MBIA Loses Bid for Ruling on Countrywide Loan Repurchase

MBIA Inc. (MBI) failed to win a pretrial ruling against Bank of America Corp. (BAC)’s Countrywide Financial unit in a lawsuit claiming the mortgage lender breached its obligations to buy back loans.

New York State Supreme Court Justice Eileen Bransten in Manhattan rejected bond insurer MBIA’s argument that it had already shown Countrywide should have to buy back loans that MBIA claims were riskier than represented. MBIA guarantees payments to investors that bought securities backed by pools of the lender’s loans.

There are “sufficient facts in dispute” about the loans to preclude ruling in MBIA’s favor at this point in the litigation, Bransten said.

MBIA fell 4 percent to $9.46 at the close of New York trading after earlier dropping as much as 8.9 percent. Bank of America fell 0.6 percent to close at $12.31.

While the rejection was a “disappointment” for MBIA, the insurer gained a “huge win” with Bransten’s decision that New York law instead of Delaware law governs its claim that Bank of America is liable as Countrywide’s parent company, Mark Palmer, an analyst at BTIG LLC in New York, said in a research note.

“Taken as a whole, we think Judge Bransten’s rulings sent a very strong message to BAC about how difficult it would be for it to win at trial,” wrote Palmer, who has a “buy” rating on MBIA.

‘Materially Defective’

MBIA, based in Armonk, New York, sued Countrywide in 2008 seeking to recover losses tied to the lender’s loans that were packaged into securities. It claimed in court papers that at least 56 percent of the loans at issue in the case were “materially defective.” Both MBIA and Bank of America were seeking rulings in their favor ahead of a trial.

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment on the ruling. Kevin Brown, a spokesman for MBIA, said yesterday that the company had no immediate comment.

Bransten also ruled in MBIA’s favor that loans don’t need to be in default in order to be repurchased and that the insurer’s potential recovery isn’t limited to repurchases and may include compensatory damages.

MBIA had asked the court to find that Bank of America, which acquired Countrywide in 2008, is liable for Countrywide’s alleged misconduct. The bank sought a ruling that it isn’t liable. Bransten refused to give either company a victory on the issue of so-called successor liability.

“There are disputed facts in the record regarding the substance of the transaction and the integration of Countrywide’s assets,” the judge wrote.

The case is MBIA Insurance Corp. v. Countrywide Home Loans Inc., 602825-2008, New York State Supreme Court, New York County (Manhattan).

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Chris Dolmetsch in New York State Supreme Court in Manhattan at

cdolmetsch@bloomberg.net

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Michael Hytha at mhytha@bloomberg.net

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