Bogus Representations About Mortgage-Backed Securities Leads To $296M Hit, Says MBIA In Suit; Claims 50%+ Of Insured Portfolio Face Value Charged Off

In New York City, Bloomberg reports:

• A Credit Suisse Group AG unit was accused in a lawsuit by MBIA Insurance Corp. of making fraudulent misrepresentations about mortgage-backed securities, causing the insurer to pay more than $296 million in claims. The complaint against Credit Suisse Securities (USA) LLC, filed [last week] in New York State Supreme Court in Manhattan, also names as defendants two other units of the bank, DLJ Mortgage Capital Inc. and Select Portfolio Servicing Inc. [the firm formerly known as Fairbanks Capital].

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• Credit Suisse Securities pointed to its “strong institutional pedigree” while addressing the novelty of the transaction and touted its “due diligence” on the loans, MBIA said. [...] Since the transaction closed, the securitized loans have defaulted “at a remarkable rate,” MBIA said.

• “Through Oct. 31, 2009, loans representing more than 51 percent of the original loan balance, or approximately $464 million, have defaulted and been charged-off, requiring MBIA to make over $296 million in claim payments,” MBIA said. MBIA said that a review of the defects of the loans included in the transaction show they were “systematically originated with virtually no regard for the borrowers’ ability or willingness to repay their obligations.”

For more, see Credit Suisse Sued By MBIA Over Mortgage Securities.

For the lawsuit, see MBIA Insurance Corp. v. Credit Suisse Securities (USA) LLC, 603751/2009, New York State Supreme Court (Manhattan).

Thanks to nationally recognized mortgage servicing fraud watchdog Mike Dillon at GetDShirtz.com for the heads-up on the story and a copy of the lawsuit.