Bond issuers face billions in losses on insurance claims
Countrywide, now part of Bank of America (BAC), could face billions in additional losses if a New York court sides with bond insurer MBIA. Further, such a ruling could lead to bond issuers facing billions of dollars more in loses to bond insurers. MBIA contends that Countrywide violated representations and warranties when the subprime lender offered inaccurate information on the mortgages it originated. Analysts at Branch Hill Capital believe a court ruling in MBIA's favor could expose BofA to nearly $10 billion in additional losses tied back to reps and warranties made in contracts between banks and monoline insurers. The Association of Financial Guaranty Insurers went a step further: "We estimate that these BofA repurchase obligations aggregate in the range of $10 billion to $20 billion for our industry members alone" AFGI made that estimation not long after the banking giant sounded an alarm in a quarterly filing about reps and warranties litigation. In the filing, BofA discusses the potential financial exposure it faces as insurers push back against financial institutions when it comes to claims made in insurance contracts. MBIA is suing BofA and Countrywide to force the lender to buyback loans it insured for the big bank. On the other hand, Bank of America believes the causation standard should be higher. The bank said in a quarterly filing that "the repurchase claimants must prove that the alleged representations and warranties breach was the (actual) cause of the loss." The issue was scheduled to be heard in court this week, but has been rescheduled for early October. Write to: Kerri Panchuk.