Ambac sues Bank of America over mortgages

AMBAC Financial Group has sued Bank of America Corp, alleging a “massive fraud” that caused it several hundred million dollars of losses from insuring mortgage securities that went sour.

In a complaint filed Tuesday in the New York State Supreme Court in Manhattan, Ambac said the bank’s Countrywide mortgage unit misled it about loan quality and underwriting guidelines when sponsoring $16.7bn of residential mortgage-backed securitizations between 2004 and 2006.

According to the complaint, the transactions concerned home equity loans, and contained more than 268,000 loans that backed the $16.7bn of securities, some of which Ambac insured.

Ambac said it has paid $466m on claims after an “extraordinary” $2bn of the loans went into default or were written off.

It also said that 97 per cent of the 6,533 loans it has reviewed did not meet Countrywide’s underwriting guidelines, and that Countrywide has refused to meet its obligation to buy back some of these loans or bring them into compliance.

Bank of America, which bought Countrywide in July 2008, and Ambac both declined to comment yesterday.