AIG Sues Bank Of America For More Than $10B Over Mortgage Securities

Feuer Frei! · 08-08-11, 10:43 PM

American International Group Inc. said Monday it sued Bank of America Corp. for more than $10 billion, saying the bank cheated it by selling residential mortgage-backed securities that were overvalued. Bank of America denied the allegations, saying AIG "recklessly" chased investments with high returns, and was big and sophisticated enough to know the risks.
Banks have been hit by a series of suits over misrepresentations of mortgage-based securities.
AIG said Bank of America and two companies that were later gobbled up by the bank, Countrywide and Merrill Lynch, sold the insurance company $28 billion in securities backed by home mortgages between 2005 and 2007, at the height of the housing boom. It said it looked at more than 260,000 of the underlying mortgages, and found that the bank's "stated metrics" for 40 percent of the securities were false.
In one case, a borrower said she had been the owner of a construction business for 25 years, which would have made her 10 years old when she took ownership, AIG said.
Bank of America spokesman Lawrence Grayson said the blame lies with AIG.
"AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets. It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors," Grayson said.
AIG spokesman Mark Herr shot back: "It is disappointing but unsurprising that Bank of America continues to attempt to blame others for its own misconduct. Investors, no matter how sophisticated, were entitled to rely on its numerous written representations about the securities it sold."
Bank of America shares fell $1.17, or 14 percent, to $7 in noon trading as investors reacted to the downgrade of the U.S. government's credit rating by Standard & Poor's. Earlier in the day, they hit a 2-year low of $6.83.
AIG shares fell $2.08, or 8.3 percent, to $23.02, setting a one-year low.
In June, Bank of America agreed to pay $8.5 billion to a group of investors for selling them poor-quality mortgage securities. AIG's suit is separate, but the company is raising questions about whether the settlement went far enough. On Friday, New York Attorney General Eric Schneiderman urged the judge to reject the settlement, calling it unfair.

SOURCE

Growler · 08-09-11, 10:05 AM

The blame game marches on. I guess the taxpayer-funded bailout just wasn't enough.

Pardon me. I've a fiddle to play by the light of a burning city.

AVGWarhawk · 08-09-11, 10:18 AM

The blame game will continue to go on between the lenders. We can say though, with reasonable assurance, that the current economic climate was generated by poor lending habits by the banks for homes over many years. This was topped off with credit card offerings to folks that spent beyond their means and the credit card companies provided the rope so these folks could hang themselves.

Growler · 08-09-11, 10:20 AM

Quote:

Originally Posted by AVGWarhawk

The blame game will continue to go on between the lenders. We can say though, with reasonable assurance, that the current economic climate was generated by poor lending habits by the banks for homes over many years. This was topped off with credit card offerings to folks that spent beyond their means and the credit card companies provided the rope so these folks could hang themselves.

Unfortunately, they also hanged us with the bill.

AVGWarhawk · 08-09-11, 10:22 AM

Quote:

Originally Posted by Growler

Unfortunately, they also hanged us with the bill.

We were drowned in the aftermath from the bloodshed.

Growler · 08-09-11, 10:32 AM

Quote:

Originally Posted by AVGWarhawk

We were drowned in the aftermath from the bloodshed.

"How long can you tread water?"
~Bill Cosby

Winston · 08-09-11, 12:04 PM

This is the result greed from both of them. CDOs (collateralised debt obligations) were nothing more than sub-prime home loans packaged up in to securities and sold at a AAA rating, but securities with a reported return of investment that was too good to ignore. Some investment funds, eg Pensions are required by law not to invest in high risk securities such as these but no one looked in to what CDOs were. They did not understand or more likely did not care to examen these financial tools more closely.

Greed breeds fraud and there are fewer examples of this we can look at. First you have one of them finding all the sub prime debt and wilfully packing it up in a tasty looking investment. However it's a box that is full of debt that can never be repaid made to look like a safe investment with high returns. In the face of that you have the other purchasing these for funds on behalf of there cliants, with out properly looking at these CDOs.

As I understand it, used to be someone had to have some sort of income before they could get a mortgage or a loan back in the '70's, however why worry about the borrower paying back there debts if you plan on selling it on to a bunch of saps? And that there was the problem. As long as bank intended to repackage and sell on these bad debts then they were going to make money anyway. They lost there incentive to make sure the loan was able to be paid back. So the fraud its self was encouraging to much lending, lending of a very predatory nature that would only end in one way. The rest is history.

AVGWarhawk · 08-09-11, 12:12 PM

Quote:

As I understand it, used to be someone had to have some sort of income before they could get a mortgage or a loan back in the '70's, however why worry about the borrower paying back there debts if you plan on selling it on to a bunch of saps? And that there was the problem

In part, yes. In the 70's one would have to save a substantial down payment before a loan was offered on said home. In the 80's the rules changed to basically breathing and having about 8% down. In the 90's, attempting to let everyone have the American dream all one would need is a barely registering pulse and a few bucks. As for the rest, yes sir, the loans banks offered knowing they would be sold off went on for years. These loans eventually going into default because people were provided loans based on a economy continually growing. Only those that have a fantastic credit report would be retained by the first originator of the loan. In short, no possibly way of becoming toxic. As we see, one hiccup and the domino effect started.

mookiemookie · 08-09-11, 12:32 PM

Quote:

Originally Posted by Winston

As I understand it, used to be someone had to have some sort of income before they could get a mortgage or a loan back in the '70's, however why worry about the borrower paying back there debts if you plan on selling it on to a bunch of saps? And that there was the problem. As long as bank intended to repackage and sell on these bad debts then they were going to make money anyway. They lost there incentive to make sure the loan was able to be paid back. So the fraud its self was encouraging to much lending, lending of a very predatory nature that would only end in one way. The rest is history.

Nail on the head.

08-08-11, 10:43 PM	#1
Feuer Frei! Navy Seal Join Date: Sep 2009 Location: Valhalla Posts: 5,295 Downloads: 141 Uploads: 17	AIG Sues Bank Of America For More Than $10B Over Mortgage Securities American International Group Inc. said Monday it sued Bank of America Corp. for more than $10 billion, saying the bank cheated it by selling residential mortgage-backed securities that were overvalued. Bank of America denied the allegations, saying AIG "recklessly" chased investments with high returns, and was big and sophisticated enough to know the risks. Banks have been hit by a series of suits over misrepresentations of mortgage-based securities. AIG said Bank of America and two companies that were later gobbled up by the bank, Countrywide and Merrill Lynch, sold the insurance company $28 billion in securities backed by home mortgages between 2005 and 2007, at the height of the housing boom. It said it looked at more than 260,000 of the underlying mortgages, and found that the bank's "stated metrics" for 40 percent of the securities were false. In one case, a borrower said she had been the owner of a construction business for 25 years, which would have made her 10 years old when she took ownership, AIG said. Bank of America spokesman Lawrence Grayson said the blame lies with AIG. "AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets. It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors," Grayson said. AIG spokesman Mark Herr shot back: "It is disappointing but unsurprising that Bank of America continues to attempt to blame others for its own misconduct. Investors, no matter how sophisticated, were entitled to rely on its numerous written representations about the securities it sold." Bank of America shares fell $1.17, or 14 percent, to $7 in noon trading as investors reacted to the downgrade of the U.S. government's credit rating by Standard & Poor's. Earlier in the day, they hit a 2-year low of $6.83. AIG shares fell $2.08, or 8.3 percent, to $23.02, setting a one-year low. In June, Bank of America agreed to pay $8.5 billion to a group of investors for selling them poor-quality mortgage securities. AIG's suit is separate, but the company is raising questions about whether the settlement went far enough. On Friday, New York Attorney General Eric Schneiderman urged the judge to reject the settlement, calling it unfair. SOURCE __________________ "History is the lies that the victors agree on"- Napoleon LINK TO MY SH 3 MODS

08-09-11, 10:05 AM	#2
Growler A long way from the sea Join Date: May 2005 Location: Iowa Posts: 1,913 Downloads: 21 Uploads: 0	The blame game marches on. I guess the taxpayer-funded bailout just wasn't enough. Pardon me. I've a fiddle to play by the light of a burning city. __________________ At Fiddler’s Green, where seamen true When here they’ve done their duty The bowl of grog shall still renew And pledge to love and beauty.

08-09-11, 10:18 AM	#3
AVGWarhawk Lucky Jack Join Date: Jun 2005 Location: In a 1954 Buick. Posts: 28,253 Downloads: 90 Uploads: 0	The blame game will continue to go on between the lenders. We can say though, with reasonable assurance, that the current economic climate was generated by poor lending habits by the banks for homes over many years. This was topped off with credit card offerings to folks that spent beyond their means and the credit card companies provided the rope so these folks could hang themselves. __________________ “You're painfully alive in a drugged and dying culture.” ― Richard Yates, Revolutionary Road

08-09-11, 12:04 PM	#7
Winston Wild Night in Bangkok Join Date: Aug 2003 Location: Wales Posts: 179 Downloads: 5 Uploads: 0	This is the result greed from both of them. CDOs (collateralised debt obligations) were nothing more than sub-prime home loans packaged up in to securities and sold at a AAA rating, but securities with a reported return of investment that was too good to ignore. Some investment funds, eg Pensions are required by law not to invest in high risk securities such as these but no one looked in to what CDOs were. They did not understand or more likely did not care to examen these financial tools more closely. Greed breeds fraud and there are fewer examples of this we can look at. First you have one of them finding all the sub prime debt and wilfully packing it up in a tasty looking investment. However it's a box that is full of debt that can never be repaid made to look like a safe investment with high returns. In the face of that you have the other purchasing these for funds on behalf of there cliants, with out properly looking at these CDOs. As I understand it, used to be someone had to have some sort of income before they could get a mortgage or a loan back in the '70's, however why worry about the borrower paying back there debts if you plan on selling it on to a bunch of saps? And that there was the problem. As long as bank intended to repackage and sell on these bad debts then they were going to make money anyway. They lost there incentive to make sure the loan was able to be paid back. So the fraud its self was encouraging to much lending, lending of a very predatory nature that would only end in one way. The rest is history. __________________ "Don't talk to me about naval tradition. It's nothing but rum, sodomy and the lash"