Posted on 17 Feb 2012
MBIA claimed it has new evidence of "widespread mortgage-origination fraud" at Bank of America’s Countrywide unit, hoping to bolster its $1.4 billion lawsuit accusing that unit of fraudulently inducing it to insure risky mortgage-backed securities.
The insurer made its claim in a letter on Wednesday sent to New York State Supreme Court Justice Eileen Bransten seeking to force Countrywide to turn over a variety of documents.
Countrywide replied on Thursday that MBIA’s request was part of the insurer’s strategy to “pre-try” the case “based on nothing more than hyperbolic rhetoric and falsehoods.”
The battle over evidence intensifies litigation in which MBIA accused Countrywide of misrepresenting the quality of underwriting for about 368,000 loans backing 15 financings it insured between 2005 and 2007.
MBIA said it would not have provided the insurance had it known how the loans were underwritten.
In the Feb. 15 letter, MBIA asked for “many” documents that “relate to recently uncovered evidence of widespread mortgage-origination fraud at Countrywide. Countrywide appears determined to withhold this evidence from MBIA despite its clear relevance to several of MBIA’s claims.”
The request came after Countrywide produced what MBIA called an “incomplete” set of loan records backing MBIA-insured securities from a Countrywide fraud-tracking database, known as FACTS, that was “not previously known to exist” to the insurer.
In their response, lawyers for Countrywide said their client was “surprised” at MBIA’s request and had “promptly and voluntarily produced all records contained in the FACTS database” used by its fraud risk managers concerning the loans.
Separately, Bank of America on Feb. 15 asked Bransten to block MBIA’s request to depose its chief executive, Brian Moynihan.
“A chief executive officer of a major corporation may only be deposed when he has unique information that is not available through other means,” Bank of America spokesman Lawrence Grayson said in an email. “The discovery process remains fully available to MBIA, including through the numerous current and former executives that MBIA will be deposing.”
As to the alleged new evidence of mortgage-origination fraud, Grayson referred to the letter by Countrywide lawyers. An MBIA spokesman declined to comment.
MBIA’s prospects in the case brightened last month when Bransten ruled that to establish fraud, MBIA need only show Countrywide misled it about the $20 billion of securities it insured, not that such misleading caused its losses.
Bank of America is based in Charlotte, N.C., and is the second-largest U.S. bank by assets.
MBIA is based in Armonk, N.Y. Once the largest U.S. municipal bond insurer, it announced a restructuring in 2009 after receiving approval from New
York insurance regulators and after having incurred large losses insuring mortgage debt.
Bank of America and some other banks are challenging that restructuring.