By Jonathan Stempel
NEW YORK (Reuters) - Allstate Corp has sued Bank of America Corp and 18 other defendants over alleged losses on more than $700 million of mortgage securities it bought from Countrywide Financial Corp.
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 that the quality of residential home loans backing them was high.
Allstate said that starting in 2003, Countrywide quietly decided to boost market share by approving any mortgage product that a competitor was willing to offer, in a "proverbial race to the bottom." It said Countrywide then passed on the added risks to investors who bought debt backed by the mortgages.
"Defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default," said the 150-page complaint filed Monday in Manhattan federal court.
Among the defendants are several former Countrywide officials, including long-time Chief Executive Angelo Mozilo.
Allstate seeks to rescind its purchases of the securities, as well as unspecified damages. Bank of America is the largest U.S. bank by assets. Countrywide had been the largest U.S. mortgage lender before Bank of America bought it in July 2008.
Bank of America spokesman Bill Halldin and David Siegel, a partner at Irell & Manella LLP who has represented Mozilo, did not immediately return calls seeking comments.
Daniel Brockett, a partner at Quinn Emanuel Urquhart & Sullivan LLP representing Allstate, also did not immediately return a call.
PROBES
Mozilo agreed in October to a $67.5 million settlement of a U.S. Securities and Exchange Commission civil fraud lawsuit.
The SEC accused Mozilo, 72, of misleading investors about Countrywide's health and risk-taking, and generated roughly $140 million of improper gains from insider stock sales.
Mozilo was the first top executive personally punished over alleged wrongdoing tied to the nation's housing collapse. Bank of America agreed to cover two-thirds of his penalty. Mozilo did not admit wrongdoing in agreeing to the SEC accord.
Bank of America is also among banks including Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co and Wells Fargo & Co to face SEC subpoenas as the regulator examines how mortgages were packaged for sale to investors, people familiar with the probe said.
The U.S. Justice Department and all 50 U.S. state attorneys general are also probing potential wrongdoing in mortgages, while Arizona and Nevada accused Bank of America in a lawsuit of misleading borrowers about home loan modifications.
Allstate is based in Northbrook, Illinois. Bank of America is based in Charlotte, North Carolina.
In afternoon trading on the New York Stock Exchange, shares of Bank of America rose 15 cents to $13.42, while Allstate fell 14 cents to $31.95.
The case is Allstate Insurance Co et al v. Countrywide Financial Corp et al, U.S. District Court, Southern District of New York, No. 10-09591.
(Reporting by Jonathan Stempel in New York; Additional reporting by Dan Levine in San Francisco and Joe Rauch in Charlotte, North Carolina; Editing by Steve Orlofsky)
