Allstate Sues Bank of America - Its Not Our Fault Litigation

From the "It Couldn't Be Our Fault" files, we have a new entry.  Now, I am not saying that the loans were good and did not pose risks, but come on, you honestly didn't know there could be problems?  I remember hearing terms like "liar loans" and other terms of affection during that period.  Basically, no one expected HPD or home price depreciation.  It was the "prices go up always" mentality.   Makes me wonder what type of analysis was done.  There were no stats on the loans?  That I am aware, they broke down the pools and you could see the LTVs, FICOs etc.  


Mine is not a popular view, admittedly.  I realize that suing issuers is all the rage as some of the biggest names have done it, but do the investors have no liability here?  I was an institutional investor for 15+ years, and I would not pursue litigation if the error was mine.  If it were fraud and we had no information on it or could not have picked it up through our analysis (which was thorough and involved more than a cursory rating review) then it was go time (an example was the split up of Tyco).  If you didn't do your homework, take your lumps.

(Reuters) - Allstate Corp has sued Bank of America Corp, its Countrywide lending unit and 17 other defendants for allegedly misrepresenting the risks on more than $700 million of mortgage securities it bought from Countrywide.

Allstate, the largest publicly traded U.S. home and auto insurer, alleged it suffered "significant losses" after Countrywide misled it into believing the securities were safe, and the quality of home loans backing them was high.

The lawsuit also names several former Countrywide officials as defendants, including longtime Chief Executive Angelo Mozilo. Countrywide was the largest U.S. mortgage lender before Bank of America bought it in July 2008.

Allstate said that starting in 2003, Countrywide quietly decided to boost market share and ignore its own underwriting standards by approving any mortgage product that a competitor was willing to offer, in a "proverbial race to the bottom."

Countrywide then passed on the added risks to investors who bought debt backed by the mortgages, Allstate said.

Mortgage Rates Head Up

Mortgage rates are increasing, which should slow prepayment rates and cause the mortgage market to begin to see its duration extend.  Should this trend continue, look for increased hedging activity and the effects on the treasury curve.

(AP) Rates on fixed mortgages rose for the fourth straight week this week, hitting 4.61 percent. The surge could slow refinancings and further hamper the housing market.

Freddie Mac said Thursday that the average rate on a 30-year fixed loan increased sharply from last week's rate. And it is well above the 4.17 percent rate hit a month ago -- the lowest level on records dating back to 1971.

The average rate on a 15-year fixed loan rose to 3.96 percent. Rates hit 3.57 percent last month -- the lowest level since 1991.

Rates on five-year adjustable-rate mortgages averaged 3.60 percent, up from 3.49 percent. The five-year hit 3.25 percent last month, the lowest rate on records dating back to January 2005.

Rates on one-year adjustable-rate home loans slipped to 3.27 percent from 3.25 percent.