$1.7 Settlement Announced For Misrepresentation of Investment Quality of Mortgage-Backed Securities

$1.7 Settlement Announced For Misrepresentation of Investment Quality of Mortgage-Backed Securities

NEW YORK - (Mealey's) Bank of America Corp. (BoA) will pay nearly $1.7 billion to MBIA Inc. and certain of its subsidiaries to settle claims in New York State court that BoA misrepresented the investment quality of and risk associated with certain mortgage-backed securities (MBS) it sold to MBIA, according to press releases issued by both parties May 6 (MBIA Insurance Corp. v. Countrywide Home Loans Inc., et al., No. 602825-2008, N.Y. Sup., New York Co.).

According to the MBIA press release, MBIA and subsidiaries MBIA Insurance Corp. and National Public Finance Guarantee Corp. (collectively, MBIA) will receive "a net payment of approximately $1.7 billion, consisting of approximately $1.6 billion in cash and $137 million principal amount of MBIA Inc.'s 5.70% Senior Notes due 2034."

"In exchange for the $1.7 billion net payment, MBIA Corp. will dismiss the litigation commenced in September 2008 against Countrywide Home Loans, Inc. (Countrywide), among other parties, and later amended to include claims against Bank of America, relating to breaches of representations and warranties on certain MBIA-insured securitizations sponsored by Countrywide," according to the press release.

Credit Default Swaps

In addition, according to the MBIA press release, the parties have agreed to the "commutation of all of the MBIA Corp. policies held by Bank of America, which have a notional insured amount of approximately $7.4 billion, and of which $6.1 billion are policies insuring credit default swaps held by Bank of America referencing commercial real estate exposures."

The settlement agreement is subject to "certain approvals" of the New York State Department of Financial Services, which both parties believe will be received shortly.

MBIA sued Countrywide Home Loans in the New York County Supreme Court, alleging that it sold MBIA risky MBS, misrepresenting the risk involved with the investment.


MBIA is represented by Peter E. Calamari, Philippe Z. Selendy, Manisha M. Sheth, Jonathan B. Oblak and Daniel P. Cunningham of Quinn Emanuel Urquhart & Sullivan in New York.

BoA is represented by Theodore N. Mirvis and Elaine P. Golin of Wachtell Lipton Rosen & Katz; and Jonathan Rosenberg, William J. Sushon, Allen W. Burton and Asher L. Rivner of O'Melveny & Myers. All are in New York.

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