NU Online News Service, Sept. 30, 4:00 p.m. EDT
Ambac has sued Bank of America over the lending practices of Countrywide, the mortgage lending business the bank bought, saying the lender failed to follow its own standards when making loans.
The New York-based guarantee insurer filed suit on Tuesday in the Supreme Court of the State of New York in Manhattan, accusing Countrywide of not conforming to its own guidelines when underwriting loans "and in many cases [loans] were made to borrowers with little or no ability to repay their loans."
Ambac said it has identified 6,362 loans with an aggregate principal balance of $658 million that violated the company's guidelines.
The insurer wrote financial guarantee insurance policies for Countrywide that resulted in $1.95 billion in loan defaults or charge offs, leading to the New York-based Ambac making more than $466 million in claim payments.
Bank of America purchased Countrywide in 2007, and subsequently, Ambac is holding the bank responsible for Countrywide's transgressions.
Ambac said it is looking for the reimbursement of claim payments and other damages.
Ambac's division that wrote the policies, Ambac Assurance Corp., was placed in rehabilitation by Wisconsin's insurance commissioner in March of this year.
On Sept. 20, Freddie Mac, the federal mortgage lender, joined several bondholders in questioning a settlement between Ambac and certain banks that Freddie Mac believes would not be in its interests.
The lender has approximately $2.5 billion in insured policies with Ambac. The federal lender is seeking relief, along with the bondholders, from the settlement with other lenders.
In a report from Moody's, the rating agency noted that the Federal Housing Finance Agency is considering using its authority to force banks to buy back its bad loans.
"Should guarantors succeed in putting back material amounts on non-performing loans, their claims-paying resources would be significantly strengthened, which is credit positive," Moody's said.
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