Ambac sues Bank of America over Countrywide mortgage bonds

Wed Dec 31, 2014 2:13pm EST
 
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By Jonathan Stempel

NEW YORK (Reuters) - Ambac Assurance Corp sued Bank of America Corp to recoup hundreds of millions of dollars of losses from insuring roughly $1.68 billion of securities backed at least in part by risky mortgages from the bank's Countrywide Home Loans unit.

In a complaint filed on Tuesday in a New York state court in Manhattan, Ambac accused Countrywide of lying about how well it underwrote so-called "pay option adjustable-rate mortgage negative amortization" loans that backed the securities.

The securities were issued in eight transactions between 2005 and 2007, Ambac said.

Ambac said it faced potential claims exceeding $600 million as of Oct. 31, and that pools of loans supporting its insured certificates had suffered $3.07 billion of losses by Nov. 30. It also said it would have never guaranteed payments had it known of Countrywide's deception.

"Countrywide's fraud is borne out by the transactions' dismal performance," said Ambac, which in September 2010 had filed a similar lawsuit against Bank of America. The second-largest U.S. bank acquired Countrywide in July 2008.

"We have resolved our significant legacy mortgage-related exposures, and we will analyze and address these most recent assertions by Ambac," Bank of America spokesman Lawrence Grayson said on Wednesday.

Ambac Assurance is part of Ambac Financial Group Inc.

The lawsuit shows how Charlotte, North Carolina-based Bank of America might still face legal liability over shoddy mortgage practices predating the 2008 financial crisis, even after agreeing in August with federal and state authorities to pay a record $16.65 billion penalty to settle civil fraud charges.   Continued...

 
The Bank of America building is shown in Los Angeles, California October 29, 2014.    REUTERS/Mike Blake