
 Higher Rates 
 
 Interest rates climbed after Fed Chairman Ben S. Bernanke told Congress on May 22 that the central bank may scale back the pace of its $85 billion of monthly purchases of mortgage bonds and Treasuries if the U.S. economy shows sustained improvement. The cost of a 30-year fixed home loan rose to 4.57 percent last week from 3.35 percent in May. 
 
 Wells Fargo Chief Financial Officer Tim Sloan’s forecast for $80 billion in originations was darker than his July prediction that the San Francisco-based firm wouldn’t post an eighth straight quarter of $100 billion or more. The bank entered the third quarter with $63 billion of unclosed mortgages. 
 
 The lender’s gain-on-sale margin, what it gets from selling loans to be packaged into securities and sold to investors, will narrow to about 1.5 percent in the quarter, Sloan said yesterday at an investor conference in New York. That would be the lowest since 2011’s third quarter, when it was 1.34 percent, the presentation showed. 
 
 ‘Slightly Negative’ 
 
 An increase in lending for home purchases won’t be enough to replace a drop in refinancings, JPMorgan CFO Marianne Lake said in her presentation. The bank’s pretax-profit margins and income on mortgage lending will be “slightly negative” in the third and fourth quarters as the firm takes time to adjust its fixed costs. 
 
 “Although this may have happened sooner than we had expected, we did contemplate a more normal rate environment in our longer-term targets,” she said. 
 
 Wells Fargo and JPMorgan reported record profits last year, aided by refinancings and a rebound in sales and prices. Now, mortgage lenders are paring staff as higher interest rates cast doubt on how much the housing market will improve. Wells Fargo plans more than 2,300 job cuts and New York-based JPMorgan may dismiss 15,000 by 2014. 
 
 JPMorgan rose 1.5 percent at 10:16 a.m. in New York trading, Wells Fargo climbed 1.3 percent and Bank of America advanced 1.1 percent. 
 
 ‘Market Realities’ 
 
 About 1,500 of the Bank of America workers set for termination helped process home loans, said one of the people, who asked not to be named because, while affected employees were notified Aug. 29, the scope of the plans hadn’t been publicly announced. About 400 worked in a suburban Cleveland call center, and 200 dealt with overdue mortgages, the person said. 
 
 The changes “reflect our ongoing efforts to streamline our facilities and align our cost structure with market realities,” said Terry Francisco, a spokesman for the bank. 
 
 The lender targeted three offices in California as well as locations in Virginia, Washington, Texas and Ohio, said the people, who cited the company's discussions with employees last month. Some will be offered work elsewhere in the firm, the people said. Bank of America’s staff totaled more than 257,000 at mid-year. 
 
 Shuttering Units 
 
 Chief Executive Officer Brian T. Moynihan, 53, is again scaling back operations gained in the 2008 takeover of Countrywide, once the biggest U.S. mortgage lender. After shuttering reverse-mortgage and correspondent-lending units in 2011, the firm targeted smaller ex-Countrywide offices to close or consolidate, said one of the people. 
 
 Regulators and lawmakers blamed Countrywide for lax standards and predatory lending that contributed to the housing bubble and collapse, which has cost Bank of America more than $45 billion. Countrywide was acquired under Moynihan’s predecessor, Kenneth Lewis. 
 
 “We’re pretty much through the refi boom, and we don’t know yet what the purchase business will look like,” said Nancy Bush, founder of NAB Research LLC, a bank research firm in New Jersey. “Countrywide was everywhere, so Bank of America’s particular challenge is to go from this hot-mess mortgage company to a rational one.” 
 
 The cuts will leave about 25 mortgage offices, said one of the people. The suburban Cleveland site, which had 1,000 employees, lost the most people, said the person. That part of the reduction was reported last month by the Plain Dealer. 
 
 Most of the dismissals are in addition to the 30,000 announced in 2011 as part of Project New BAC, Moynihan’s plan to reduce expenses, one of the people said. 
 
 To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Dakin Campbell in New York at dcampbell27@bloomberg.net 
 
 To contact the editors responsible for this story: Christine Harper at charper@bloomberg.net; David Scheer at dscheer@bloomberg.net
– Investors sent bank stocks plunging yesterday, as they finally started to worry about the mortgage robo-signing scandal. Up until now, investors have mostly assumed the crisis would blow over. But on Wednesday, 50 states announced investigations into mortgage servicing practices, and yesterday a San Francisco hedge fund circulated a report predicting that the crisis would wind up costing Bank of America a whopping $70 billion, the New York Times reports. As a result, Bank of America fell 5.2%, its biggest drop since mid-July, Wells Fargo fell 4% and JP Morgan fell 2.8%, despite a relatively flat stock market, according to the Wall Street Journal. “I don’t see how it can be cleared up in a short period of time,” said one analyst. “The moratorium won’t last that long, but the problem will last four or five years, maybe a decade.”