Absent an extraordinary filing by a judge who's now on vacation for the rest of the year, there will be no New York state-court ruling on the crucial question of how many mortgage loans banks will have to buy back from bond insurers that issued policies on mortgage-backed securities. New York State Supreme Court Justice Eileen Bransten closed up shop Friday, leaving for a two-week vacation without issuing her hotly-anticipated MBS loss causation ruling in Syncora and MBIA's cases against Countrywide.

We should nevertheless have a ruling on loss causation before the end of this week.

In a case that has received far less attention than those before Bransten, U.S. District Judge Paul Crotty of Manhattan federal court told the bond insurer Syncora and EMC Mortgage (a onetime Bear Stearns subsidiary that's now a millstone around the neck of JPMorgan Chase) at an October 12 hearing that he intends to rule on loss causation before the end of the year. Given that Crotty also said he's going to be away between Christmas and New Year's, we should expect a ruling this week.

Syncora is represented in the EMC federal-court suit by Patterson Belknap Webb & Tyler, but its argument on loss causation is pretty much the same as the one its Debevoise & Plimpton counsel made in the state-court case against Countrywide. As Syncora detailed in its summary judgment motion, the monoline contends EMC misled it about the mortgages underlying the notes it agreed to insure. The bank breached its contract with Syncora from the moment the contract was signed, the insurer argues, so EMC is liable for buying back every deficient mortgage in the underlying pool of some 10,000 loans.

EMC's lawyers at Sullivan & Cromwell (like Countrywide's counsel from Goodwin Procter in the state-court case before Bransten) countered that mortgage issuers are liable only when their alleged breaches directly caused the underlying mortgage to default. Mortgages that ran into trouble because of the economic crisis, in the bank's view, don't qualify for put-back, even if there were underwriting deficiencies.

As I've said, MBS loss causation could swing tens of billions of dollars between the banks and the bond insurers. I can't wait to see which side gets a big, fat Christmas present from Crotty.

(Reporting by Alison Frankel)

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