Fitch: Countrywide Settlement Yields Little Ratings Impact for U.S. RMBS

NEW YORK--(BUSINESS WIRE)-- The long-awaited, recently distributed payments from the $8.5 billion Countrywide/Bank of America settlement, while a windfall for bondholders, are unlikely to lead to significant rating actions for U.S. RMBS, according to Fitch Ratings.

Nearly five years after the settlement was reached, bondholders from most of the 530 trusts included in the settlement received payments on the June 2016 distribution date. Fitch has outstanding ratings on only 203 of the 530 transactions included in the settlement. Of the roughly 3,000 classes included in the settlement that Fitch actively rates, 74% have incurred principal writedowns to date, and are currently rated 'Dsf'. The settlement payouts improved the principal recoveries for many defaulted classes. Nonetheless, Fitch does not expect to upgrade such classes above 'Dsf' because the lost interest to date related to the writedown is not expected to be recovered.

In July 2015, Fitch identified 48 U.S. RMBS classes as potential upgrade candidates following the settlement payouts, and placed the classes on Rating Watch Positive. Fitch will conduct a full analysis during the third quarter of this year on all affected Fitch-rated classes (including those not placed on Rating Watch Positive) for potential rating implications and recovery estimate revisions.

BACKGROUND AND TIMING

On June 28, 2011, Bank of America Corporation (BAC) and Countrywide Home Loans, Inc (CHL) reached a settlement with Bank of New York Mellon (BNY) as trustee, representing 22 institutional investors, regarding alleged breaches of representations and warranties and violations of servicing obligations. Per the settlement, BAC - which purchased CHL in 2008 - was to make a payment of $8.5 billion to BNY, as trustee for 530 Countrywide RMBS trusts. The settlement also called for BAC to implement a number of servicing improvements.

The settlement payout was contingent on both court and tax (IRS and state) approval. After more than four years, both court and tax approvals were received in October 2015. A third-party expert (NERA) determined each trust's allocable share of the settlement based on projected lifetime net losses, and the entire settlement payment was paid to the trustee in February 2016. After the trustee sought judicial guidance concerning the order in which to distribute funds to bondholders (whether to pay down or write up first), payments were distributed to bondholders of 512 of the 530 trusts in June 2016. The remaining 18 trusts face further legal hurdles before receiving payments.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160627006346/en/

Fitch Ratings
Sean Nelson, +1-212-908-0207
Senior Director
Fitch Ratings
33 Whitehall Street
New York, NY 10004
or
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
[email protected]

Source: Fitch Ratings

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