Ambac sues ex-Bear Stearns unit

By Grant McCool

NEW YORK (Reuters) - Ambac Financial Group Inc (ABK.N) on Wednesday sued EMC Mortage Corp, a former subsidiary of Bear Stearns, for breach of contract over mortgage-backed securities transactions.

The lawsuit filed in U.S. District Court in Manhattan claimed that contract breaches by EMC in three transactions lead to more than $313.7 million in losses and resulted in $78.8 million in claims paid by Ambac Assurance Corp, a unit of the group.

A fourth transaction suffered more than $321.4 million in losses, resulting in $52.6 million in claims paid by Ambac, the complaint said.

"The dramatically poor loan performance corroborates Ambac's findings that the entire pool of loans that EMC securitized in each transaction is plagued by rampant fraud and abdication of sound mortgage-origination and underwriting practices," according to the lawsuit.

EMC is a former subsidiary of Bear Stearns, which collapsed in the home mortgage meltdown and was taken over by JPMorgan (JPM.N) in March. A JPMorgan spokesman declined comment on the lawsuit.

Ambac said in the complaint that the four separate transactions were sponsored by EMC in December 2005, January and September 2006 and April 2007.

Ambac charged that the "Bear Stearns securitization machine was a house of cards, supported not by real value and sound practices but by Bear Stearns appetite for loans and disregard as to the risks those loans represented."

It said the loans were underwritten without regard to standards of mortgage lending such as assessments of a borrowers ability and willingness to repay a loan.

In a conference call with reporters on Wednesday Ambac representatives said the lawsuit follows a year-long effort to resolve the issue.

The lawsuit said "EMC assured Ambac in explicitly worded contractual terms that Ambac need not be concerned about the risk that the loans would not conform to EMC's representations."

But Ambac said that after "profiting handsomely" from sposnsoring the securitizations, EMC "seeks to walk away from its explicit contractual representations and commitments as pervasive origination failures -- and thus EMC's pervasive breaches -- come to light."

(Editing by Leslie Gevirtz)