On May 2, MBIA Insurance Corporation announced that it reached a settlement with Flagstar Bank in its lawsuit arising out of $1 billion in Flagstar-sponsored MBS that MBIA insured. MBIA sued Flagstar for breach of warranty under the insurance agreements, breach of the repurchase protocol, material breach of the insurance agreements, and reimbursement. MBIA alleged that representations and warranties made by Flagstar about the insured mortgage loans and about Flagstar’s operations and quality-control procedures were false. Under the terms of the Settlement Agreement, MBIA will receive $110 million in cash and other consideration in return for termination of the pending lawsuit. Press Release.
MBIA Insurance Corporation
New York Appellate Court Rejects MBIA’s Pursuit of Rescissory Damages
On April 2, New York’s First Department appellate court ruled that MBIA Insurance Corporation may not obtain rescissory damages in its breach of contract action against Countrywide because MBIA had freely given up its right to seek rescission in the contracts under which it sued. The court also ruled that if MBIA were to prevail on its claims for breach, Countrywide could be compelled to repurchase breaching loans even if those loans are not yet in default. The court concluded that the language in the agreements at issue permitted repurchase if MBIA’s interests were “materially and adversely” affected and that such an effect could arise even if the loans had not defaulted. Order.
DC Circuit Affirms Dismissal of MBIA’s Claims Against FDIC in IndyMac Litigation
On March 8, the United States Court of Appeals for the District of Columbia Circuit affirmed the district court’s dismissal of MBIA Insurance Corp.’s (MBIA) claims against the Federal Deposition Insurance Corp.’s (FDIC) arising out of mortgage-backed securities backed by IndyMac Bank, F.S.B (IndyMac) loans. The case relates to three securitizations backed by IndyMac loans and supported by MBIA-issued insurance policies. MBIA argued that the FDIC, as conservator of the successor bank to IndyMac, had “approved” IndyMac’s Pooling and Servicing Agreements under FIRREA, and then breached obligations adopted from IndyMac to repurchase loans “put back” from the securitizations. The Court rejected MBIA’s reading of FIRREA, affirming the decision of the district court that approval under the statute required a formal, written acknowledgement. Decision.
MBIA Sues Flagstar Bank In Connection With Insurance Of $1 Billion in RMBS
On January 11, monoline insurer MBIA Insurance Corp. sued Flagstar Bank and its affiliates for breach of contract in the United States District Court for the Southern District of New York. MBIA alleges that it insured $1 billion in RMBS for Flagstar in 2006 and 2007. The complaint claims that Flagstar made misrepresentations about the allegedly defective loans underlying the securities. Further, MBIA alleges it has made claims payments in excess of $165 million, and that Flagstar has breached its contractual obligation to repurchase the allegedly defective loans. Complaint.