By Jody Godoy
September 7 (Reuters) – A lawyer for Ambac Financial Group Inc said oneNew York State Court Iudge wednesday that Bank of America’sBAC.NCountrywide’s unit was ‘blinded by sheer greed’ to produce toxic mortgages which it bundled into securities, as the trial began on the bond insurer’s $2.7 billion case.
Between 2004 and 2006Ambac AMBC.N insured securities backed by 375,000 home loans from the bank’s Countrywide unit. The insurer says 80% of the loans were the product of poor underwriting standards or had other deficiencies that violated insurance agreements, and that Bank of America did not redeem the loans as required.
Attorney Michael Carlinsky said in opening statements that Ambac had been “decimated” by its exposure to distressed mortgage-backed securities issued by Countrywide before the 2008 financial crisis.
The insurer ultimately paid more than $2 billion in claims to cover investors’ losses after the mortgages failed, and is seeking $2.7 billion.including interest.
Robert Reed, Justice of the Supreme Court of New York monitors the trial, which is expected to last several weeks.
Bank of America said in court filings that Ambac accepted the risks of insuring the mortgage bonds to reap multimillion-dollar premiums. The bank also argues that Ambac’s losses were not due to taking out loans but to falling house prices after the 2008 financial crisis.
The bank also said in filings that Ambac cannot rely on statistical sampling and must prove that it breached loan-by-loan agreements.
At its height, Ambac was the second-largest bond insurer in the world, having guaranteed the timely payment of interest and principal on more than $550 billion of debt.
The case is the largest of several lawsuits brought by Ambac against issuers of residential mortgage-backed securities. The company filed for bankruptcy in 2010, after the housing market collapsed, and emerged in 2013.
Bank of America spent years cleaning up the mess of the 2008 crisis. It paid back a $45 billion taxpayer bailout and was hit with more than $76 billion in fines in the decade that followed the real estate crash.
(Reporting by Jody Godoy; editing by Tom Hals, Lincoln Feast and Deepa Babington)
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