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Report: MBIA wobbly, faces possible regulatory seizure

Bond insurer MBIA Insurance Corp., which faced numerous headwinds after insuring mortgage-backed securities, may soon be seized by the Superintendent of New York’s Department of Financial Services, the New York Post claims in a report.

The paper suggests the insurer is banking on stabilizing its cash flow by collecting billions in claims made against big financial institutions, including Bank of America, ResCap and Credit Suisse. Those collections would be MBIA’s preferred outcome for lawsuits filed against banks over alleged misrepresentations made in the presentation of mortgage bonds that MBIA guaranteed.  

The New York Post cites sources as saying MBIA has run out of time in collecting on those potential settlements and will soon be taken over by the state’s insurance regulator. The NY Post claims the company’s CEO Jay Brown has only four months to become liquid enough to prevent seizure.

MBIA rejected those claims and released a statement saying, “We believe that their story that the NYSDFS is preparing to seize MBIA Insurance Corp. is inaccurate and we have no information that such an action is imminent.”

HousingWire has been following MBIA’s fight over soured mortgage-backed securities for more than two years now.

Back in 2009, the bond insurer was able to transform itself in the wake of the housing meltdown by creating a spin-off insurance firm called National Public Finance Guarantee.

Major banks with bonds insured by MBIA pushed back against the transformation, suggesting it was a move designed to shield the insurer from claims on mortgage-related losses. Over time, banks backed away from the litigation, and the New York Supreme Court validated the restructuring in an opinion this year.

But MBIA remains entrenched in an ongoing fight with Bank of America over bonds the insurance firm backed for Countrywide. MBIA fought back in court over losses tied to those bonds and gained favorable rulings during the drawn out legal dispute.

The New York Post claims MBIA is counting on eventually securing a $3 billion settlement with BofA over its Countrywide unit, but it looks like BofA is looking at a number closer to $1 billion, the post claims. 

The New York Post also says Brown has expressed his intent to raise at least $3.6 billion from BofA, Ally Financial’s former unit ResCap, and Credit Suisse to buoy the firm’s cash flow.

The takeaway from the report is New York Post sources believe MBIA is running out of time, while the insurer continues to aggressively push for settlements with banks over mortgage losses to stabilize its financial footprint.

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