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Wednesday, May 8, 2013

Bank of America to pay $1.7 billion to MBIA to settle mortgage dispute

Bank of America is settling a case brought by its bond insurer, MBIA, in their battle over responsibility for losses during the 2007-2009 financial crisis, the two companies said on Monday.

Bank of America will pay MBIA 1.7 billion dollars, and the bank will receive a 5-per-cent stake in the bond insurer in return, the companies said.

MBIA will drop demands that Bank of America’s Countrywide unit buy back the soured home loans that the insurer had guaranteed, Bloomberg news service reported.

New York’s superintendent of financial services, Benjamin Lawsky, said the settlement was “a very positive step forward for both Bank of America and MBIA.” The second-largest US lender and its Countrywide Financial unit cut corners to process home loans at high speeds and sold defective and fraudulent mortgages to Fannie Mae and Freddie Mac, the semi-public mortgage brokers, according to a complaint filed late last year by the US Justice Department.

In that case, the US government is seeking to recover more than $1 billion of losses it said resulted from selling “toxic” mortgages to government-sponsored enterprises.

Such lending practices sparked the 2007-2008 financial crisis when the US housing bubble burst. The bubble was created when easy credit drove up property purchases and prices. In the rush to reap the benefits of the sales boom, lenders pumped money to risky borrowers, resulting in subsequent high default rates.

Source: thehindubusinessline


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