LOS ANGELES (CN) – MBIA Insurance Corp. says IndyMac Bank knowingly loaned millions of dollars to borrowers who could not afford to repay the loans, leaving the stock insurance company to pay out more than $487 million on its guarantees with an expected $566 million more to come, MBIA claims in Superior Court.
MBIA says IndyMac “abandoned any reasonable and prudent underwriting standards” in an “effort to expand its market share during the mortgage lending boom,” according to the complaint.
MBIA also says IndyMac encouraged its workers to inflate borrowers’ incomes on loan applications to get them loans for which they wouldn’t have qualified.
MBIA says the thousands of mortgage loans in default or foreclosure “would not have occurred if IndyMac had followed the loan-origination practices that it represented to investors it was following.”
Also named as defendants in the newest lawsuit are Credit Suisse Securities; UBS Securities; JPMorgan Chase & Co.; Michael Perry; A. Scott Keys; Jill Jacobson; and Kevin Callan.
IndyMac Bank was originally known as Countrywide Mortgage Investment, formed to buy and collaterize loans from Countrywide that were too large to sell to the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association.
IndyMac split from Countrywide in 1997, but continued to maintain ties with Countryide, the lawsuit states.
IndyMac Bank originated pools of mortgage loans that were sold to trusts it created from at least 2001 to 2007, the lawsuit states. The trusts in turn securitized the underlying mortgage loans and issued residential mortgage-backed securities, which were then sold to public investors.
MBIA provided financial guaranty insurance in the form of guarantees of the trust obligations to make principal and interest payments on the loans.
In May, 20 banks and financial services companies sued MBIA with allegations that it fraudulently restructured itself to strip it of $5 billion in cash and securities and to start a new insurance business to duck its obligations to the banks.
MBIA is represented by William Urquhart with Quinn Emanuel.