NEW YORK - Bankrupt bond insurer Ambac Assurance Corporation has sued Bank of America, N.A. over mortgage-backed securities that have gone sour.
Ambac is also suing companies and branches that have been directly or indirectly purchased by Bank of America Merrill Lynch over the last few years: First Franklin Financial Corp.; Merrill Lynch, Pierce, Fenner & Smith Inc.; Merrill Lynch Mortgage Lending, Inc.; and Merrill Lynch Mortgage Investors, Inc.
Ambac is seeking “redress for defendants’ material misrepresentations and pervasive breaches of the parties’ agreements pertaining to a mortgage-backed securitization that Merrill Lynch Lending sponsored, that MLPF&S marketed, and that Ambac insured,” it wrote in its legal complaint.
“To induce Ambac to issue the policy, First Franklin and MLPF&S made numerous fraudulent misrepresentations directly to Ambac in advance of closing with respect to (a) the characteristics of the loans pooled for the transaction, (b) the underwriting guidelines purportedly followed, and (c) the due diligence purportedly conducted to ensure the veracity of the represented characteristics,” Ambac stated.
These misrepresentations were “critical” in getting Ambac to insure the securities, Ambac wrote.
Loans for approximately 74% of the principal balance of the trust have defaulted, Ambac wrote. These defaults have required Ambac to make hundreds of millions of dollars of claim payments to investors.
Ambac asked the court to order the defendants to provide compensatory and punitive damages to Ambac.
Ambac filed the suit on Monday in the New York Supreme Court, New York County. The segregated account of Ambac Assurance Corp. is also a litigant in this case.
Bank of America Merrill Lynch did not immediately respond to a request for comment for this story.
Ambac’s suit against Bank of America follows a similar suit against JPMorgan filed on March 30 in the same court.
