01/03/2012 07:49 pm ET Updated Jan 04, 2012

MBIA Lawsuit: Major Insurer's Case Against BofA Gets Easier

The bad news continues to pile up for Bank of America, with a New York state court issuing a ruling Tuesday that will make it easier for a major bond insurer to proceed with its closely-watched fraud lawsuit against the bank, according to Bloomberg.

The ruling lessens the burden of proof on MBIA, a large and troubled insurer that is seeking damages against Bank of America. Like many mortgage-bond insurers, MBIA took a big hit during the implosion of the real estate bubble, when cascading defaults caused the entire market to collapse. Mortgage lenders like BofA have been the target of much ire in the years since, with critics alleging that their aggressive circulation of subprime loans was one of the biggest factors contributing to the financial crisis.

In its $1.4 billion lawsuit against Bank of America, MBIA is trying to win back losses it suffered after guaranteeing bonds backed by mortgages from Countrywide Financial -- a firm that was later bought by Bank of America. MBIA says that Countrywide understood the loans backing those bonds -- some 368,000 loans in all -- to be riskier than it let on at the time.

Tuesday's ruling made MBIA's path to recouping its losses a little bit easier.

In the ruling, New York state judge Eileen Bransten said that MBIA only needs to prove that Countrywide misrepresented the quality of its loans, Bloomberg reports. MBIA does not have to prove that the misrepresentations caused it to incur losses, the court said.

The court's decision is seen as a significant victory for MBIA, whose stock price bounced on Wednesday to end the day with 8.1 percent gains, and a setback for Bank of America, which seems to be having nothing but trouble lately.

In November, in an unrelated case, a court imposed a $410 million settlement on Bank of America as a result of a class-action lawsuit related to overdraft fees. And two weeks ago, BofA reached a $335 million settlement to resolve accusations that Countrywide engaged in discriminatory practices toward black and Hispanic customers during the height of the real estate bubble.

Bank of America struggled throughout 2011, ending the year as the worst-performing stock on the Standard & Poor's 500. Along the way, the bank lost its ranking as largest in the country and suffered the public relations disaster of a debit fee debacle, along with many allegedly improper foreclosures.

CORRECTION: A previous version of this post mistakenly stated that a court had imposed a $410 billion settlement on Bank of America. The correct amount is $410 million, not $410 billion.