Looking back, the housing industry is totally Scrooged

Looking back, the housing industry is totally Scrooged

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BofA claims MBIA dropped the ball on Countrywide mortgage bond insurance

Lawyers for Bank of America (BAC) claim insurer MBIA knew what it was getting when it agreed to insure mortgage bonds containing subprime loans originated by Countrywide.

The whole concept behind MBIA's major suit against Countrywide and BofA, which acquired Countrywide in 2008, is that the lender was fraudulent in representing the quality of loans that the insurer ended up facing losses on by agreeing to insure the mortgages in case of default.

In a motion for the court to rule in favor of Countrywide, BofA alleges that MBIA once had a practice of performing due diligence on mortgage loans, but failed to do so in this case.

"[D]espite its own past practices, and the well-known risks associated with the underlying loans, MBIA made a business decision to stop conducting any loan-level due diligence prior to insuring the securitizations," Countrywide (BofA) said in its motion.

BofA also claims that MBIA never took note of input from third-party due diligence providers.

MBIA, on the other hand, asked the court for summary judgment in its favor and says the test of whether BofA has to repurchase Countrywide loans is based on whether it can be proven "there was a material and adverse impact on MBIA's interests."

MBIA says this should be the standard used whether or not the loans actually defaulted or became delinquent.

"Defendant Countrywide Home Loans breached representations and warranties with respect to at least 56% of the loans in the 15 securitizations of residential mortgages at issue in this action and that such breaches had a material and adverse impact on MBIA's interests in the affected mortgage loans," MBIA said in its own motion with the court.

In both motions, the parties are asking the court to rule in their favor on fraud claims, breach of contract and indemnification claims originally filed against Countrywide by MBIA.

kpanchuk@housingwire.com

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