Assured Says BofA Deal Leaves $5.4 Billion of Faulty Loans

Assured Guaranty CEO Dominic Frederico
Dominic Frederico, president and chief executive officer of Assured Guaranty Ltd. Photographer: Jin Lee/Bloomberg

Assured Guaranty Ltd., the company that reached a $1.6 billion deal with Bank of America Corp. on soured mortgages guaranteed by the bond insurer, said it’s still seeking buybacks from Deutsche Bank AG, UBS AG and Credit Suisse Group AG on $5.4 billion of loans.

Assured also plans to review $9 billion more of mortgages for breaches of so-called representations and warranties banks made when the insurer agreed to guarantee securities backed by the debt, Chief Executive Officer Dominic Frederico said on a conference call with investors today. Assured increased its expected losses from such loans by $372.8 million last quarter, citing higher delinquencies and loss severities.

Government lending probes are bolstering Hamilton, Bermuda-based Assured’s effort to recover losses from toxic mortgages, Frederico said. The Justice Department sued Deutsche Bank last week for more than $1 billion, saying it lied about its processes for checking the quality of loans granted federal insurance. Credit Suisse received a subpoena from the U.S. Securities and Exchange Commission, insurer MBIA Inc. said last week, and JPMorgan Chase & Co. also has received a subpoena, a person familiar with the investigation said.

“All of those lead to a more conducive environment to settlement,” Frederico said on today’s call. Some lenders “at least appear to be beginning to want to start a process. Others still have been very uncooperative and in those cases we will seek litigation.”

Bank of America Deal

Bank of America said April 15 that it agreed to pay Assured $1.1 billion to settle claims on $5.2 billion of residential mortgage securities. It also agreed to cover losses that may raise the total cost to $1.6 billion, the Charlotte, North Carolina-based bank said.

The loans Assured is pursuing payments for included misrepresentations of borrower incomes, debt, employment status or intent to occupy homes backing the mortgages, Frederico said.

Steven Vames, a spokesman for Credit Suisse, didn’t immediately respond to an e-mail seeking comment. Torie Von Alt, a spokeswoman for UBS, didn’t immediately return a telephone call.

Renee Calabro, a spokeswoman for Deutsche Bank, declined to comment. After the Justice Department’s suit last week, Deutsche Bank said that almost 90% of the activity covered by the DOJ allegations happened prior to Deutsche Bank’s acquisition of its Mortgage IT unit.

“We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously,” the bank said in a statement last week.

-- With assistance from Jody Shenn and Karen Freifeld in New York. Editors: Sharon L. Lynch, Pierre Paulden.

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