MBIA, Countrywide Blame Each Other in Defective Loans Suit

The long-running legal proceedings between ""MBIA Insurance Corporation"":http://www.mbia.com/index.html and Countrywide Home Loans (acquired in 2008 by ""Bank of America"":https://www.bankofamerica.com/) turned into a blame game Friday as the companies battled over liability for insurance losses on bad loans.

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MBIA filed a lawsuit in 2008 for losses sustained from insuring mortgages originated by Countrywide.

MBIA alleges that Countrywide committed fraud and breached its obligation to repurchase defective loans. Countrywide's lawyers counter that MBIA neglected its due diligence when agreeing to insure the loans in question.

In a ""motion for summary judgment"":http://www.mbia.com/investor/publications/Plaintiffs_Memorandum_of_Law_%20Summary_Judgment%20_redacted.pdf filed last week, MBIA claims Countrywide ""breached representations and warranties with respect to at least 56.0% of the loans in the 15 securitizations of residential mortgages"" MBIA agreed to insure.

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MBIA claims to have found 49,000 defects in a random sample of 6,000 mortgages.

Furthermore, MBIA alleges ""Countrywide committed fraud and breached numerous representations and warranties in the Transaction Documents by misrepresenting the credit characteristics of the mortgage loans included in each securitization.""

However, Countrywide counters that any losses MBIA incurred are its own responsibility, not that of Countrywide.

In fact, according to Countrywide, MBIA admitted as much when the company's CFO stated before Congress in 2008, ""I'm afraid we have no one to blame but ourselves.""

In a ""memorandum for summary judgment"":http://www.mbia.com/investor/publications/Countrywides_Memorandum_of_Law_%20Summary_Judgment_redacted.pdf, Countrywide's lawyers assert MBIA had access to all loan origination files and simply opted not to conduct due diligence before committing to the loans.

Now, ""[r]ather than accepting responsibility for the insurance policies it wrote, MBIA seeks to walk away from its contracts, by among other things, claiming that it was defrauded by each and every one of these issuers, including Countrywide,"" the memorandum says.

Oral arguments on the summary judgment motions are scheduled to begin in November.