* Ruling gives MBIA access to borrower job information
* MBIA hopes to prove underwriting breaches
* MBIA seeks similar data in related case
WILMINGTON, Del., May 10 An MBIA Inc (MBI.N)
insurance unit can demand job and income data on mortgage
borrowers at a unit of Ally Financial Inc GKM.N, a move it
hopes will help it prove it was fraudulently induced to insure
billions of dollars of mortgage bonds.
In a ruling made public on Tuesday, New York State Supreme
Court Justice Bernard Fried allowed MBIA, once the world's
largest bond insurer, to issue subpoenas to employers of
borrowers who took out mortgages with Ally's Residential
Funding Co unit.
MBIA hopes to find added ammunition that will enable it to
prove Residential Funding breached its obligations on five
mortgage securitization transactions that MBIA insured.
It contends that Residential Funding made loans that did
not conform to its underwriting guidelines.
Ally did not immediately return a call for comment.
Many of the loans were second-lien mortgages and "stated
income" loans, which often require little documentation from
borrowers and proved among the most toxic during the nation's
MBIA had argued that Residential Funding was nonetheless
obligated to prove that borrowers' stated income and employment
status was reasonable, given where they lived and what their
The bond insurer had paid out $871 million in claims on the
securities as of March 2010, court documents show.
MBIA was restructured by New York's insurance department in
February 2009, a process now being challenged by 11 banks and
other financial institutions before the state's highest court.
MBIA has a similar subpoena request in a different New York
case before a different judge against Countrywide Financial
Corp, which is now a unit of Bank of America Corp (BAC.N).
The bond insurer cited what it said were examples of
nonconforming stated income loans in court documents. In one, a
borrower in Scottsdale, Arizona, stated income of about
$132,000 annually, despite having assets of only $11,491.
The same borrower later claimed in a bankruptcy filing that
the 2006 income was only $43,523 and the bank account used to
verify the borrower's reserves was revealed to be held in the
name of the loan officer.
The case is MBIA Insurance Corp v Residential Funding Co,
New York State Supreme Court, New York County, No.
(Reporting by Tom Hals; Editing by Tim Dobbyn)