Royal Bank of Scotland (RBS) analysts looked at the potential implications of the Bank of America settlement in a report released yesterday.
RBS referred to the deal as a “template” for investors and lawyers to follow for settlements with other large private-label RMBS issuers resulting from the mortgage collapse.
"Non-agency RMBS investors and corporate investors should look closely at similar exposures for JPMorgan Chase, Wells Fargo, Ally Bank, and Citigroup," analysts said.
Analysts were also surprised that accelerated recoveries of future losses were characterized in the settlement as subsequent recoveries.
They noted that this could be a result of investor belief that the majority of losses resulting from representations and warranties might have already occurred and that future losses for accelerated recoveries will not be substantial.
The report also restates RBS’ October 2010 estimates of BofA losses due to private-label repurchase obligations, which stood at $15.5 billion.
To date, BofA's has paid a combined total of $15.6 billion in settlements, which is consistent with this prediction. The figure includes the prior agreement reached with Assured Guaranty in addition to this deal and the bank's provision for extra representation and warranty exposure.
RBS analysts said that 2006 and 2007 transactions will receive the biggest pro-rata proceed amounts. They also reported that the $8.5 billion settlement would look like a single month CPR of 45%, greatly benefiting certificate holders of current paying bonds trading at a discount.
For ASR’s full coverage of the BofA investor settlement, please click here.