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MBIA says it’s sitting prettier, analysts agree

Bond insurer no longer worried about being an 'ongoing concern'

August 22, 2013
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It’s been a rough few years for bond insurer MBIA (MBI), but after settling legacy mortgage-backed securities litigation with Bank of America (BAC) and Société Générale, the bond insurer assured investors this week in a securities filing that all major doubts about the firm’s future are over.

In other words, MBIA is feeling confident again.

The company points out in a filing with the SEC that it previously said “there was a substantial doubt about the company’s ability to continue as a going concern.”

But, in the latest note, the bond insurer reverses course, noting those substantial doubts have been removed. 

So what got MBIA to this point?

Back in May, MBIA announced the firm agreed to settle a lawsuit with BofA over Countrywide-related mortgage bonds that MBIA insured.

The companies settled the dispute, with MBIA pulling in $1.7 billion in exchange for dismissing the case.

MBIA also distanced itself from legal exposures tied to commercial mortgage-backed securities by agreeing to pay Société Générale $350 million to settle a legal dispute between the two firms.

And more settlements could be on the way, analysts suggest, buffering the firm's liquidity position even more. 

"The Bank of America and Société Générale settlements have placed the company in a far better position today than they were, largely because the legacy company was able to pay back an inter-company loan to National Public Finance Guarantee Corporation," said Harry Fong, MKM Partners analyst.

Right now, Fong says, what will really change the liquidity position of the company “is the (expected) resolution of the ResCap settlement, which will net the company somewhere near $800 million.” All objections filed to end a potential settlement between ResCap and its creditors over mortgage-bond litigation have since been dismissed by a judge in the ResCap proceedings, Fong told HousingWire.

But there’s another big potential development that could create even more confidence.

"The main catalyst will likely be coming from the National Public finance Guarantee operation which is in the midst of putting together a plan to take to S&P, arguing that it is deserving of a AA rating," Fong said. He added that if S&P does allot the AA rating, it will allow the company to engage in the municipal finance side of the guaranty business on equal footing with several other competitors.

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