AIG Unit Sues Countrywide Over Loan Losses

LOS ANGELES (AP) — A unit of embattled insurer American International Group Inc. filed suit against mortgage lender Countrywide Financial Corp. in California federal court Thursday, alleging Countrywide misrepresented the health of loans that the company insured, resulting in massive losses.

United Guaranty Mortgage Indemnity Co. filed suit in U.S. District Court, accusing Countrywide of breach of contract, fraud, negligence, and unfair competition and business practices.

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.

Charlotte, N.C.-based Bank of America bought Countrywide in July 2008 for about $2.5 billion in an all-stock deal. Countrywide was the nation's largest mortgage lender at the time of the acquisition. But like most lenders, the company was hit hard by sharply rising defaults over the past 18 months. Bank of America received billions in federal aid so it could absorb mortgage-related losses from Countrywide and its later acquisition, Merrill Lynch.