Ambac Assurance Corp., a unit belonging to bond insurer Ambac Financial Group Inc., has sued Credit Suisse Securities and affiliate DLJ Mortgage Capital alleging ‘pervasive and material misrepresentations’ regarding mortgage-backed securities.
The suit, filed in the New York State Supreme Court, claims home equity lines of credit in a 2007 pool defaulted at a high rate and that the insurer was misled about loan quality, a Reuters report says. Credit Suisse spokesperson Bruce Corwin says the suit is without merit.
A forensic loan audit performed by an outside firm found that 80% of a sample of loans in the pool breached DLJ and Credit Suisse warranties, the Reuters report adds.
A Wall Street Journal story notes that Ambac has already paid about $44 million in claims on the security.
"[F]raud by borrowers, brokers and/or originators was so rampant that Credit Suisse either knew or recklessly disregarded its prevalence,’ the lawsuit says, according to the WSJ's report.