Countrywide Finance in the docks over fraudulent claims
Article source: www.ft.com
Legal action has been taken against the mortgage lender Countrywide Finance by the bond insurer, MBIA Insurance. The large insurer MBIA, is claiming that the mortgage lender Countrywide Finance deceptively brought it (MBIA Insurance)into pledging billions of dollars of Countrywide mortgage bonds that have cost the troubled bond insurer not less than $459 million.
As a result of this ongoing legal tussle, in the New York’s State Supreme Court, there have been many eyebrows raised concerning the scope of Bank of America’s exposure to impending legal and regulatory responsibilities mortgage lender, Countrywide Finance has brought upon itself. Needless to say, mortgage lender Countrywide Finance was recently acquired by the Bank of America this year.
The legal squalls which the California mortgage lender, Country Finance, faces have been filed by quite a number of borrowers and state’s attorney-generals who all claim that Countrywide Finance was involved in iniquitous and lending practices that were to be regarded with suspicion. However, in a startling twist of events, the Bank of America has remained tight-lipped about this.
In its filed complaint against mortgage lender Countrywide Finance, bond insurer MBIA Insurance stipulated that the mortgage lender had “erroneously represented” to both investors and MBIA Insurance that mortgage loans wrapped up into guaranteed bonds had been derived in strict conformity to its underwriting principles.
Moreover according to the suit filed by bond insurer MBIA Insurance, as Countrywide fought for a fair allocation in the market during the mortgage hype period, the mortgage lender had come up with a methodical pattern of disposing of its own set regulations for loan origination. This included lending to borrowers who could not afford to repay their loans on purpose, or those who were involved in fraudulent loan applications.
Countrywide Finance is being sued over guarantees for $14 billion it was provided by bond insurer MBIA Insurance, which included home equity loans and second line mortgages started off between 2005 and 2007.
It is through such colossus amounts of loans that exceedingly high levels of late payment and default has been seen while house prices continue to fall steadily.
Furthermore, as per bond insurer MBIA Insurance’s complaint, more than $459 million had been paid out - to Countrywide Finance- on its guarantees for these bonds that it was exposed to claims in excess of a number of hundred million dollars more.
In actual fact, bond insurers promise to make good on payments of interest and principal if an insured bond puts up with losses.
Bond insurer, MBIA Insurance requested the New York State Supreme Court to find out the damages that included lost profits and opportunities, legal fees and payments on recent and future claims under the bond guarantees.
The multi-billion dollar losses that MBIA Insurance walked through with great difficulty caused it to, unfortunately, lose its Triple-A Credit rating this year. The losses were on based on a range of compound structured securities it guaranteed in the credit hype period.
Bond insurers have been using their Triple-A Credit ratings for quite a number of years now, to assure payments on bonds issued by relatively safe issuers, among them being the municipal issuers. A substantial increase in foreseen terrible losses came about as a result of a move to guarantee more hazardously structured credit securities and mortgage debts over the last couple of years.
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