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Goliath vs Goliath

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I was wondering when this was going to happen: Insurance companies sue BoA over "massive fraud" in mortgage-backed securities.

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Submitted by lambert on

Bloomberg:

Bank of America Inc.’s Countrywide Financial unit was sued by investors in mortgage-backed securities who alleged a “massive fraud” in a complaint filed today in New York state court.

TIAA-CREF Life Insurance Co., New York Life Insurance Co., and Dexia Holdings Inc. are among about a dozen plaintiff institutional investors in mortgage-backed securities issued by Countrywide’s subsidiaries, according to the complaint.

The investors claim they bought hundreds of millions of dollars of Countrywide mortgage-backed securities from 2005 to 2007 because they wanted conservative, low-risk investments and relied on term sheets, prospectuses and other materials provided by the firm that they say were recklessly or knowingly false, according to the complaint.

“In reality, Countrywide was an enterprise driven by only one purpose -- to originate and securitize as many mortgage loans as possible into MBS to generate profits for the Countrywide defendants without regard to the investors that relied on the critical, false information provided to them with respect to the related certificates,” according to the complaint.

Zero Hedge has a copy of the filing (in Scribd, what is it with econoblogs and proprietary data formats???). Here is the money quote:

"In carrying out its review of the approximately 19,000 Countrywide loan files, MBIA found that 91% of the defaulted or delinquent loans in those securitizations contained material deviations from Countrywide’s underwriting guidelines. MBIA’s report showed that the loan applications frequently “(i) lack key documentation, such as verification of borrower assets or income; (ii) include an invalid or incomplete appraisal; (iii) demonstrate fraud by the borrower on the face of the application; or (iv) reflect that any of borrower income, FICO score, debt, DTI [debt-to-income,] or CLTV [combined loan-to-value] ratios, fails to meet stated Countrywide guidelines (without any permissible exception)." The plaintiff counsel is Bernstein Litowitz, which was made famous from the WorldCom litigation. We doubt they will settle for a few measly pennies on the dollar.

Thank goodness Obama bailed the "savvy businessmen" out!

Submitted by Hugh on

Back during the healthcare debate some of us wondered how much exposure the insurance industry had to bad securities, even to the point of how much of the healthcare bill might be a stealth bailout for them. I seriously doubt they parked them in Treasuries and if they were invested anywhere else they almost certainly got burned. You have to wonder how many corps are being kept afloat by the bubbles the Fed is blowing.

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Submitted by wuming on

The word was that a lot of insurance companies took such bad losses that it reduced their ability to settle claims. Not sure how true that is, but it was the rumor in the 2008-2009 timeframe.