BofA tells court Ambac can’t prove $2.7 billion mortgage case

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Bond insurer Ambac Financial Group Inc can’t prove its $2.7 billion case against Bank of America for troubled mortgage-backed securities on evidence that BofA was a ‘bad actor’ before the financial crisis of 2008, an attorney for the bank in New York state said Wednesday. to research.

Ambac is seeking to recover more than $2 billion in insurance claims it paid to cover investor losses on securities backed by 375,000 home loans from Bank of America’s Countrywide unit. As the trial in the 12-year-old case opened on Wednesday, a lawyer for the bond insurer argued Countrywide’s own records showed it consistently approved low-quality mortgages and put investors at risk and insurers.

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But this type of evidence is not enough to show that the bank breached the insurance agreements it entered into with Ambac, the bank’s lawyer, Enu Mainigi, said in his opening statement. Courts have ruled in other cases that insurers must prove such agreements were breached on a loan-by-loan basis, she said.

Mainigi also said that it was Ambac that had taken on more risk in order to take advantage of the pre-2008 optimism in the housing market, until the financial crisis undermined the ability of borrowers to repay their loans.

« Now Ambac is here to ask this court to find that all of this is somehow Countrywide’s fault, » she said.

Between 2004 and 2006, Ambac insured Countrywide’s loan-backed securities worth $25 billion. The insurer says 80% of the loans were the product of poor underwriting standards or had other deficiencies that violated insurance agreements, and that Bank of America did not redeem the loans as required.

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Ambac attorney Michael Carlinsky said in his opening statement that the bond insurer was « decimated » by its exposure to Countrywide’s distressed mortgage-backed securities.

The insurer ultimately paid more than $2 billion in claims to cover investors’ losses after the mortgages failed, and is seeking $2.7 billion including interest.

New York Supreme Court Justice Robert Reed is overseeing the trial, which is expected to last several weeks.

At its height, Ambac was the second-largest bond insurer in the world, having guaranteed the timely payment of interest and principal on more than $550 billion of debt.

The case is the largest of several lawsuits brought by Ambac against issuers of residential mortgage-backed securities. The company filed for bankruptcy in 2010, after the housing market collapsed, and emerged in 2013.

Bank of America spent years cleaning up the mess of the 2008 crisis. It paid back a $45 billion taxpayer bailout and was hit with more than $76 billion in fines in the decade that followed the real estate crash. (Reporting by Jody Godoy; Editing by Tom Hals, Lincoln Feast, Deepa Babington and Leslie Adler)