Court Upholds Ambac Assurance to Higher Burden of Proof in MRBS Fraud Case Against Countrywide

In Manhattan appeals court, a panel for the Appellate Division, First Department ruled that Ambac Assurance Corp. must prove all common law fraud elements in its mortgage-backed securities case against Countrywide Home Loans. The insurer, which underwrote 17 residential mortgage-backed securitizations, filed its RMBS fraud lawsuit against Bank of America’s (BAC) Countrywide in 2010.

Bank of America purchased Countrywide in 2008. That same year, the bank settled civil fraud charges related to questionable mortgage practices from before the 2008 financial crisis by agreeing to pay $16.65B to state and federal authorities.

According to the RMBS fraud case, Ambac put out insurance policies that were irrevocable and without conditions when it guaranteed a number of principal payments plus interest to investors that backed Countrywide RMBSs. The financial guaranty insurer is now accusing Countrywide of breaking warranties and contractual representations involving securitizations and its business practices, as well as of putting out false statements about its loans and operations and, as a result, fraudulently compelling Ambac to issue certain policies.

The appeals court ruled that Ambac could not look to New York Insurance Law §3105 as grounds for not having to prove certain elements of fraud. The insurance company is also not allowed to use the statute to recover monetary damages.

Ambac is contending that it lost several hundred million of dollars because it insured the mortgage securities, which went bad. In 2014, the insurance company sued Bank of America again, this time for losses it claims stems from insuring about $1.68B in securities that are at least partially backed by high risk mortgages from Countrywide Home Loans. Ambac said that Countrywide lied regarding its underwriting of ‘Pay option adjustable-rate mortgage negative amortization” loans.

At The SSEK Partners Group, our residential mortgage-backed securities lawyers represent high net worth individual investors and institutional investors. Contact us today to request your free case assessment.

Panel Holds Insurer to Higher Proof Standard in Fraud Suit, New York Law Journal, May 16, 2017

Ambac Sues BofA, Countrywide For Mortgage Fraud, Law360, September 29, 2010