Joseph W. Brown
24 Penwood Road
Bedford Corners, NY  10549
 
Dear Jay:
 
         On behalf of MBIA Inc. (the "Company") and the Board of Directors (the
"Board"), we want to thank you for your leadership and outstanding efforts on
behalf of the Company during the past five years. We are pleased that you have
agreed to remain with the Company to effect a smooth transition of your duties
and responsibilities over the next several years. We recognize that this
deviates from your original intention as to your period of service for the
Company, and the Company has designed a compensation plan and program to provide
you recognition for the commitment that you are making and as an incentive for
you to continue your excellent efforts on behalf of the Company.
 
         1. Term of Employment. In order to facilitate a smooth transition in
connection with Gary Dunton's promotion to Chief Executive Officer of the
Company, the Company wishes to continue your employment with the Company until
the earlier of May 31, 2007 and the date of the Company's May 2007 annual
shareholders meeting (the "Termination Date"). The period from the date hereof
through the Termination Date, or if earlier the date of the termination of your
employment with the Company as contemplated hereby, shall be referred to as the
"Employment Period". This letter agreement shall supercede the terms of your
January 7, 1999 letter agreement with the Company.
 
         2. Title, Reporting Relationship and Duties. Commencing on the date
hereof, you will cease serving as Chief Executive Officer of the Company, but
continue to serve as executive Chairman of the Company, reporting solely and
directly to the Board. Your duties and responsibilities will be commensurate
with your title as executive Chairman, and will include assisting Gary Dunton in
assuming his new responsibilities and duties as Chief Executive Officer of the
Company.
 
         3. Compensation. Your compensation package with respect to the
Employment Period will include a base salary, an annual performance bonus and
the special one-time restricted stock grant described below.
 
              (a) Base Salary. Commencing on the date hereof and for the
         duration of your Employment Period, your annualized base salary will be
 
<PAGE>
 
         $720,000. This reduced annual base salary reflects your change in title
         and duties from this date forward and will be paid in accordance with
         the Company's customary payroll practices.
 
              (b) Annual Performance Bonus. With respect to the Employment
         Period, you will be entitled to receive a performance-based annual cash
         bonus in accordance with the terms and conditions of the Company's
         Annual and Long-Term Incentive Plan (or any successor plan thereto)
         (the "Incentive Plan"), to the extent that the applicable performance
         criteria are satisfied. Your maximum annual bonus opportunity will be
         300% of your base salary. Your bonus will be determined by the Board in
         accordance with the generally applicable provisions of the Incentive
         Plan, as in effect from time to time, including the manner in which the
         performance objectives will be obtained and the determination and
         certification of your annual cash bonus.
 
              (c) Long-Term Incentive Compensation. In light of the fact that
         your services for the Company are expected to terminate on the
         Termination Date, the Company and you have agreed that it would not be
         appropriate for you to receive new awards under the Company's stock
         option plan or standard long-term incentive compensation plans and
         programs, pursuant to which the Company currently makes annual awards.
         Accordingly, the one-time award of performance-based restricted stock
         referenced in Section 3(d) below is intended to replace your right or
         opportunity to participate in any further long-term incentive
         compensation awards or programs during the Employment Period.
 
              (d) Restricted Stock. The Company recognizes that you have
         recently been granted an award of restricted stock subject to the terms
         of the Restricted Stock Award Agreement, dated as of February 10, 2004,
         between you and the Company (the "Award Agreement"), in recognition of
         your contributions to the Company's success for the period through
         December, 2003, and as an inducement for you to continue your excellent
         performance on behalf of the Company. To induce you to commit yourself
         to employment with the Company through the Termination Date, you will
         be granted an additional award of 200,000 Company shares of restricted
         stock which may not vest prior to the end of the Employment Period and
         the full vesting of which is contingent upon the achievement of
         substantial increases in the Company's book value, as modified, in a
         manner consistent with past long-term compensation practices, to
         eliminate the positive or negative effect of certain items over a
         period that may extend well beyond the Termination Date. The terms and
         conditions of this additional award shall be set forth in our award
         agreement of even date herewith, which in all events shall govern such
 
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<PAGE>
 
         restricted stock award notwithstanding anything to the contrary herein
         or elsewhere. You agree and acknowledge that, pursuant to such award
         agreement, your right to receive the benefit of the restricted stock
         award referenced herein shall be subject to your not voluntarily
         terminating your employment prior to the Termination Date, other than
         in connection with a Constructive Termination Without Cause or
         following a Change of Control.
 
         4. Modifications to Outstanding Awards.
 
         (a) Stock Options. Reference is made to your stock option agreements
with the Company dated as of January 7, 1999, December 9, 1999, January 11,
2001, February 7, 2002 and March 12, 2003 (with respect to the grant effective
as of February 12, 2003) (the "Option Agreements"). Each of the Option
Agreements is hereby amended to reflect the following terms with respect to your
outstanding stock options:
 
              (i) Subject to your continued employment with the Company through
         the Termination Date, all of your then outstanding stock options under
         the Option Agreements shall become fully vested and exercisable (to the
         extent not vested and exercisable prior to the Termination Date) on the
         Termination Date.
 
              (ii) Subject to your continued employment with the Company through
         the Termination Date, each of your then outstanding stock options shall
         remain exercisable until the earliest of (a) May 31, 2012, (b) the
         second anniversary of the first date following the Termination Date on
         which the Company's common stock closes at a trading price that is (1)
         greater than or equal to $90 per share and (2) greater than or equal to
         150% of the closing price on the Termination Date, and (c) the
         expiration of the original term with respect to each such stock option
         as provided under the applicable Option Agreement. For purposes of this
         clause (ii), the provisions of the Section of each Option Agreement
         titled "Adjustments for Changes in Structure and Special Transactions"
         shall be applicable and such Section of each Option Agreement shall
         remain in full force and effect for all other purposes.
 
              (iii) In the event that, prior to the Termination Date, your
         employment is terminated by the Company other than for Cause, by you in
         a Constructive Termination Without Cause or as a result of your
         Disability, the vesting and exercisability terms with respect to your
         stock options shall be determined as if you remained employed with the
         Company through the Termination Date (including, without limitation,
         for purposes of Paragraphs 4(a)(i) and 4(a)(ii) above).
 
              (iv) In the event that you voluntarily terminate employment prior
         to the Termination Date (other than due to Disability, in a
         Constructive Termination Without Cause or upon or following a Change of
 
                                       3
<PAGE>
 
         Control), (x) all of your options that are unvested as of your
         termination date shall be cancelled and forfeited and, (y)
         notwithstanding the fact that you will have met the conditions to
         retire under such Option Agreements, each of your then vested options
         shall remain exercisable only until the earlier of (a) the second
         anniversary of your termination of employment date and (b) the
         expiration of the original term with respect to each such stock option
         as provided under the applicable Option Agreement.
 
Except as expressly provided in this Paragraph 4(a), the terms of your Option
Agreements shall continue in full force and effect. For purposes of this letter
agreement, the terms "Cause", "Change of Control", "Constructive Termination
Without Cause", and "Disability" shall each have the meanings assigned to such
terms under the applicable Option Agreement.
 
         (b) February 2003 MBV and Restricted Stock Awards. Based on the fact
that the Company's share price has appreciated by more than 50% since the date
of your February 12, 2003 MBV award and restricted stock award (the "February
2003 Awards"), the Board has determined that such February 2003 Awards will
automatically vest (to the extent not previously vested) on the Termination
Date, subject to your continued employment through the Termination Date.
 
         (c) Long-Term Awards Generally. Reference is made to (i) your
restricted stock award agreements dated as of January 11, 2001, February 7, 2002
and February 12, 2003, (ii) your MBV awards dated as of February 7, 2002 and
February 12, 2003, and (iii) your January 11, 2001 MBV award that was converted
into 28,739 shares of restricted stock as of February 10, 2004 (collectively,
the "LTI Awards"). With respect to each of your outstanding LTI Awards, in the
event that, prior to the Termination Date, your employment is terminated by the
Company other than for Cause, or by you in a Constructive Termination Without
Cause, such LTI Awards shall continue to vest in accordance with their terms as
if you remained employed with the Company through the Termination Date
(including, without limitation, for purposes of Paragraph 4(b) above).
 
         (d) Certain Provisions. Upon the occurrence of a Change of Control or
any termination of your employment with the Company due to death, disability,
retirement or termination by the Company without Cause (constructively or
otherwise, all as defined in the Option Agreements), then notwithstanding
anything to the contrary in any Option Agreement, there shall be no requirement
that you continue to hold either any shares of the stock of the Company or the
securities of any successor in interest to the Company.
 
                                       4
<PAGE>
 
         5. Benefits. During the Employment Period, you will continue to receive
benefits at a level, and on terms and conditions, no less favorable to you than
those applying to any other Company senior executive. You will be entitled to
four weeks vacation per year, prompt reimbursement of all properly documented
business expenses and of legal and consulting expenses incurred in connection
with entering into these arrangements.
 
         6. Change of Control Protection. The Award Agreement contains a
provision designed to hold you harmless, on an after tax basis, from any excise
tax you incur in connection with your employment under section 4999 of the
Internal Revenue Code of 1986, as amended. For the avoidance of doubt, any
benefits payable to you under the terms of this Agreement will be taken into
account in determining whether, and to what extent, you are entitled to receive
any benefits under such provision. Nothing herein shall affect that certain Key
Employee Employment Protection Agreement, dated as of January 7, 1999, between
you and the Company, which remains in full force and effect.
 
         7. Indemnification. If you are made a party, or are threatened to be
made a party, to any threatened or actual action, suit or proceeding, whether
civil, criminal, administrative, investigative, appellate or otherwise (a
"Proceeding") by reason of the fact that you are or were a director, officer,
employee, agent, manager, consultant or representative of the Company or are or
were serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans, or
if any claim, demand, request, investigation, dispute, controversy, threat,
discovery request or request for testimony or information (a "Claim") is made,
or threatened to be made, that arises out of or relates to your service in any
of the foregoing capacities, then you shall promptly be indemnified and held
harmless by the Company to the fullest extent legally permitted or authorized by
the Company's certificate of incorporation, bylaws or Board resolutions or, if
greater, by the laws of the State of Connecticut, against any and all costs,
expenses, liabilities and losses (including, without limitation, attorneys'
fees, judgments, interest, expenses of investigation, penalties, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement) incurred
or suffered by you in connection therewith, and such indemnification shall
continue as to you even if you shall have ceased to be a director, member,
employee, agent, manager, consultant or representative of the Company or other
entity and shall inure to the benefit of your heirs, executors and
administrators.
 
         The Company shall advance to you all costs and expenses incurred by you
in connection with any such Proceeding or Claim within 15 days after receiving
written notice requesting such an advance. Such notice shall include an
undertaking by you to repay the amount advanced if you are ultimately determined
not to be entitled to indemnification against such costs and expenses. In the
 
                                       5
<PAGE>
 
event you request indemnification or advancement of costs and expenses as
provided in the preceding paragraph of this Paragraph 7, a determination as to
your entitlement to indemnification shall be made in good faith pursuant to the
procedures set forth in Section 33-775 of the General Statutes of Connecticut as
in effect on the date hereof. Such determination shall be made promptly in order
to permit timely indemnification pursuant to this Paragraph 7 including, without
limitation, the advancement of costs and expenses.
 
 
         Neither the failure of the Company (including the Board, independent
legal counsel or stockholders) to have made a determination in connection with
any request for indemnification or advancement that you have satisfied any
applicable standard of conduct, nor a determination by the Company (including
the Board, independent legal counsel or stockholders) that you have not met any
applicable standard of conduct, shall create a presumption that you have not met
an applicable standard of conduct.
 
 
         During your employment with the Company and for a period of six years
thereafter, to the extent that the Company shall keep in place a directors and
officers' liability insurance policy (or policies) providing comprehensive
coverage to any other active or retired senior executive or director, it shall
also maintain such coverage in effect for you.
 
 
         8. Early Termination Provisions. In the event that, prior to the
Termination Date, your employment is terminated by the Company other than for
Cause, or by you in a Constructive Termination Without Cause, you shall be
entitled to receive the salary and bonus compensation that you would otherwise
have been entitled to receive under Paragraphs 3(a) and 3(b) above in respect of
the period from the date of your termination through the Termination Date, to
the extent not previously paid, in cash and at the time that you would have
received such amounts had your employment continued through the Termination
Date. For purposes of this Paragraph 8, upon a termination of your employment by
the Company other than for Cause, or by you in a Constructive Termination
Without Cause, your bonus amounts with respect to each of calendar years 2004,
2005 and 2006 (which bonus amounts are scheduled for payment in the first
quarter of 2005, 2006 and 2007, respectively) shall be determined by the Board
at the time of such termination of employment (to the extent that a bonus for
one or more of such calendar years has not been paid prior to your termination
date). Each annual bonus amount determined by the Board pursuant to the
preceding sentence shall equal no less than the greater of (i) 50% of your
maximum bonus opportunity as set forth in Paragraph 3(b) above and (ii) the
average of your actual annual bonus payments for the two years preceding your
termination of employment.
 
 
         9. Post-Termination Restrictive Covenants. You hereby agree that during
the Employment Period and for two years thereafter, you shall not (i) directly
or indirectly personally hire, personally solicit or personally help another
person hire or solicit any Company employee, (ii) directly or indirectly induce
or encourage any Company employee to terminate employment with the Company,
 
                                       6
<PAGE>
 
(iii) direct any business opportunities developed on behalf of the Company for
your own benefit or for the benefit of any of your future employers, (iv)
directly or indirectly solicit any of the Company's customers to use the
services of another entity in lieu of those of the Company, or (v) seek or
accept employment with any of the entities (or their affiliates) listed on
Appendix A attached hereto or with any other entity created after the date
hereof that materially competes with any of the Company's substantial business
operations.
 
 
         Please confirm your acceptance of the terms set forth in this letter
agreement by signing below.
 
 
Sincerely,
 
 
 
     /s/  David C. Clapp
--------------------------------
David C. Clapp
Member of the Board of Directors
 
 
 
    /s/  Kevin D. Silva
---------------------------------
Kevin D. Silva
Vice President & Chief Administrative Officer
 
 
 
Agreed and Accepted:   /s/  Joseph W. Brown
                    ---------------------------
                             Joseph W. Brown
 
 
Date: May 6      , 2004
     ------------
 
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<PAGE>
 
                                   APPENDIX A
 
 
ACE Guaranty Corp.
Ambac Assurance Corp.
CIFG
DePfa
Financial Guaranty Insurance Co.  (FGIC)
Financial Security Assurance (FSA)
Radian Asset Assurance Inc.
XL Capital
 
The above listed companies shall be deemed to include each of the subsidiaries
and affiliates of each of such companies, whether now existing or hereafter
created.
 
 
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