Ambac Financial Group has sued Bank of America (BoA) for “massive fraud” that cost the group multiple millions of losses when the mortgage securities went sour[1]. The complaint was filed on September 28, 2010 in the New York State Supreme Court the same day that two investment funds’ lawsuits against Countrywide were dismissed with the explanation that “the complaint does not raise an inference that the defendants intended to defraud the plaintiffs” and that the suit could not proceed without establishing such intent[2].
Ambac, however, claims that a full 97 percent of the loans it reviewed did not meet the lender’s own underwriting guidelines at the time that they were made and that as a result, Countrywide has an obligation to either buy back the loans or bring them into compliance. Citing “pervasive misrepresentations and breaches [that] pierce the very heart – and amount to a total repudiation – of the bargain struck by the parties,” Ambac is bringing suit against BofA, which purchased Countrywide in 2008, in order to “redress Countrywide’s massive fraud.” Ambac claims to have paid $466 million in claims after $2 billion in Countrywide loans, about the quality and underwriting guidelines of which Ambac claims to have been misled, went into default or were written off.
Before the 2008 mortgage securities fiasco, Ambac was the second-largest U.S. bond insurer. Now, its liquidity could run out before the second quarter of 2011. Following the filing of the lawsuit, Ambac’s shares on the New York Stock Exchange fell one cent and BofA’s shares fell 9 cents.
[1] http://www.reuters.com/article/idUSN2927683320100929?type=marketsNews
[2] http://www.foxbusiness.com/markets/2010/09/28/countrywide-prevails-ny-lawsuit/
