We have previous reported on MBIA v. Countrywide and Syncora v. Countrywide, two cases proceeding before Justice Bransten in the New York Supreme Court’s Commercial Division (see here and here). This week, the parties to Syncora v. Countrywide announced the case would be settled for $375 million. As a recap, Syncora (like MBIA) alleged that Countrywide fraudulently induced Syncora to issue insurance agreements governing MBS transactions, and materially breached its warranties and obligations to repurchase.
In January, 2012, Justice Bransten ruled in both the Syncora and MBIA cases that (i) for the fraud claims, plaintiffs must show only that “misrepresentations by the defendant(s) induced [plaintiffs] to issue insurance policies on terms to which [they] otherwise would not have agreed and that [plaintiffs are] not required to establish a direct causal link between defendant(s) misrepresentations and [plaintiffs'] claims payments made pursuant to the insurance policies at issue” and (ii) for the breach of warranty claims, plaintiffs need only show that defendants’ “breach of warranties in the issued insurance policies’ transaction documents increased the risk profile of the issued insurance policies and [plaintiffs are] not required to establish a direct causal connection between proven warranty breaches by [defendants] and [plaintiffs'] claim payments made pursuant to the insurance policies at issue.” The Syncora decision is here. As we reported, the Countrywide defendants appealed the decisions in both cases, and Syncora also appealed, seeking a ruling that it need only prove that Syncora’s interest in the loan was “materially or adversely affected” in order to establish a breach of warranty.
In a press release dated July 17, 2012, Syncora announced the settlement. This announcement revealed that the settlement covered not only the five transactions at issue in the litigation, but also included a release of Syncora’s claims as to nine other MBS transactions:
Syncora Holdings Ltd. (“Syncora”) today announced that its wholly owned, New York financial guarantee insurance subsidiary,Syncora Guarantee Inc. (“Syncora Guarantee” or the “Company”), had settled its RMBS-related claims and other claims, with Countrywide Financial Corporation, Bank of America Corporation and affiliates thereof.
In return for releases of all claims the Company has against Countrywide and Bank of America Corporation arising from its provision of insurance in relation to five second lien transactions that were the subject of litigation and all of the Company’s claims in relation to nine other first and second lien transactions, the Company received a cash payment of $375 Million. In addition, in an effort to terminate other relationships between the parties, the Company transferred assets to subsidiaries of Bank of America Corporation and subsidiaries of Bank of America Corporation transferred or agreed to transfer to the Company certain of the Company’s and Syncora’s preferred shares, surplus notes and other securities.
According to reports, during an analyst call, BofA said that the settlement resolved about 20 percent of its $3 billion in reported put-back claims by bond insurers, or about $600 million in claims. For more news and analysis, see What does Syncora’s $375 million BofA deal mean for MBIA? and Bank of America, Syncora settle mortgage fraud lawsuit.