MBIA Inc shares rise on NY investigation of BofA mortgages
By Jochelle Mendonca
(Reuters) – Shares of bond insurer MBIA Inc (MBI.N) rose as much as 7 percent on Friday as investors bet that a new investigation into Bank of America Inc’s (BAC.N) mortgage practices would pressure the bank to settle a $5 billion lawsuit with the company.
Bank of America said in securities filing on Thursday that New York State Attorney General Eric Schneiderman was investigating the bank over the purchase, securitization and underwriting of home loans by Countrywide Financial, which the bank bought in 2008.
MBIA claims that Bank of America is responsible for the writing of dodgy mortgages by Countrywide that were packaged into bonds that MBIA had insured.
MBIA was stuck with huge losses when the loans went bad and now wants the bank to buy back the mortgages.
BTIG analyst Mark Palmer said that if MBIA won its suit, the accepted facts would make it easier for the New York attorney general to make his case that Countrywide had engaged in fraud and that the bank was now responsible.
That made it more likely that Bank of America would want to reach a settlement, he said. Otherwise, it could end up losing both cases.
“If we were serving as general counsel of BAC, we would be advising CEO Brian Moynihan in no uncertain terms that … he immediately move to settle all litigation with the bond insurer,” Palmer said in a client note.
Bank of America did not immediately respond to requests for comment.
A settlement is vital for MBIA. The company said on Wednesday there was a significant risk that its structured finance insurance unit, MBIA Insurance Corp, would be put into liquidation or rehabilitation by its New York regulator if it was unable to settle its claims with the bank.
(Reporting by Tiziana Barghini; Editing by Theodore d’Afflisio and Ted Kerr)
John Marcotte
720-771-9401
Search all Boulder CO homes for sale