For deals serviced by Wells Fargo, Ally Financial, and Citibank on private-label loans, the mortgage settlement's impact will likely be fairly negligible.
These servicers will continue to modify mortgages as before, Barclays Capital said yesterday after the release Monday of the the $25 billion servicer settlement's actual document. This is except for the higher modification resulting from the new Home Affordable Modification Program Principle Reduction Alternative (HAMP PRA) incentives.
Basing their comments on different news reports and statements on these companies' Web sites, analysts cited Wells, Citibank, and Ally as saying that they will either be limiting the settlement modifications to portfolio loans or that at, least for now, they will be limiting themselves to portfolio loans. Meanwhile, JPMorgan has made no such commitment and continues to explore options.
On JPMorgan Chase-serviced deals, analysts said it remains less clear what the effect of the servicer settlement will be. However, for Bank of America Corp. (BAC)-serviced transactions (BAC/Countrywide/Merrill Lynch/First Franklin shelves), the effect could be most meaningful, analysts explained.
In terms of the valuation effect on Countrywide deals, analysts said that the net impact should be to write down middle and junior mezzanine bonds in Alt-A/Payment Option Adjustable/Jumbo mortgages. The wrapped mezzanine bonds with currently paying monolines can benefit, Barclays analysts stated.
Super senior non-recourse (SSNR) pieces will probably benefit in terms of principal recoveries if these mods are not arbitrary and negative net present value, they said. Countrywide SSNRs will also benefit if the settlement goes through after the mezzanines get written down. This is because they will be the sole tranche to receive cash flows from the $8.5 billion mortgage settlement.
BAC and its Countrywide subsidiary settled claims by investors that Countrywide sold poor-quality MBS that went south during the financial crisis.
According to analysts, some offset will come from longer duration loans as faster recoveries from liquidation are substituted with mortgages that either continue paying for a longer term or get liquidated.
On subprime collateral, they said that the settlement-related modifications should make a faster crossover and can potentially hurt front-pay bonds from implied pro-rata deals.
Many of the Countywide subprime transactions actually stay sequential after a crossover happens and the settlement could cause the lengthening of front pays, analysts said.