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BofA settlement with investors could buoy ratings of RMBS bonds: Fitch

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Bank of America's decision to settle with investors over mortgage repurchase and servicing claims could buoy the ratings of 10% of  residential mortgage-backed securities bonds rated by Fitch Ratings. Fitch made that conclusion after evaluating Bank of America's (BAC) agreement to pay $8.5 billion to Bank of New York Mellon, the trustee overseeing 530 legacy Countrywide RMBS trusts for investors. "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." Fitch ratings said the amount allotted will not have a broad-sweeping impact on ratings, but does create the possibility of upgrades in relation to the 10% of the Fitch-rated bonds impacted. Going forward, the New York-based rating agency sees the BofA settlement over the representation and warranty litigation as a framework for how other legacy RMBS issues will be handled in the future. "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," said Fitch group managing director Kevin Duignan. Write to: Kerri Panchuk.

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