NEW YORK — A judge in New York state court Tuesday delivered an important ruling in favor of mortgage-bond insurers in a case over mortgage-backed securities Countrywide Financial had insured by MBIA Inc.
In the ruling, highly anticipated among banks and bond-insurers, New York Supreme Court Justice Eileen Bransten said MBIA doesn't have to prove the direct correlation between allegedly fraudulent statements made by Countrywide and the souring of the mortgage bonds.
MBIA is suing Countrywide, now owned by Bank of America Corp., for fraud in having it insure the mortgage bonds, which imploded when the housing bubble burst.
A representative for MBIA wasn't immediately able to comment. Bank of America also wasn't immediately available to comment.
Shares of MBIA closed up 8.1% to $12.53, spiking sharply just before the close. Bank of America ended up 4.3% at $5.80, sliding back after rising as high as $5.88 late in the session.
The ruling says MBIA must still prove that the Countrywide induced MBIA to insure the bonds with the fraudulent statements, but not that those allegedly fraudulent statements resulted in the bonds defaulting.
Bank of America, and other banks facing similar lawsuits from mortgage-bond insurers, argued that any statements that induced their insurers into contracts were not the reason the loans defaulted and therefore shouldn't be viewed as violating any contracts.
Mortgage-bond insurers suffered heavily after the mortgage bubble burst and caused widespread default in the bonds. Many have filed suits against the biggest sellers of mortgage-backed securities, hoping to reclaim some lost funds.