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Bank of America Settlement May Bode Well for Mortgage Insurers

Amanda Alix
July 24, 2012

The mortgage crisis has certainly taken its toll on the mortgage insurance industry, and, despite some bright spots, these companies continue to struggle. Some recent lawsuit settlement news may bring some cheer, however, as it just might signal a turning of the tide in favor of insurers battling banks over toxic mortgage loans.

Plenty of grist for the lawsuit mill
Bank of America
(NYSE: BAC  ) recently settled a lawsuit with Syncora Guarantee, a bond insurer that sued the bank over securities backed by toxic Countrywide mortgage loans. The $375 million settlement of a suit based on the allegation that Countrywide masked the poor quality of the securities to get them insured is a win for the industry -- not because the insurers are being reimbursed in totality for their losses, but because judges are ruling that the cases must be heard, and because at least some banks are negotiating and paying up, albeit without admitting fault.

Bank of America, which faces boatloads of suits alleging fraud in mortgages written by its 2008 acquisition, is also embroiled in litigation with MBIA (NYSE: MBI