Ambac Assurance Corp. sued Bank of America Corp. over $16.7 billion of mortgage-backed securities, saying the bank’s Countrywide Financial Corp. unit fraudulently induced Ambac to insure bonds backed by improperly made loans.Countrywide was a major subprime lender.
Ambac found that 97 percent of 6,533 loans it reviewed across 12 securitizations sponsored by Countrywide didn’t conform to the lender’s underwriting guidelines, according to the complaint filed yesterday in New York state Supreme Court. Many of the loans were made to borrowers with limited or no ability to meet their payment obligations, Ambac said.
This story is further proof of my thesis that the subprime loan frenzy was created to serve the demand for mortgage-backed derivatives, not to provide affordable home ownership. If Countrywide had followed its own underwriting guidelines, it would have denied almost all of the reported loans because those guidelines indicated that the loan applicants would be unable to pay back the loans. That's predatory lending and control fraud rolled up into one tidy bundle.
