Insurance News

AIG Sues Countrywide for Misrepresenting Mortgages

Posted on: April 6, 2009

An American International Group Inc. unit sued Countrywide Financial Corp., accusing the mortgage lender of misrepresenting the underwriting standards of loans the AIG subsidiary insured.

“As a result of the unprecedented number of defaults in the mortgage loans, United Guaranty has already paid out insurance claims totaling over $30 million and is exposed to additional claims of several hundred million dollars more,” AIG’s United Guaranty Mortgage Indemnity Co. said today in a complaint filed in federal court in Los Angeles.

Countrywide, bought last year by Bank of America Corp., sought insurance for the subprime mortgage loans to increase the credit ratings of mortgage-backed securities in which the loans were bundled, according to the complaint. Countrywide falsely claimed the loans were originated in strict compliance with its underwriting standards, the AIG unit said.

United Guaranty said in the complaint that it had reviewed loan files that showed that most mortgages covered by 11 policies for asset-backed securities were either underwritten in violation of Countrywide’s own guidelines or contained defects, such as missing documents, misrepresented credit scores or false social security numbers.

Shirley Norton, a Bank of America spokeswoman, declined to comment on the complaint.

New York-based AIG has received $173 billion in taxpayer money since September and the U.S. government has taken a stake of almost 80 percent to prevent the insurer from collapsing. Some of the bailout funds went to banks that bought or traded credit-default swaps with AIG.

The case is United Guaranty Mortgage Indemnity Co. v. Countrywide Financial Corp., 09-01888, U.S. District Court, Central District of California (Los Angeles.

Copyright © 2009 Bloomberg L.P. All Rights Reserved.

%d bloggers like this: