April 2 (Bloomberg) -- Credit Suisse Group AG, Switzerland’s second-biggest bank, was sued by Financial Guaranty Insurance Co. for allegedly misrepresenting the attributes of mortgage loans.
Financial Guaranty Insurance’s suit, filed today in New York State Supreme Court in Manhattan, accused Zurich-based Credit Suisse of making the misrepresentations to induce the insurer to guarantee payments due on certain securities issued in a Credit Suisse residential mortgage-backed securitization transaction.
The bank said it had selected about $250 million in “prime residential mortgage loans” for the securitization, including loans issued to borrowers with a low risk of default, good credit records and enough income to meet monthly obligations, according to FGIC’s complaint.
“Credit Suisse’s pre-closing representations were fraudulent, the warranties it made in the insurance agreement were false, and it willfully disregarded and frustrated its contractual covenants,” FGIC said in the complaint.
Mortgages in one group that backed two classes of the securities have defaulted at a “remarkable rate,” resulting in losses of more than $67 million, and FGIC has paid or is obligated to pay more than $41 million in claims under its policy, according to the complaint.
Financial Guaranty Insurance, based in New York, agreed in June to be taken over by the state’s Department of Financial Services, which regulates insurers.
“FGIC was a sophisticated multibillion-dollar insurance company that received full disclosure about the securities it chose to insure,” Drew Benson, a New York-based spokesman for Credit Suisse, said in an e-mail.
The case is Financial Guaranty Insurance Co. v. Credit Suisse Securities (USA) LLC, 651178/2013, New York State Supreme Court (Manhattan).
To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Hytha at email@example.com