Insurance giant Allstate Corp. is suing Bank of America’s Countrywide Financial for selling it $700 million of toxic mortgage-backed securities, marking the latest in a growing line of mortgage investors who say they were duped by the banks.
The suit also names Angelo Mozilo, the former CEO of Countrywide who recently agreed to fork over $67.5 million to settle fraud and insider-trading charges brought by the Securities and Exchange Commission. The SEC contended that Mozilo knew mortgages being mass-produced at Countrywide were going to implode.
Allstate’s suit, filed in Manhattan federal court, accuses Countrywide of relaxing its underwriting standards in an effort to build its market share in the once highly profitable subprime mortgage business.
“Beginning in 2003, Countrywide began systematically to ignore the underwriting standards it touted,” according to the suit.
“While Allstate was made to believe it was buying highly-rated, safe securities. . .the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford properties, and thus were highly likely to default,” the lawsuit said.
Allstate said it purchased some $700 million in bogus mortgage securities from Countrywide between 2005 and 2007, just as the underwriting standards were loosening.
“We are still reviewing the complaint, but this unfortunately appears to be a situation where a sophisticated investor is looking for someone to blame for a downturn in the economy and losses on an investment it made,” said BillHall-din, a spokesman for BofA, which bought Countrywide in 2008.
The quality of the underwriting standards tied to troubled mortgage securities has become a lightning rod for investors nearly three years after the collapse of the housing market caused the biggest financial crisis since the Great Depression.