By Philip van Doorn, TheStreet

Reports that New York Attorney General Eric Schneiderman may challenge the recent $8.5 billion settlement by Bank of America (BAC) for bad mortgage securities inherited from Countrywide Financial underscore what a disaster the 2008 acquisition has been for the nation's largest bank.

Under the reign of its acquisitive former CEO Ken Lewis, Bank of America completed its acquisition of Countrywide in July 2008 in an exchange of shares valued at $4.2 billion, although the real cost of the deal at that time included the cancellation of $2 billion Countrywide preferred shares, purchased by Bank of America in August 2007.

When the acquisition was completed, Countrywide's mortgages were written down to fair value by $9.8 billion, and its mortgage servicing rights were written down by $1.5 billion. But those write-downs didn't address the bleeding that Bank of America would suffer from a seemingly endless array of mortgage repurchase demands from investors.

After announcing a $2.8 billion settlement of mortgage representation and warranty claims on securitized Countrywide mortgages by government-sponsored​ enterprises Fannie Mae (FNMA) and Freddie Mac (FMCC) in December, Bank of America in June announced its $8.5 billion deal to settle institutional investors' mortgage putback claims on Countrywide's private-label paper.

So what has Ken Lewis' decision to hang the Countrywide albatross around Bank of America's neck really cost the company?

"Back of the envelope, it is probably close to $25 billion," FBR Capital Markets analyst Paul Miller says, adding that "we don't know the expenses associated" with the servicing of the Countrywide mortgages.

Miller adds that most of the estimates are rough, "between $25 and $30 billion," and that "it's probably going to grow."

As of March 31, Bank of America reported that the outstanding balance of remaining securitized Countrywide loans was $281 billion, with $85 billion past due six months or longer. Based on those numbers, the $8.5 billion settlement of "all" remaining Countrywide repurchase claims, was a rather small number, even with an "an additional $5.5 billion" set aside for additional repurchase claims in the second quarter. The company also estimated another $400 million for servicing obligations under the settlement.

When announcing the Countrywide private-label settlement in June, Bank of America estimated that additional private-label mortgage put-back expenses could range up to $5 billion, but didn't spell out whether that figure might include additional Countrywide exposure.

Regarding potential exposure to GSE put-back claims, the company believed any remaining exposure would be "accounted for in the recorded liability for representations and warranties for these loans at quarter end," but addressed the additional political risk tied to the GSEs by saying it was not "currently able to reasonably estimate the possible loss or range of loss with respect to any such potential impact in excess of current reserves on future GSE provisions if the GSE behaviors change from past experience."

Finally, Bank of America said putback costs could be "materially impacted if actual results are different from our assumptions regarding economic conditions, home prices and other matters, including counterparty behavior and estimated repurchase rates."

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Considering the company's track record of underestimating its mortgage repurchase expenses all through the credit crisis, that last statement sums up investor fears. The New York AG's actions and Congress's dithering on the future of the GSEs illustrate the ongoing political risk faced by Bank of America as it tries to move past its Countrywide debacle.

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