This week Allstate has filed suit against Bank of America over mortgages the bank obtained when it bought out Countrywide Mortgage in 2008. Allstate is asking for a total of $700 million in damages. The reason? Allstate claims Countrywide sold them toxic residential mortgage-backed securities and they want to be compensated.
In their complaint the Illinois-based company Allstate stated that the mortgage-backed securities they purchased between March 2005 and June 2007 were grossly overrated and lost their values at a rapid rate. Allstate claims these mortgages never should have passed underwriting. The suit points to fraud, negligence and additional claims that there were violations of the US securities laws.
Allstate also accuses in their claim that Countrywide, in order to increase their market shares, began to ignore their underwriting standards starting in 2003. They offered incentives to customers that were negligent, agreeing to match just about any mortgage product that its competitors were offering at the time.
Countrywide is being accused of fraudulently misleading investors when selling their mortgage securities. Claims are that the company blatantly misinformed investors of their underwriting policies. They also were not upfront on properties that were owner-occupied or on the true values of their mortgaged homes. Additionally, the company never revealed their policy of making exceptions on numerous mortgages as they were pushed through underwriting.
In the complaint filed this week in federal court Allstate said, “The defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default.”
In response Bank of America released in a statement today, “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.”
Bank of America is not done reviewing the complaint and this is not the first criticism they have dealt with on this issue. Bank of America has been dealing with mortgage fallout due to loans they obtained from Countrywide.
It is important to note that Bank of America is not the only lender dealing with these issues. Other lending institutions have also been accused of the same violations and there is no telling how many more suits like these will be filed.