Fitch expects that Bank of America's recent settlement of mortgage repurchase and servicing claims will "positively" affect the ratings of roughly 10% of Fitch-rated residential MBS that are part of the legacy trusts.
The rating agency Friday morning noted that payouts from the $8.5 billion settlement with investors -- and improved servicing practices detailed in the deal – will improve recovery prospects for a larger portion of the bonds.
"This figures to lead to more pronounced upgrades of Fitch's Recovery Ratings (RRs) on those tranches," it said.
"Virtually all credit ratings on Countrywide-issued Alt-A and Subprime bonds are already at or near default levels so BofA's settlement is unlikely to lead to significant upgrades," said Grant Bailey, head of Fitch's RMBS surveillance group. "On the other hand, current and future recovery prospects for these bonds certainly improve due to expected settlement payouts and mandated servicing improvements."
Earlier in the week B of A agreed to pay $8.5 billion to BlackRock, PIMCO, the Federal Reserve Bank of New York and other investors that bought nonprime MBS from Countywide Financial Corp., the huge mortgage banking firm that B of A acquired in the summer of 2008.
The deal settles accusations that Countrywide created the nonprime securities with little regard to the income of the applicants and without doing any substantial asset checks. B of A was also accused of not properly servicing the loans.
The rating agency said the settlement "likely establishes the framework for how other legacy RMBS issuers will ultimately settle portions of their representation and warranty related litigation."
Fitch managing director Kevin Duignan said, "If other RMBS issuers follow BofA's settlement framework, their bonds are also likely to see only modest credit rating upgrades, while bondholders should experience greater near and long term recovery levels."
