Bondholders are penalizing Bank of America Corp. the most of any of the largest U.S. financial firms as the investigation into the foreclosure crisis expands.

Credit-default swaps on the country’s largest bank by assets are above those of its peers by a record margin, according to data provider CMA. The contracts, which imply Bank of America has lost its investment-grade rating, exceed Citigroup Inc.’s by the most ever and surpassed Morgan Stanley’s this week for the first time in a year.

Attorneys general from all 50 states joined to open an investigation into whether lenders and mortgage companies falsified documents as they sought to repossess homes. Charlotte, North Carolina-based Bank of America said Oct. 8 it would curtail foreclosure sales nationwide, as speculation rose the lender would have to buy back home mortgages with faulty documentation.

“As we look at the financial landscape and try to put pen to paper and figure out who might be most exposed to problems associated with foreclosure moratoria, with robo-signers, with mortgage put-backs, Bank of America’s at the top of the list,” said David Havens, a financial institution debt analyst at Nomura Holdings Inc. in New York.

Bank of America is being singled out for expanding its real-estate operations and acquiring Countrywide Financial Corp., then the biggest U.S. mortgage lender, in 2008 during the worst housing slump since the Great Depression, Havens said. The bank also increased its mortgage assets through the $29 billion purchase of Merrill Lynch & Co. in January 2009 under pressure from the Federal Reserve, which was trying to prevent failure of the U.S. banking system.

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(Read More: Bloomberg News)