MBIA Inc. and Bank of America Corp. settled a five-year legal battle over soured mortgage debt in a deal that will pay MBIA the equivalent of $1.7 billion and give the bank a 5 percent stake in the bond insurer. MBIA shares surged as much as 57 percent, the biggest intraday jump ever.
The bond insurer will drop demands that Bank of America’s Countrywide unit buy back faulty home loans that MBIA guaranteed, while the bank ends a challenge to a 2009 restructuring of the insurer that was intended to jumpstart its business of backing municipal bonds, the two companies said Monday in separate statements. Bank of America also will provide the MBIA unit that guaranteed the lender’s mortgage debt a $500 million credit line, the firms said.
“This comprehensive and important settlement is a very positive step forward for both Bank of America and MBIA,” Benjamin Lawsky, New York’s superintendent of financial services, said in a statement. “It resolves significant exposure and expensive litigation for Bank of America, while also giving MBIA a path forward.”
The bond insurer had said in February that there was “substantial doubt” about the ability of its MBIA Insurance Corp. unit that backed some of Wall Street’s most toxic mortgage debt to continue as a going concern unless it reached a deal with the bank. In addition to the soured home-loan securities the MBIA unit backed, it also guaranteed contracts protecting BofA and its subsidiaries from losses on commercial-mortgage debt.
For Bank of America, the lawsuits were part of the fallout from its 2008 takeover of Countrywide Financial Corp., whose lax standards and subprime loans were blamed by lawmakers and regulators for helping to fuel the housing bubble. Bond insurers including MBIA have argued they should be reimbursed for claims they paid on securitized pools of home equity lines of credit because of Countrywide’s flawed underwriting.
MBIA was up 45 percent to $14.29 at the close in New York. The shares earlier climbed to as high as $15.45. Bank of America’s stock climbed 5.2 percent to $12.88. The shares had advanced 5.4 percent this year through the end of last week.
MBIA first sued Countrywide in 2008 in New York State Supreme Court in Manhattan for fraud and breach of contract related to the securitized home loans.
Bank of America has committed more than $40 billion to settle claims tied to faulty mortgages and foreclosures, with most tied to loans made by Countrywide.
The bank has already reached settlements with Assured Guaranty Ltd. and Syncora Holdings Ltd. The deal with Assured was valued in 2011 at $1.6 billion, and the Syncora agreement announced last year cost Bank of America about $400 million.
Bank of America, along with Societe Generale SA, had sued MBIA over its 2009 restructuring, which they say harmed them as policyholders. In 2009, then-New York Insurance Department Superintendent Eric Dinallo approved the split, allowing MBIA to move guarantees on state and municipal bonds out of its MBIA Insurance Corp. unit, which backed some of Wall Street’s most toxic mortgage debt.
The case is MBIA Insurance Corp. v. Countrywide Home Loans Inc., 602825-2008, New York State Supreme Court, New York County (Manhattan).