An American International Group Inc. unit has filed a lawsuit accusing Countrywide Financial Corp. and Bank of New York Trust Co., of misrepresenting the risk associated with more than $1 billion of mortgages.
AIG, which was saved last year from collapse by the government after its exposure to mortgages soured, says in its suit that Countrywide, now a unit of Bank of America Corp., orchestrated the issuance of billions of dollars in residential mortgage-backed securities.
Bank of New York Trust, which is now a unit of Bank of New York Mellon Corp., served as trustee for the securities and then issued and sold them in the secondary market.
Countrywide asked AIG's United Guaranty to insure the mortgages underlying the asset-backed securities, according to the suit, which was filed Thursday in the U.S. District Court for the Central District of California.
AIG says Countrywide falsely represented that it had originated the mortgages in compliance with its underwriting standards, leading to big losses on the loans when they soured.
United Guaranty has already paid out over $30 million in insurance claims and is exposed to several hundred million dollars more in claims, the suit says.
The embattled insurance company is seeking rescission of the insurance policies, payments for current and future claims, recovery of losses and punitive damages.
A B of A representative was not immediately available for comment, and a Bank of New York Mellon spokesman would not discuss the suit.