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Friday, October 15, 2010

Bank of America Downgraded by Bonds on Loans: Credit Markets

This directly has to do with foreclosure-gate.
Prices on Bank of America’s credit-default swaps imply the debt is ranked Ba1 as of Oct. 13, five levels below its actual A2 grade, according to Moody’s Corp.’s capital markets research group. That’s the first time the firm’s swaps have signaled a junk ranking since May 6, the data show.
Bank of America’s $2.5 billion of 4.5 percent notes due in April 2015 fell 0.381 cent to 103.89 cents on the dollar as of 11:36 a.m. in New York, Trace data show. The bonds were issued at 99.9 cents in March to yield 215 basis points more than Treasuries. The bank has $360 billion of bonds outstanding, Bloomberg data show.
The rising price of swaps reflects potential costs that banks may face on so-called mortgage put-backs from investors. Put-backs occur when a mortgage lender is forced to repurchase a loan that’s been sold for securitization. Banks may also have to pay for legal challenges.
It's too early to tell, but it could mean higher mortgage rates or probably larger closing costs.

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