Failed lender IndymacBank is now “OneWest Bank” — rescued by a $16 billion purchase in March — but its problems linger.
Insurer MBIA is suing the collapsed bank for dumping them with more than $1 billion in bad loans.
Courthouse News: MBIA Insurance Corp. says IndyMac Bank knowingly loaned millions of dollars to borrowers who could not afford to repay the loans, leaving the stock insurance company to pay out more than $487 million on its guarantees with an expected $566 million more to come, MBIA claims in [LA] Superior Court. MBIA says IndyMac “abandoned any reasonable and prudent underwriting standards” in an “effort to expand its market share during the mortgage lending boom,” according to the complaint.
MBIA also says IndyMac encouraged its workers to inflate borrowers’ incomes on loan applications to get them loans for which they wouldn’t have qualified. MBIA says the thousands of mortgage loans in default or foreclosure “would not have occurred if IndyMac had followed the loan-origination practices that it represented to investors it was following.”
MBIA also named Credit Suisse, UBS and JPMorgan Chase in the suit — the banks bought the mortgage-backed securities originated at Indymac.
No doubt IndyMac and the others did an awful job of lending. Still, we find MBIA’s claim unimpressive. If your job is to write insurance on financial assets, it’s your job to know what you’re insuring, and part of that is analysing data quality.
The suit is just another example of buck-passing these days, whether it’s this or investors blaming the ratings agencies for their bad investing decisions.
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