MBIA Insurance Corporation Sues IndyMac

IndyMac ‘s problems continue even after a sixteen billion dollar rescued purchase from OneWest Bank in March of this year.

The once giant mortgage lender is being used by MBIA Insurance Corporation for the discarding more than one billion dollars in defaulted loans on the mortgage Insurers plate.

MBIA claims that IndyMac willfully loaned to borrowers who were not able to afford to repay the loans and that the company consistently processed those loans in the tune of over one billion dollars. MBIA, a stock insurance company was left holding the bag for the defaulted loans. MBIA has had to fork out more than four hundred eighty million dollars in guarantees and expects another five hundred million more to come. MBIA declared in Superior Court that IndyMac had “abandoned any reasonable and prudent underwriting standards in its efforts to expand its market share during the mortgage lending boom.”

MBIA also claims that IndyMac inflate borrowers incomes on loan applications and encouraged their employees to do so to ensure that the borrowers would qualify. MBIA believes that over a thousand loans would not have been in foreclosure if this practice had not occurred. MBIA believes that if IndyMac would have continue with the underwriting practices and loan origination practices that it presented to investors that these losses would not have occurred.

MBIA also accused JP Morgan Chase, Credit Suisse, and UBS in the lawsuit citing the banks purchased the mortgage backed securities that originated at IndyMac.

Observers of the mortgage crisis believe this to be another example of passing the buck when it comes to who is at fault. Observers say that indeed IndyMac handled its underwriting was disregard however MBIA claim against the company is less than extraordinary. MBIA job was to write insurance on financial assets and it was their job to know what they were insuring and part of that is looking at the quality of the data presented.