NEW YORK (AP) -- Bank of America and MBIA, a mortgage insurer, have reached a deal to settle a dispute over faulty mortgage securities issued during the U.S. housing boom, according to the Wall Street Journal.
As part of the settlement, Bank of America will pay MBIA $1.6 billion in cash, along with other compensation, provide MBIA with a credit line of $500 million and take a stake of about 5 percent in MBIA's holding company, the Journal said.
Bond insurers like MBIA and Ambac suffered big losses after the housing crisis. As defaults on mortgages rose, defaults on bonds backed by the troubled loans and insured by bond insurers also climbed. That led to a surge in payouts.
MBIA has been seeking damages from Bank of America for failing to repurchase ineligible loans that the lender had passed on to it, CEO Jay Brown wrote in a letter to shareholders March 19.
"So far justice has been delayed but, I do not believe that it will ultimately be denied." Brown wrote.
Bank of America has been busy trying to clear up the legacy of its bad home loans.
In January, the lender reached an $11.6 billion settlement with government mortgage agency Fannie Mae to settle claims resulting from mortgage-backed investments that soured during the housing crash. In April, Bank of America agreed to settle a class-action lawsuit led by pension funds and other investors who say they were misled about $350 billion worth of mortgage-backed investments they bought from Countrywide, a mortgage lender Bank of America bought in 2008.
MBIA surged $3.98, or 41 percent, to $13.87 as of 2:49 p.m. Eastern Daylight Time on word of the deal. Bank of America also rose. The lender's stock rose 52 cents, or 4.3 percent, to $12.76.
Kevin Brown, a spokesman for MBIA, didn't return calls from the Associated Press seeking comment. Scott Silvestri, a spokesman for Bank of America also didn't return calls seeking comment.
- Bank of America