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BofA reps and warranties settlement may give investors a chance: Barclays

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Investors in mortgage-related structured finance products are being given a leg-up in their courtroom challenges to representations and warranties now that Bank of America (BAC) settled with Assured Guaranty last week, claim analysts at Barclays Capital. The government-sponsored enterprises and private investors claim some lenders violated representation and warranties contracts when the companies wrote now defaulted mortgages, and now claim the banks should buy them back. BofA settled reps and warrants claims with the monoline insurer a couple of weeks ago. BofA is providing $1.1 billion for deals made using home equity lines of credit as collateral. The settlement should cover 80% of Assured's paid-out losses on 21 first lien transactions. The deal will likely increase the chance other monolines will get a settlement. It's a concept not far removed from what investor swould like to get in similar lawsuit brought by firms such as Gibbs And Bruns and Talcott Franklin's eponymous lawfirm. Barclays analysts said "this does seem to raise the probability of an eventual settlement with non-agency investors." Subordinate holders in deals involving the settlement might be able to argue that they were hurt by rep- and warrant-related breaches, much as Assured Guaranty was and should therefore be compensated. Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.

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