MBIA Insurance Inc. (MBI) filed a suit Tuesday against several units of Countrywide Financial Corp. over $14 billion in guarantees it provided for Countrywide mortgage bonds, alleging the lender fraudulently misrepresented its loan underwriting standards. The suit comes at a time when the California mortgage lender is already facing litigation filed by borrowers and states’ attorneys general that also claim Countrywide engaged in unfair lending practices, according to the Financial Times. The bonds in question packaged home equity loans and second lien mortgages between 2005 and 2007 —  such loans have reaped some of the highest levels of late payment and default rates as housing prices have fallen. The breach-of-contract lawsuit, filed in New York State’s Supreme Court, suggested that Countrywide developed a “systematic pattern and practice of abandoning its own guidelines for loan origination,” in effort to inflate its market share during the mortgage-lending boom.  MBIA accused Countrywide of knowingly negotiating riskier loans “no matter the cost to borrowers, investors or guarantors like MBIA.” MBIA has already paid out more than $459 million in guarantees on those securitized loans, but said it “is exposed to claims in excess of several hundred million dollars more.” Overall, the case involves 10 residential mortgage-backed securitizations of more than $14 billion in mortgage loans.

According to MBIA’s complaint, the “systematic abandonment,” from 2005-2007, “fundamentally changed” the risk profile of Countrywide’s mortgage portfolio.  In July, following their purchase of Countrywide, Bank of America Corp. (BAC) said the acquisition of troubled lender Countrywide would add to earnings before this year is out, countering speculation from some who had said that bad loans and debt obligations at the Calabasas-based lender would drag BofA into the muck. Countrywide has seen its fair share of lawsuits since the credit crisis began, particularly from state Attorneys General; this is a different sort of case, however, one that signals where much of the litigation surrounding subprime mortgage lending is likely to head next. Editor’s note: To contact the reporter on this story, email kelly.curran@housingwire.com. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
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