A new report by Amherst Securities Group (ASG) examines how the recent Bank of America settlement has the potential to significantly impact Countrywide securities that comprise the Covered Trusts. Although the market seems to treat these securities in the same way, ASG said that the impact will vary from security to security.

In the report, ASG analysts consider the two most noteworthy aspects of the settlement to be the settlement payment and the mandated changes in servicing practices included in it.

They believe that regardless of whether the agreement goes through, these servicing adjustments will likely occur, making BofA’s standards more comparable with hose of other firms. This is expected to improve the value of securities.

The impact of the news seems to have a varied effect across the different bond classes, with analysts predicting that of senior bonds, the subprime sector will benefit more greatly than the prime and Alt-A classes.   

Meanwhile, in mezzanine bonds, Alt-A seems to be the sector impacted by the news, while in subordinate bonds, prime is expected to be the most reactive. The report referred to the distribution of price changes as “quite wide”.

While this information is helpful to investors, ASG said that there has been little differentiation across securities. They feel that some bonds responded too strongly to the news, while others reacted too little.

Of the several servicing changes included in the settlement, the provision requiring BofA to shift high-risk loan servicing to specialized sub-servicing firms is considered as especially significant by ASG analysts.

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