analysts said monoline insurer Assured Guaranty
is the victor in its settlement with Bank of America (BAC)
over mortgage repurchase and warranty claims.
The settlement struck in the first quarter
over 21 troubled residential mortgage-backed securities first-lien trusts sent $1.6 billion to Assured. Of that, $1.1 billion goes to Assured as cash. In addition to the payout, BofA agreed to reimburse Assured 80% of all losses on those 21 RMBS trusts until the losses on those deals reach $6.6 billion.
The remaining principal balance on the severely delinquent collateral totaled $10.9 billion. It is so far the largest settlement for the bond-insurance industry.
"We view this settlement as a victory for Assured in particular and for other monolines in general," analysts said.
Of those 21, nine are Alt-A deals, six are comprised of option adjustable-rate mortgages, five are subprime, and there was one prime jumbo.
There were 44 bonds in the deals, led by 14 made up of home equity line of credit, or HELOC, loans. The net part outstanding balance on these bonds is $2.5 billion. The cash payment to Assured represents about 42.4% of the aggregated net part outstanding of all HELOC transactions in the 21 trusts.
Other bond insurers MBIA
and Financial Guaranty Insurance Company
still have pending litigation with BofA. In October, Deutsche estimated losses at six major banks from repurchase demand could range between $31.8 billion and $132.9 billion.
Using the payout as a percentage of HELOC bonds, the total losses could land somewhere around $52 billion, according to Deutsche Bank.
"The Assured–BoA settlement agreement has set the bar for future settlements between monolines and lenders," analysts said.
Write to Jon Prior
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