MBIA Inc. has sued a Credit Suisse Group unit for allegedly making fraudulent misrepresentations about mortgage-backed securities that caused the bond insurer to pay more than $296 million in claims.
The complaint against Credit Suisse Securities (USA) LLC, filed Monday in New York State Supreme Court in Manhattan, also names as defendants two other units of the Swiss banking company, DLJ Mortgage Capital Inc. and Select Portfolio Servicing Inc.
Credit Suisse made "pervasive and material misrepresentations" about a mortgage-backed securities transaction that was sponsored, marketed and serviced by the Credit Suisse units and insured by MBIA, according to the complaint.
The transaction, involving thousands of residential mortgages, closed in April 2007, MBIA, of Armonk, N.Y., said.
"CS Securities fraudulently induced MBIA to participate in the transaction," MBIA said in the complaint. MBIA said the bank claimed it had "used certain strict underwriting guidelines to select the loans sold into the transaction when in fact it did not."
Bruce Corwin, a Credit Suisse spokesman, declined to comment.
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. The insurer also said that, at the time, Credit Suisse was the second-largest commercial bank and "viewed as a pioneer in the development of the residential mortgage-backed securities market."
Since the transaction closed, the securitized loans have defaulted "at a remarkable rate," MBIA said. "Through Oct. 31, 2009, loans representing more than 51% 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.
It said that a review of the defects of the loans included in the transaction shows they were "systematically originated with virtually no regard for the borrowers' ability or willingness to repay their obligations."