BofA Said to Ask Mortgage-Bond Buyers to Take Debt in Packages

Investors seeking to buy higher yielding, riskier slices of home-loan bonds sold yesterday by EverBank Financial Corp. were told they’d have a better shot if they also purchased some of the AAA rated classes, showing weaker demand for the top-ranked debt.

Bank of America Corp. and Barclays Plc, the underwriters of the deal, pushed investors to purchase the debt in a package as relative yields widen on AAA portions of securities tied to new mortgages without government backing, according to two people familiar with the discussions who asked not to be identified because the negotiations were private.

Greater demand for junior-ranked debt signals some investors are willing to take on the risk of homeowners defaulting on larger mortgages for higher returns. At the same time, rising spreads on the AAA debt as issuance accelerates may hamper the pace at which the U.S. government can scale back its role as it seeks to reduce the influence of mortgage guarantors Fannie Mae and Freddie Mac.

“It’s important because the bulk of a deal is the AAAs,” Scott Buchta, head of fixed-income strategy at New York-based brokerage Brean Capital LLC, said today in a telephone interview. The prices of those securities may most help determine when it will make sense to package loans into private securitizations as Fannie Mae and Freddie Mac increase their bond-guarantee fees, he said.

‘Insanely Expensive’

Spreads on the top-ranked debt, which reflect risks including the pace at which homeowners repay their mortgages, had been narrowing through earlier this year. Scott Simon, who heads mortgage-bond investing at Pacific Investment Management Co., called the securities “insanely expensive” last month.

Kerrie McHugh, a spokeswoman for Bank of America, and Brandon Ashcraft of Barclays, both in New York, declined to comment on the transaction, as did Michael Cosgrove, a spokesman for Jacksonville, Florida-based EverBank.

The EverBank transaction included $207.6 million of top-rated, 2.5 percent securities sold at 100.6 cents on the dollar, a person familiar with the offering said yesterday. The debt was said to yield 1.45 percentage points more than benchmark swap rates.

In January, Redwood Trust Inc. sold $619.2 million of similar AAA securities with spreads said to be 0.97 percentage point. The spreads reflect so-called pricing speeds, or the lifetime pace of prepayments estimated by the sellers of the bonds as homeowners refinance, move or default.