Bank of America Corp. has agreed to pay $375 million to settle a lawsuit brought by bond insurer Syncora Guarantee over toxic mortgage-backed securities, which were at the center of the 2008 financial crisis. Syncora sued Bank of America in 2009 to recover losses on securities transactions based on home loans made by Countrywide Financial, which was bought by Bank of America in 2008. According to Syncora, it was duped into insuring the mortgage-backed securities. Syncora, a unit of Syncora Holdings Ltd., contended that Countrywide misrepresented the quality of the underlying mortgages.
As we all now know, home loans such as those issued by Countrywide were at the center of the financial crisis. As loans became delinquent, mortgage-backed securities like those insured by Syncora collapsed. This helped to trigger a wider market meltdown. In its lawsuit, Syncora claimed “a significant percentage” of mortgage loans underlying the securitizations did not comply with Countrywide’s representations and warranties. The bond insurer sued for fraudulent inducement and breach of contract, seeking to recover money paid out on its policies as a result of the bad loans.
It was alleged that “Countrywide, consistent with its business practices at the time, systematically ignored its own underwriting guidelines and made imprudent loans that no reasonable underwriter would have made.” As of May 2010, when an amended lawsuit was filed, Syncora had already paid more than $145 million in claims and had been given notice of another $257 million. Rulings in the Syncora case and a similar lawsuit brought by bond insurer MBIA Inc. have set precedents for what bond insurers need to show to prove insurance fraud and breach of contract. Syncora Guarantee has also sued other banks over false and misleading statements in connection with mortgage-backed securities, including JPMorgan Chase & Co. over Bear Stearns & Co. transactions. The case is Syncora Guarantee Inc. v Countrywide Home Loans Inc., New York State Supreme Court, New York County.
Source: Insurance Journal
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