AMBAC SUES BANK OF AMERICA FOR MASSIVE FRAUD: $16.7 billion

SERVICES YOU NEED

Somebody get me the complaint so I can post it here.

Editor’s Note: AMBAC is one of the insurers of loan portfolios, like AIG. The insurance paid off when the Master Servicer declared the portfolio had “failed,” based upon standards that were set by the Master Servicer and Underwriter. The insurer had waived its right to challenge that assessment and waived subrogation. It is through this mechanism that many loans that are still performing, many loans that are in current foreclosure proceedings, and many loans that were foreclosed were either paid off or the delinquency was paid by the carrier. In the contract of insurance the insurer expressly waives any right of subrogation. Thus the receiver of the proceeds of insurance gets to keep the money and the portfolio too which was largely performing.

This is why we have said that the defenses of payment and denial of default are entirely meritorious defenses and claims along with claims for slander of title (preventing people from refinancing) and wrongful foreclosure. The fact is that upon delivery of a proper accounting from the creditor side (rather than the debtor/borrower side) you will discover that the notices of default are fatally defective and even fraudulent. The fact that the borrower did not make a payment was used as an excuse to invoke a contractual right to receive payment on the entire portfolio based upon a formula that was determined solely in the discretion of the underwriter and Master Servicer. This overpayment was hotly contested by the insurers and the U.S. government although eventually they gave in and paid 100 cents on the dollar.

The investors were kept ignorant of the receipt of these payments by the underwriter and the borrower got the same treatment of non-disclosure. Thus the distribution report to the investor never mentioned receipt of the insurance money and the borrower’s end of month statement never mentioned the credit against the obligation due. No allocation was ever made in favor of either the investor or the borrower. This was an instant replay of the fact that no disclosure or allocation was made to the benefit of either the investor or the borrower for the tier 2 yield spread premium: the money that was taken out of the funds advanced by the lenders before actually applying it to funding loans.

What was missed completely by AMBAC, AIG and other insurers is that the party who received the proceeds of insurance lacked an insurable interest and therefore had nothing to insure. The fraud they cite is correct but they are missing the forest for the trees. It’s true the loans were improperly described and that no underwriting process was used in accordance with industry standards. That was a lie. But the bigger lie was that the insured had any asset to insure. If they kept the money, which they did, then the insurance company has a claim to recapture at least some of that money. Or, more likely, the investors should have been given the money which would have reduced the obligations, which should have been credited to the borrowers.

2010-09-29 19:00 (UTC)

By Jonathan Stempel

NEW YORK, Sept 29 (Reuters) – Ambac Financial Group Inc sued Bank of America Corp, alleging a ‘massive fraud’ that caused it several hundred million dollars of losses from insuring mortgage securities that went sour.

In a complaint filed Tuesday in the New York State Supreme Court in Manhattan, Ambac said the bank’s Countrywide mortgage unit misled it about loan quality and underwriting guidelines when sponsoring $16.7 billion of residential mortgage-backed securitizations between 2004 and 2006.

According to the complaint, the transactions concerned home equity loans, and contained more than 268,000 loans that backed the $16.7 billion of securities, some of which Ambac insured.

Ambac said it has paid $466 million on claims after an ‘extraordinary’ $2 billion of the loans went into default or were written off.

It also said that 97 percent of the 6,533 loans it has reviewed did not meet Countrywide’s underwriting guidelines, and that Countrywide has refused to meet its obligation to buy back some of these loans or bring them into compliance.

‘Countrywide’s pervasive misrepresentations and breaches pierce the very heart — and amount to a total repudiation — of the bargain struck by the parties,’ the complaint said.

Ambac is ‘entitled to redress for Countrywide’s massive fraud,’ it added.

Bank of America bought Countrywide in July 2008. A spokeswoman, Shirley Norton, said the Charlotte, North Carolina-based bank had no comment. Peter Tomlinson, a lawyer for Ambac, had no immediate comment.

Based in New York, Ambac had been the second-largest U.S. bond insurer before losses on risky debt, including mortgages, caused it in 2008 to lose the ‘triple-A’ credit ratings on which it had depended to insure bonds, mostly municipal debt.

Earlier this year, Ambac said its liquidity might run out before the second quarter of 2011, and said it might try to restructure its debt through a prepackaged bankruptcy.

In March its primary regulator, Wisconsin Insurance Commissioner Sean Dilweg, seized $64 billion of its worst assets and put them into a segregated account.

Bank of America has faced many lawsuits over Countrywide’s lending and disclosures. Late Tuesday, a Manhattan federal judge dismissed a lawsuit by two investment funds accusing Countrywide of misleading it about risk..

An Oct. 19 trial is scheduled in a U.S. Securities and Exchange Commission civil fraud lawsuit over Countrywide.

The SEC accused onetime Chief Executive Angelo Mozilo and two other executives of hiding Countrywide’s worsening loan portfolio. Mozilo also faced an insider-trading charge. The defendants have denied wrongdoing.

In afternoon trading on the New York Stock Exchange, Bank of America shares fell 9 cents to $13.18, and Ambac fell 1 cent to 56 cents.

The case is Ambac Assurance Corp et al v. Countrywide Home Loans Inc et al, New York State Supreme Court, New York County, No. 651612/2010.

(Reporting by Jonathan Stempel; Editing by Lisa Von Ahn and Gerald E. McCormick) Keywords: BANKOFAMERICA/AMBAC LAWSUIT

(jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net)

22 Responses

  1. fantastic post, very informative. I wonder why the other experts of this sector don’t notice this. You should continue your writing. I am confident, you have a huge readers’ base already!

  2. i am like thousands of other folks who had notes/loans that were with american brokers conduit/american home mortgage group, that had title insurance through chicago title, and a settlement group called american title solutions, and was funded through premier mortgage funding, all of the above companies have either filed chp 11 bankruptcy, or gone out of business, my note was turned over to a 3rd party called ahmsi, or american home mortgage servicing inc, (a debt collecting company) we cannot sell the home or refinance the home because we have no clear title, no title insurance policy, the (debt collecting company) is a off spin of the first companies, and has thousands of complaints with the bbb and the ftc, however no one seems to care about all of the people who have bad notes/mortgages with the companies who are in bankruptcy, in my case. we have tried many times over the past 48 months to find out who is the investor. or who is the new lender, or who holds our note. who or where is the trustee listed on the deed of trust, why is there no legal description on any of the legal documents that we signed in 2006. what is the exact payoff of our note, and how and where did the new company (ahmsi) get a completely different note/mortgage than the one we signed in 2006. i need answers and it seems as no agency, or law firm can get me the answers i need, and the new company (ahmsi) is either refusing, or does not have the answers. any answers, or options or help will be much thankfull, larry and lena

  3. Court power is big.

  4. Deby

    “Response and Affirmative Defense – was filed in PA – 161 Affimative Defenses (168 pages) everything was thrown into this answer”

    Where can the layman find what you are speaking about? If it was filed in PA, please provide the case/complaint number and the entire litany of any worthy info…..not that I’m doubting, but the “one State at a time thing” bothers me. I have a Pacer account, give me direction!

    Gary

  5. I am with Bob. Why anyone wants to go into court without an attorney is beyond me.

    With that said, most attorneys really are not up to speed on this stuff and are simply providing a traditional foreclosure defense. Still, though, it would make better sense for the pro se to find an attorney who is advanced in this and to work as a team with him or her.

    I would think that by now most foreclosure defense attorney’s have attended either an April Charney seminar or one of Neil’s.

  6. just somebody who does a little lawyerin’ on the side…as a principal…for my own account…in NY

  7. Bob G.

    Who are you – and where do you come from??

    Not supporting any posts here – but – your answer is odd.

    Trust me – on this one.

  8. Bob: Every single one was an aspect with the entire loan process – from securitization, to fraud on the court, SEC, collateral estoppel; res judicata; etc., besides what does an in pro se – what are they supposed to know – the point is that every one of these sections has issues or facts that are related to the single act conducted – there are 75-80 pages in a loan closing; everyone of these documents has something or another that can be asserted as having been violated; RESPA, TILA, etc., the laundry list is long – but at least it will allow for enough left over that have to be resolved what are they going to do take my home?

  9. Deby – Your Answer with 161 Affirm Defenses …

    Odds are you are going to get sanctioned for this. I’m guessing that 80% – 90% of these really aren’t affirmative defenses or are completely frivolous. Google “affirmative defenses” + “frivolous”.

    You will not be taken seriously if you conduct yourself like this. No judge is going to put up with this, trust me on this one.

  10. Hello!

    We were foreclosed on… BUT WE FOUGHT BACK and WON!
    1)B of A strung us along for modification and short sale-they rejected both offers.
    2)sherrif sale was Jan 2010
    3)foreclosure law firm gave wrong time to representative to attend the sale-bank wasn’t at the sale.
    4)WE brought back the property at the sale as the highest and only bidder
    5)Blommer Peterman (foreclosure law firm) requested sale be voided.
    6)August our sale was confirmed to us by a judge(the judge did not agree with ANY of their reasons to void-we are waiting until early Oct to see if THEY appeal the judges confirmation of sale.

    While fighting this law firm we have found the assignment of mortgage is completely fraudulent. We have been called almost daily by B of A since all this started-even after sale has been confirmed.

    We still are concidering further actions against the bank and law firm. This case is amazing to every attorney we have talked with including our attorney. I would welcome to opportunity to give you the details of thgis case.

    Please email me back if you would like to talk about this and let me know how to directly contact you.

    Thanks for all your work.

    Sincerely,
    Tracey

  11. Where can we get this?

    “Response and Affirmative Defense – was filed in PA – 161 Affimative Defenses (168 pages) everything was thrown into this answer – Neil hopefully you and the others can assist with docs that are going to pop up as this is a classic MBS fraud case – fraud docs, failure to ID true owner – and now is the time to watch closely how this group (mill law firm reps GMAC and Chase foreclosure cases) will respond to this answer – I made sure everything was added and addessed that every single issue had to be dealt with – so they will have to act upon all the issues –”

  12. Response and Affirmative Defense – was filed in PA – 161 Affimative Defenses (168 pages) everything was thrown into this answer – Neil hopefully you and the others can assist with docs that are going to pop up as this is a classic MBS fraud case – fraud docs, failure to ID true owner – and now is the time to watch closely how this group (mill law firm reps GMAC and Chase foreclosure cases) will respond to this answer – I made sure everything was added and addessed that every single issue had to be dealt with – so they will have to act upon all the issues – I hope they have to demand $20K from their so called client to respond – maybe if we pack enough punch into our responses/ADs we can chase them away temporarily and demand that each issue be addressed and resolved – I am going to need help from the outside now with this case it is being heard in a ‘fresh’ county court with one judge – this case could help us all – but I need guys like Neil and whoever to monitor this now – it will help us homeowners – the attorneys this site refers are USELESS and don’t do anything and should be promptly removed – they are an embarrassment for all the hard work Neil does – Neil – remove them they taint your name and good work. It is up to us pro ses to get the job done so I (we collectively) need your help – please check out this response/affirmative defense and any input about the next steps would be great – thanks! I’ll send via email.

  13. B StLaurent,

    Just a slap on wrist from Bar Association – or state Ethics. Need more.

  14. What would happen if every person in their state who was foreclosed upon , in addition to responding to the complaint, filed a complaint with their Bar association against the plaintiff’s attorney for fraud?

  15. Mortgage Gate Just Got Weirder: Counterfeit Court Summons
    Tyler Durden’s picture
    Submitted by Tyler Durden on 09/29/2010 13:59 -0500

    * Deutsche Bank
    * Florida
    * Fund Flows
    * GMAC

    With each passing day, the revalations in mortgage-gate, which has for now implicated GMAC and JPMorgan in foreclosing on mortgages without titles, and will likely soon proceed through the entire mortgage origination industry like wildfire as more and more of those foreclosed upon begin to challenge the process (we wonder just what the statute on limitations for retroactive challenges is), are getting increasingly more bizarre. Today, courtesy of Alan Grayson’s office we discover that not only are servicers foreclosing on mortgages to which nobody apparently owns the title, but that servicers, representing such reputable firms as Deutsche Bank National Trust Company, are willing to counterfeit court summons in their pursuit of a clean and efficient foreclosure mill. As Grayson’s office points out: “Apparently what’s happening is that private process servicer companies may not be serving people with summons, and are simply counterfeiting the documents so they can keep the fees without doing the work. That means that you could theoretically be foreclosed on without ever knowing there was even a foreclosure case against you.” What it also means, is that banks may have been participants in this outright criminal judicial fraud, which we are confident will be uncovered in many more cases, as this is highly unlikely to be an isolated case. And the ultimate outcome, as the Florida Bar News states, is that soon, the entire foreclosure process will halt, thereby creating a huge bottleneck to cleaning out excess inventory as more and more squatters are allowed to reside in properties that no longer pay their mortgages to anyone, now that it is obvious that nobody (ahem Freddie, but how else can you keep bailing out the banks, pardon, the GSEs, via fraudulent fund flows) owns the actual deed. “If we had everyone defending their foreclosure, we’d never get through this.”

  16. deontos,

    Great post. I have already witnessed title companies questioning refinancing ability due to invalid assignments. The problems you describe will multiply.

  17. FROM A SOON TO BE NAMED SOURCE:
    (Market Ticker reporting also.)

    ==============================================

    Here It Comes: Title Insurance Problems

    Now we got trouble.

    I am in receipt of a copy of a bulletin from Old Republic Title in which it states:

    The Company will not insure title to any property which has been foreclosed by Ally Financial, Ally Bank or GMAC until further notice.

    Oops.

    I suspect this is going to spread fast, given that this “wee problem” is NOT specific to GMAC and Ally. In fact, JP Morgan/Chase has reported “similar discrepancies”, and then today we had my report on a ruling from a court in which a counterfeit summons was issued not by the court, but by a law firm.

    There isn’t going to be any clean way to fix this folks. These bad affidavits and other forms of fraud upon the courts render these judgments voidable. Title companies are potentially on the hook if they write a policy on such a home and the title turns out be not just clouded but unmarketable as there’s a valid claim that someone else holds!

    This crap has to be cleaned up and the firms and individuals involved must face SEVERE sanction for these acts. If in point of fact, as I have suspected, there is no actual conveyance into the MBS trusts that ever took place (and as I noted, this too has been documented in at least some cases) then we have a ****storm of biblical proportions.

    The institutions involved in this cannot be allowed to paper over it or “get away with it.” Private property ownership is the foundation of this nation. If these banks and their agents have in fact done what it appears they have done, these institutions and firms must be dissolved and their principals prosecuted to the fullest extent of the law for each and every forged, counterfeit or fraudulent document, and the titles must be unwound, with funds returned to the sellers up the line, until a clear and clean status is regained.

  18. There are two types of default – issuer and borrower default. In the above case – the focus is on issuer default – that is, failure to pay timely interest and principal to certificate holders and derivative security investors. This is also called a “trigger event” – which means the insurer, in this case, AMBAC, had to made good on insurance contracts for the “failed” portfolio. This is what happened on nearly 100% of the subprime securitizations. In effect, what happens is that the security investors are returned their principal investment by AMBAC’s insurance payments.

    At the time of the insurance execution, many loans in the portfolio were still performing. However, investors so rapidly withdrew their investments, due to publicity of the questionable portfolios, that the issuer had no choice to but to declare a “failed” portfolio – and demand insurance coverage. Hence, the crisis as insurers could not meet the demand.

    Issuer default means the security investors were paid their principal back. Although we can deduce that the loan has been “PAID” – it is not the same thing. Borrower still owes the loan balance to the party that owns the whole loan – (SVP was just for securitization of loan receivables.)

    What is important, now, is that AMBAC is claiming fraud in the origination of the loans – and therefore, wants it’s insurance payment back for claims it paid on the security (receivable) portfolio – due to issuer default. What we should be focusing on – from actions such as this – is the fraud in the origination of the loan (similarly we should recognize that Repurchase Agreements demand repurchase by the same fraud). Of course, some investors/insurers fail in their claims (above – federal judge in NY/Countrywide – risk) but, this may be due to sophistication of the investors. Borrowers are not held to the same level of sophistication. Fraud in origination questions the loan itself – and negotiability of the note.

    Point is – payoff of insurance contract for securities is simply a return of principal to investors (as investors sell back investment to issuer). The issuer uses the insurance proceeds to return the principal. Investor has lost it’s “high interest” income – but not their principal. Investors no longer have a right to foreclosure recovery proceeds (no investors ever ask for this in investor actions). Borrowers are still in default – but the default is no longer a part of any investment portfolio – which has now been written off by the issuer.

    Need to focus on origination fraud, as investors/insurers do, and that the default loan is NOT part of investments that have paid back principal to investors and, therefore, removed the loan from the investment vehicle. Then the question becomes – what did the issuer do with the collection rights to the whole loan??

    While the issuer (Bank or Fannie/Freddie) may have retained collection rights to high mortgage loan values/higher property values, the lower value loans have likely been “pooled” with similar loans and sold to third parties. There is no profit incentive for Bank/Fannie to retain these lower value loans (Fannie tends to keep default loans longer than banks – but also eventually disposes of). These loans have already lost their investment income earning potential – and no longer are profitable the banks. Banks get the write-off benefit and some recoup some benefit by sale of the default portfolio to third party.

    Here lies the foreclosure fraud – false documents/affidavits etc.- because the attorneys are falsely claiming that the loan is still attached to the original SPV Trust. As NJ judge wrote –

    “Certifications from plaintiffs’ (foreclosure) counsel will generally not be adequate. It is possible that in a given case, the original note may have been delivered to plaintiffs’ counsel, either before or during litigation. Where that has occurred, a certification from someone associated with the law firm firm may be appropriate. Counsel should be sensitive, however, to problems presented where lawyers become potential witness. All of that information and documentation should be made available to defendants as soon as the standing issue is joined, to permit legitimate disputes regarding standing to be addressed promptly and efficiently.”

    Given GMAC, and now JP Morgan Chase issues with affidavits, law firms must be held to higher standards – and divulge WHO they are really working for.

  19. The Ambac/BOA case does not appear to be scanned into their system as of this morning.

  20. The Ambac/BOA case does not appear to be scanned into the court records as of yet.

  21. http://www.scribd.com/doc/38472923/Mbia-Insurance-Company-vs-credit-Suisse-insurance-claims-on-Morgages-from-Mortgage-Backed-Securities

    This case is the same and they looked at the failures on the reps and warranties going into the trust. This shows a high failure rate and the MBIA insurance is trying to get money back as they were mislead–join the club MBIA.

  22. And if those transfers were not done in accordance with the IRS’ requirements of a tax remote vehicle, aren’t those transfers then subject to tax – and necessary follow-up by the IRS?

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