Ambac Assurance sues Bank of America over mortgage-backed securities

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.

Ambac found that 97% of 6,533 loans it reviewed across 12 mortgage-backed bond issues sponsored by Countrywide didn’t conform to the lender’s underwriting guidelines, according to the complaint filed Tuesday 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.

The lawsuit follows negotiations between Bank of America, which acquired Countrywide in 2008, and Ambac over mounting losses caused by loans made during the early 2000s as U.S. housing prices soared. Ambac has paid $466 million in claims from more than 35,000 Countrywide home-equity loans that have defaulted or been charged off, according to the lawsuit.

“Bank of America probably didn’t settle because they didn’t want to swallow the amount of money that it’s going to take to satisfy Ambac,” said Alan White, a law professor at Valparaiso University who specializes in housing industry issues. “Nobody wants to be left holding the bag.”

Spokesmen for the Charlotte, N.C.-based lender and Ambac declined to comment.