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Ambac sues Bank of America over mortgage bonds

New York-based Ambac Assurance has sued Bank of America to recover the losses from insuring and underwriting around $1.68bn of securities which were backed by the bank's Countrywide Home Loans unit.

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Ambac’s law suit filed in a New York state court in Manhattan, arises out of 17 Countrywide-sponsored residential mortgage-backed securitization transactions that were closed between 2004 and 2006.

The insurer said that Countrywide aggregated its mortagage-based loans into pools and sold them to a trust, which securitized the loans.

The securities issued by the trust were to be paid from cash flow of the pooled loans.

Ambac accused Countrywide of increasing the marketability of such securities by getting them guaranteed by monoline insurers.

As of 31 October, Ambac said it faced potential claims exceeding $600m and that pools of loans supporting its insured certificates had suffered $3.07bn of losses by 30 November, Reuters reported.

Bank of American spokesperson Lawrence Grayson told the news agency: "We have resolved our significant legacy mortgage-related exposures, and we will analyze and address these most recent assertions by Ambac."

Ambac had filed a similar lawsuit against the second largest bank in the US in 2010. It had then accused the bank’s Countrywide Financial Corporation unit of fraudulently inducing Ambac to insure bonds backed by improperly made loans.

Ambac had then reviewed around 6,533 loans across 12 securitizations sponsored by Countrywide. It found that 97% of the loans didn’t conform to the lender’s underwriting guidelines, according to Bloomberg.

According to the previous lawsuit, Ambac had paid $466m in claims from more than 35,000 Countrywide home-equity loans that had been defaulted or been charged off.


Image: The Bank of America Tower in New York City. Photo: courtesy of Jerchel / Wikipedia.