This is pretty rich. AIG (AIG) has announced a lawsuit against Countrywide, now owned by Bank of America (BAC), for misrepresenting the quality of the loan portfolio that it insured. In other words, AIG’s United Guaranty unit claims that it would’ve charged more for insurance, or maybe not written any at all, if only Countrywide had been honest about the quality of borrowers it was lending too.
AP: United Guaranty alleges Countrywide “abandoned its own underwriting guidelines to boost its market share and then misrepresented the quality of its loans so that United Guaranty would provide insurance coverage for them.”
The AIG unit is seeking unspecified punitive damages, and wants the insurance policies on the loans and its payments on the policies to be canceled.
We can’t answer this definitively. We suppose it’s possible that there was some fraudulent misrepresentation. But given that everyone was turning a blind eye towards everything, and that AIG seemed to be insuring all manner of toxic sludge, this strikes us a stretch.
On the other hand, if you’re going down, might as well take everyone else down with you.