These are the twin pillars of liability that MBIA has been trying to establish in order to obligate BAC to repurchase all loans with respect to which BAC breached a R&W, irrespective of whether that R&W breach caused a loan to go into default (as opposed to some intervening event that caused default), and whether or not the loan is still performing. See pps. 30-34 of the Court's opinions handed down today at NY 1st Department Appellate Court Opinions.
The financial press initially reported only that the appellate court reversed Justice Bransten on the availability of rescissory damages. (One could only have been supplied a headline by someone, such as BAC, and not have read the opinion in order to have reported this holding as only a loss for MBIA.) This is a method of recovering damages, and is unrelated to the big win that MBIA obtained on liability in the opinion. Millions of MBIA shares were traded at cascading prices before this misleading news report was corrected to focus on the more important liability portion of the holding.
What this reversal on rescissory damages means is that MBIA cannot ask Justice Bransten to place MBIA in the position it would have been in had it not written the insurance policies on the trusts. Nonetheless, MBIA is still entitled to prove that BAC breached its obligation to repurchase loans that breached R&Ws, which entitles MBIA to establish that if BAC had not breached this repurchase obligation, MBIA would not have been required to make payments under its insurance policies.
This is the same showing that Assured Guaranty successfully made against Flagstar Bank in its trial before Judge Rakoff. So if you understand what it was Assured Guaranty was able to accomplish against Flagstar, you will understand why this holding remains a big win for MBIA.
NB: this blog is not intended to be investment advice, and should not be relied upon by anyone to constitute investment advice. Investing is a tough game, and everyone must do and own their own work, because you will certainly own your investments.
Disclosure: long MBI. Follow me on twitter.