7/29/2019 Ambac Sues Bank of America Over Countrywide Bonds

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Ambac Sues Bank of America Over CountrywideBondsBy Karen Freifeld & David Mildenberg - Sep 29, 2010 4:46 PM ET

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Ambac Assurance Corp. sued Bank of America Corp. over $16.7 billion of mortgage-backed securities, saying the

banks Countrywide Financial Corp. unit fraudulently induced Ambac to insure bonds backed by improperly made

loans.

Ambac found that 97 percent of 6,533 loans it reviewed across 12 securitizations sponsored by Countrywide didnt

conform to the lenders underwriting guidelines, according to the complaint filed yesterday in New York state

Supreme Court. Many of the loans were made to borrowers with limited or no ability to meet their payment

obligations, Ambac said.

The lawsuit follows negotiations between Bank of America, which acquired Countrywide in 2008, and Ambac over

mounting losses caused by loans made during the early 2000s as U.S. housing prices soared. Ambac has paid $466

million in claims from more than 35,000 Countrywide home-equity loans that have defaulted or been charged off,

according to the lawsuit.

Bank of America probably didnt settle because they didnt want to swallow the amount of money that its going to

take to satisfy Ambac, saidAlan White, a law professor at Valparaiso University who specializes in housing industry

issues. Nobody wants to be left holding the bag.

Shirley Norton,a spokeswoman for the Charlotte, North Carolina-based lender, and Ambac spokesman Pete Poillon,

declined to comment on the lawsuit.

Repurchase of Billions

Repurchases of home loans from buyers and insurers of mortgage securities have already cost the four biggest U.S.

lenders $9.8 billion, according to Credit Suisse Group AG. Bank of America has said it faces $11.1 billion of

unresolved claims.

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7/29/2019 Ambac Sues Bank of America Over Countrywide Bonds

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MBIA Insurance said it paid more than $459 million in claims stemming from losses on Countrywide-sponsored

mortgage- backed bonds, according to a 2008 lawsuit in New York State Supreme Court.

The Ambac case involves 12Countrywide-sponsored pools of home loans that were created from 2004 to 2006,

including nine involving home equity lines of credit and three that involve fixed-amount second-lien loans.

Bank of America should repurchase as much as $20 billion in home loans that were based on wrong or missing

information, the Association of Financial Guaranty Insurers said in a Sept. 2 letter to Bank of America Chief Executive

OfficerBrian Moynihan. More than half of the soured home-equity credit lines and residential mortgages created from

2005 through 2007 that insurers examined were candidates for repurchase, the group said.

Countrywide Losses

Bank of America has reported $7.6 billion in losses from home-equity loans over the past four quarters, stemming

from slumping U.S. home prices. Losses related to Countrywide loans, including repurchase requests, will continue

through mid-2012, Moynihan said at a Sept. 14 investor conference. Bank of America in 2008 acquired Countrywide,

the largest U.S. home lender at the time.

Theyre manageable numbers, not pleasant numbers, but manageable numbers, Moynihan said.

Moynihan and other Bank of America officials have said the bank must review each loan to verify whether it met

company guidelines. That process has delayed Ambacs demands that Bank of America repurchase the loans,

causing a breach of contract, according to the lawsuit.

Ambac said in its complaints that its entitled to redress for Countrywides massive fraud and pervasive and material

breaches, including damages sufficient to place Ambac in the same position it would have been in had it never

insured the transactions.

The case is Ambac Assurance Corp. v. Countrywide Home Loans Inc., 651612/2010, New York state Supreme Court

(Manhattan).

To contact the reporters on this story:Karen Freifeld in New York at kfreifeld@bloomberg.netDavid Mildenberg in

Charlotte at dmildenberg@bloomberg.net

To contact the editor responsible for this story: David E. Rovella in New York atdrovella@bloomberg.net; Alec

McCabe at amccabe@bloomberg.net.

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