Allstate Sues Countrywide Over $700 Million In Mortgage-Backed Securities
December 28 2010 - 3:40PM
Dow Jones News
Insurance company Allstate Corp. (ALL) sued mortgage-originator
Countrywide Financial Corp., now a part of Bank of America Corp.
(BAC), over $700 million in residential mortgage-backed securities
that the insurer had invested in.
The suit also names Countrywide executives as defendants,
including Chairman and Chief Executive Angelo Mozilo, who agreed in
October to pay $67.5 million in penalties to settle civil fraud and
insider-trading charges from the housing crisis.
Allstate's suit, filed Monday in Manhattan federal court,
contains similar allegations other investors have raised with
mortgage creators, namely that lax underwriting standards are to
blame for the collapse of the investment vehicles.
"Countrywide began systematically to ignore the underwriting
standards it touted," the suit reads. "Countrywide was singularly
focused on increasing its market share, offloading the risk onto
Allstate and other institutional investors that purchased
securities backed by pools of Countrywide's mortgages."
The insurance giant says between 2005 and 2007 it purchased $700
million in securities from Countrywide, investments it thought were
"highly rated, safe securities." The suit alleges that, in fact,
Countrywide knew the loans were "a toxic mix of loans given to
borrowers that could not afford the properties, and thus were
highly likely to default."
Countrywide's mortgages turned into some of the worst mortgages
issued during the whole crisis, and ever since Bank of America
bought the lender in 2008, the bank has had to handle growing loan
losses.
The suit by Allstate is just the latest by a big name investor
to claim the mortgage companies and nation's banks misled investors
into buying what were in actuality highly risky financial
creations.
Lawsuits this year have been filed by big names including
Charles Schwab Corp. (SCHW), MBIA Inc. (MBI), Ambac Financial Group
Inc. (ABKFQ) and various Federal Home Loan Banks.
In October, investors including the Federal Reserve Bank of New
York, Freddie Mac (FMCC), Pacific Investment Management Co. and
BlackRock Inc. (BLK) all wrote a letter to Bank of America alleging
Countrywide had poor underwriting standards and demanding the bank
cover the losses. The bank is in discussions with the investors
over the letters, but the bank has maintained it would fight
investors who simply want to recoup losses.
A Bank of America spokesman declined to immediately comment on
the Allstate suit.
Investors and analysts for banks have been worried recently
about the potential legal damages and costs arising from
mortgage-backed securities that went bad. In November, Bank of
America said it still faced up to $31 billion in lawsuits over the
securities.
Bank of America shares were recently up 0.9% at $13.39 in recent
trading.
-By David Benoit, Dow Jones Newswires; 212-416-2458;
david.benoit@dowjones.com
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