Cash-Hemorrhaging Bond Insurers Drag Lenders Into Court For Mortgage Underwriting Shenanigans

Forbes reports:

• The housing crisis is not over for bond insurer MBIA. The company is still losing money on dodgy mortgage-backed securities that it insured at the height of the U.S. housing bubble. [...] The bond insurance industry has been hemorrhaging losses as the credit crunch worsens and the financial products the companies insured have plunged in value.

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• MBIA has taken legal action against two loan sellers and servicers, and filed a claim against a third, regarding certain defaulting bundles of second-lien mortgages. The insurer is alleging that certain past loans do not meet eligibility requirements for its protection and that it should therefore not be liable for losses.

• [Bond insurer Ambac Financial Group], which was also forced to fortify its reserves against bad residential mortgage loans, said it expects to pull in at least $500.0 million in legal damages related to underwriting shenanigans such as this.

For the story, see Second Mortgages Sting MBIA.