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MBIA Inc. Message Board

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  • nilsdegraaf nilsdegraaf Nov 14, 2010 5:32 PM Flag

    Materia or Not!

    Since there are so many loans in the pools, 400k plus, there are several good statistical tests available to check which R&W breaches, or combinations, have resulted in significantly higher losses.

    Let's try an easy to understand statistical approach:

    Material breaches should read like: "breaches that have significantly increased losses".

    Now, how to approach Bofa's claim that there are not that many material breaches?

    Step 1a is to describe Bofa's objective criteria how to define a material breach.

    Step 1b is to describe MBIA's objective criteria how to define a material breach.

    Step 2 is to apply these criteria to the 400k plus loans.

    Now the dispute is only on those loans where there is a difference.

    Step 3 is to calculate the losses in the following pools of mortgages:

    - the clean pool according to Bofa;
    - the disputed pool, i.e. ineligible according to MBIA, eligible according to Bofa.

    If the losses in the disputed pool are significantly higher than in the clean pool then Bofa has a problem. Then Bofa has to redefine its criteria until the two pools have equal loss severities.

    I am not saying this the right legal approach as you can argue that breaches have to be resolved according to the contract anyway. But that is another question.

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