Turn On The Lights, Watch The Roaches Scatter Part 60

The big Six-Oh on the Foreclosuregate fiasco is a big one:  A group of insurance companies has just dropped the hammer on Bank of America, after finding some 91% of the 19,000 securitized mortgages the insurance giants reviewed had some sort of paperwork problem.

Ninety-one percent.  Needless to say, the lawsuit flat out accuses BoA of "massive mortgage fraud".

Tyler Durden:

To wit, from the lawsuit: "In carrying out its review of the approximately 19,000 Countrywide loan files, MBIA found that 91% of the defaulted or delinquent loans in those securitizations contained material deviations from Countrywide’s underwriting guidelines.

MBIA’s report showed that the loan applications frequently “(i) lack key documentation, such as verification of borrower assets or income; (ii) include an invalid or incomplete appraisal; (iii) demonstrate fraud by the borrower on the face of the application; or (iv) reflect that any of borrower income, FICO score, debt, DTI [debt-to-income,] or CLTV [combined loan-to-value] ratios, fails to meet stated Countrywide guidelines (without any permissible exception)."

The plaintiff counsel is Bernstein Litowitz, which was made famous from the WorldCom litigation. We doubt they will settle for a few measily pennies on the dollar. As for the list of litigants, it is a veritable who's who of the insurance industry: Dexia Holdings, FSA Asset Management, New York Life Insurance Company, The Mainstay Funds, Teachers Insurance & Annuity, TIAA-CREF Life Insurance, and College Retirement Equities Fund. 

Bottom line:  when only one out of ten mortgages you sell in a AAA rated investment vehicle is actually even legal from a paperwork standpoint, you're in an egregious amount of trouble.  These are big-league institutional investors worth billions themselves, and they aren't going to just walk away here.  They know damn well they have BoA by the short and curlies.

And somehow, I don't think the insurance companies are going to run out of money fighting this before Bank of America does.  This one's going to go all 15 rounds, folks.  Pull up a chair.  If the government won't break up the banks, well the corporate shark feeding frenzy will.