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BofA tells court Ambac cannot prove $2.7 bln mortgage case

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Bank of America building in Los Angeles, California, USA on May 6, 2019. REUTERS/Lucy Nicholson/File Photo

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Sept 7 (Reuters) – Debt insurer Ambac Financial Group Inc fails to prove $2.7 billion lawsuit against Bank of America (BAC.N) Lawyers for BofA said Wednesday in New York state court over the issue of mortgage-backed securities, based on evidence that BofA was a “villain” before the 2008 financial crisis.

Umbak (AMBC.N) seeks to recover more than $2 billion in insurance claims paid to cover the losses of investors on 375,000 mortgage-backed securities from Bank of America’s Countrywide units. When a trial in the 12-year-old lawsuit began on Wednesday, lawyers for the bond insurance company said Countrywide’s own files had systematically approved the shoddy mortgages and exposed the risks to investors and insurers. He claimed that it showed that he was forced into it.

But this kind of evidence is not enough to show that the bank has breached the insurance contract it entered into with Ambac, bank lawyer Enu Mainigi said in his opening statement. Courts have ruled in other cases where insurers have had to prove such contracts were breached on a loan-by-loan basis, she said.

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Mainigi also said it was Ambac that took on more risk to capitalize on the optimism in the pre-2008 housing market until the financial crisis undermined borrowers’ ability to repay loans.

“Now Ambac is here asking the court to somehow conclude that all of this is Countrywide’s responsibility,” she said.

From 2004 to 2006, Ambac insured securities backed by $25 billion worth of countrywide loans. Insurers claim 80% of loans were the product of poor underwriting standards or had other deficiencies that violated insurance policies, preventing Bank of America from repurchasing loans when needed. doing.

In an opening statement, Ambac attorney Michael Carlinsky said the exposure to Countrywide’s troubled mortgage-backed securities had a “huge blow” to bond insurers.

Insurers are ultimately seeking $2.7 billion, including interest, to pay out more than $2 billion in claims to cover investors’ losses after their mortgages fail.

New York Supreme Court Justice Robert Reed is overseeing the trial, which is expected to last several weeks.

At its peak, Ambac was the world’s second largest fixed income insurer, guaranteeing the timely payment of interest and principal on more than $550 billion of debt.

This lawsuit is the largest of several lawsuits filed by Ambac against issuers of mortgage-backed securities. The company filed for bankruptcy in 2010 and emerged in 2013 after the housing market crashed.

Bank of America spent years cleaning up the chaos of the 2008 financial crisis. Paying back her $45 billion bailout by taxpayers, he was fined more than $76 billion in his decade after the housing crash.

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Reporting by Jody Godoy.Edited by Tom Hulce, Lincoln Feast, Deepa Babington, Leslie Adler

Our criteria: Thomson Reuters Trust Principles.

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Jody Godoy reports on banking and securities law. You can contact her at [email protected]

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