Bank of America pays $1.8bn to settle mortgage insurance row

Tim Wallace
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BANK of America yesterday agreed to pay $1.8bn (£1.2bn) to insurer MBIA to end a lengthy row over repackaged mortgage securities sold and insured in the boom years.

MBIA had demanded Bank of America buy back bad home loans that it insured, while the bank had objected to MBIA’s plan to split in two to separate its municipal bond and structured finance units.

The settlement will hit the bank’s profits to the tune of $1.5bn, but it also improves its capital ratio by cancelling swaps and it gives the bank the right to buy 4.9 per cent of the insurer.

MBIA’s stocks soared 45 per cent on the settlement as it could have run out of cash without the deal.

But a new spat has threatened to open as New York state’s district attorney said he intends to sue Bank of America and Wells Fargo for allegedly breaking new rules on how mortgages are serviced.