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Bank of America Mortgage Buyback Risk May Rise $9 Billion From Possible MBIA Victory

Jody Shenn and Shannon D. Harrington Bloomberg.com 08/17/2011 07:44
Bank of America Mortgage Buyback Risk May Rise $9 Billion From Possible MBIA Victory - Bank of America - Business - law - USA


Bank of America Corp. (BAC) may face billions of dollars more in liability for faulty mortgages if a judge agrees with insurer MBIA Inc. (MBI) that the lender must buy back loans even if the errors didn’t cause a borrower’s default.



If New York Supreme Court Justice Eileen Bransten and judges in similar cases across the country rule that the issue of “causation” doesn’t apply -- meaning it’s enough to show that the loan was improperly made -- it “could significantly impact” Bank of America’s potential costs, the bank said in a regulatory filing this month.

Such court defeats may add as much as $9 billion to what Bank of America owes bond insurers, according to hedge fund Branch Hill Capital, which is betting against its stock and has invested in MBIA. A victory for Armonk, New York-based MBIA may also strengthen claims by mortgage-securities investors that want the Charlotte, North Carolina-based bank to pay more than the $8.5 billion it’s offered them as a settlement.


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