NEW YORK — Bond insurer Ambac Financial Group Inc. has sued JPMorgan Chase & Co. (JPM) and a former Bear Stearns Cos. mortgage unit over alleged misrepresentations regarding the quality of mortgages backing hundreds of securities it insured.
In a lawsuit filed in New York state court on Friday, Ambac claims it's been forced to pay or is obligated to pay more than $200 million in claims on mortgage-backed securities issued by Bear Stearns between 2003 and early 2007. Bear Stearns was acquired by JPMorgan in 2008.
Ambac filed a similar lawsuit against JPMorgan and EMC Mortgage, a former Bear Stearns unit, last year over a different series of mortgage-backed securities.
"Driven by management's `Bear don't care` mentality, Bear Stearns perpetrated a massive fraud that deceived investors and financial guarantors, such as Ambac, into believing that the mortgage loans backing its securitizations were originated pursuant to established underwriting guidelines and were therefore of good quality," Ambac said in its lawsuit.
A JPMorgan spokeswoman declined comment Monday.
The lawsuit claims that Bear Stearns knew that its representations about its quality control process were false and misleading and that Bear Stearns disregarded "loan quality for loan quantity." The transactions at issue have resulted in losses of more than $1.8 billion, according to the lawsuit.
The complaint also alleges that Bear Stearns, while touting the quality of its due-diligence process to Ambac and other guarantors, didn't implement policies recommended by the then-head of its internal due-diligence department to screen out bad loans in 2005 and in 2007.
"The due-diligence process was a charade: touted as rigorous to give comfort to securitization participants like Ambac, but in reality purposefully deficient to ensure an unimpeded flow of loans to the securitizations, regardless of quality," Ambac said in the lawsuit.
An Ambac spokesman declined further comment Monday.
