Archive

July 29, 2008

BoA Confirms Role in Covered-Bond Effort

The securities arm of Bank of America has confirmed that it is developing a covered-bond program to add liquidity to the nonconforming loan market. In a statement, Banc of America Securities LLC, a broker-dealer, said it would act as a market maker for covered bonds issued by various financial institutions. However, none of BoA's subsidiaries are actively originating subprime mortgages. (BoA is one of two U.S. companies that has previously issued covered bonds.) On July 1, BoA bought Countrywide Financial Corp., the nation's largest subprime servicer. At the time of the sale, Countrywide was no longer funding subprime loans unless they could be sold to Fannie Mae and Freddie Mac. On Monday the Treasury Department issued a best-practices guide aimed at underwriters that are interested in issuing covered bonds backed by nonconforming loans [see item above]. The underlying collateral for covered bonds stays on the balance sheet of the issuing institution. These securities get their name because the issuer must cover any losses due to borrower defaults.