Ambac Sues Countrywide, Alleging False Information On MBS

Ambac Financial Group Inc. (ABK) sued Bank of America Corp. (BAC) over "false and misleading" information it says the bank's Countrywide unit provided to trick it into insuring mortgage-backed bonds.

Ambac filed suit after a review of 6,533 of the home loans -- just a fraction of the 268,000 loans included in 12 mortgage-backed securities it insured for Countrywide. The review found more than 97% of the loans didn't meet the guidelines Countrywide had said they'd followed in assembling the bonds, according to the complaint filed Tuesday in New York State Supreme Court.

Under the agreement that Ambac and Countrywide reached as part of the original insurance contract, Ambac said, it has the right to demand that Countrywide fix the problem. Instead, the mortgage lender "implemented a delay-and-defer strategy ... requiring Ambac to engage in protracted deliberations" that have so far resulted in Countrywide repurchasing few loans.

"Ambac has thus paid hundreds of millions of dollars in claims, but has been deprived of the benefit of the bargain by Countrywide's ongoing refusal to timely comply with its obligations," the company said in the suit.

A spokesman for Bank of America's mortgage operations didn't immediately return a call seeking comment. Bank of America acquired Countrywide in 2008.

The 12 mortgage securities at the center of the case were created from 2004 and 2006. They collectively contain more than 268,000 second-lien loans that serve as collateral for about $16.7 billion in securities, parts of which were insured by Ambac.

Ambac rival MBIA Inc. (MBI) also sued Countrywide in New York State Supreme Court over 15 securitizations, alleging similar misrepresentations. Both bond insurers faced soaring claims on mortgage securities when the housing bubble collapsed.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; [e-mail]