April 27 (Bloomberg) -- Credit Suisse Group was sued by a Florida insurer that says it lost money on investment-grade bonds backed by subprime mortgages sold by the bank.

The suit, filed in Florida by Bankers Life Insurance Co., is ``one of three to five in the pipeline'' involving securitizations by Credit Suisse, Switzerland's second-largest bank, said Dale Ledbetter of Ledbetter & Associates P.A., one of two law firms representing the Bankers Financial Corp. unit.

``We suspect that once people understand what occurred here, there's going to be a lot more,'' Ledbetter said. A total of $302.6 million of bonds were originally issued in the deal.

Bankers Life, based in St. Petersburg, is seeking to recover about $1.3 million to make up for losses of principal, interest and market value on about $1.4 million of the 2001 bonds it bought in 2004, Ledbetter said. Other investors considering suits will probably seek between $500,000 and $3 million each, he said.

Credit Suisse units caused Bankers Life to lose money by overstating how much of losses after foreclosures on the loans insurance would cover; accepting ``shoddy, inferior'' loans; failing to buy back fraudulent ones; and covering up delinquencies, according to a complaint filed April 23 in Tampa. Payments were being advanced on borrowers' behalf to ``maintain the illusion'' defaults weren't occurring, Bankers Life claims.

Wall Street and other mortgage-bond issuers have been misleading investors about how much protection from losses they have, helping fuel a record housing boom that's now ended, Ledbetter claimed. The suit also named mortgage insurer Triad Guaranty Inc. and trustee Bank of New York as defendants.

Normal Process

When bonds backed by assets default, ``we do see a lot of disputes, but most of them go to arbitration'' or get settled, said Janet Tavakoli, the president of Tavakoli Structured Finance Inc., a Chicago-based consulting firm. ``If you're a sophisticated investor, there's an embarrassment factor in admitting'' an investment failed by bringing a suit.

Victoria Harmon, as spokeswoman for Credit Suisse, and. Kevin Heine, a spokesman for Bank of New York, declined to comment. Winston-Salem, North Carolina-based Triad Guaranty isn't aware of the suit, said Jerrold C. Schwartz, a spokesman.

Triad, which provided both loan and pool insurance, failed to pay claims for default loans because it claimed they were fraudulent, without responding to Bankers Life's requests for more information, the complaint said. Bank of New York failed to report when the claims weren't being paid, Bankers Life says.

The insurer also claims Credit Suisse misrepresented that the loans were from ``highly credible financial institutions'' when they were made by smaller lenders; put adjustable-rate loans in pools that borrowers couldn't later afford; and didn't pursue foreclosures and insurance claims appropriately.

Subprime Mortgages

Lawsuits of the type have been especially rare recently, said Peter Haveles Jr., a partner in New York at Arnold & Porter LLP. ``Over the last number of years, for residential mortgage- backed securities, it's been a very stable market because of falling interest rates and rising values, so there hasn't been the potential for a lot of investor lawsuits,'' he said.

The commercial-mortgage bond market has seen a few more, though not many, Haveles said. A Dallas, Texas-based unit of Japan's Orix Corp. filed a series of suits, including on that attempted to get Nomura Holdings Inc.'s lending unit to buy back a $50 mortgage it had made on a medical office building in 1997.

Subprime mortgages are given to borrowers with poor or limited credit histories or high debt burdens. They typically carry rates at least 2 or 3 percentage points above the safest mortgage for lenders; the rates are usually fixed for two or three years, and then rise 3 percentage points or more without declines in the interest-rate benchmarks that track.

About $448 billion of bonds of subprime mortgages were issued last year, down 3.5 percent from 2005 and an eight-fold rise from 2000, according to newsletter Inside MBS & ABS.

The case is Bankers Life v. Credit Suisse, 07-cv-00690, U.S. District Court, Middle District of Florida (Tampa).

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: April 27, 2007 17:46 EDT