May 5, 2011 / 9:11 PM / 8 years ago

UPDATE 2-MassMutual sues Goldman, JPMorgan, Barclays, UBS

* MassMutual says mortgage debt lost 77 pct of value

* Insurer says banks misled it about debt’s risk

* Goldman, JPMorgan, UBS decline comment

* No immediate comment from Barclays (Adds details, background, Allstate litigation, byline)

By Jonathan Stempel

NEW YORK, May 5 (Reuters) - Massachusetts Mutual Life Insurance Co accused four major banks in a lawsuit of hiding the risks on $175.8 million of mortgage-related debt it bought, which lost three-fourths of its value as homeowners defaulted.

The lawsuit filed on Thursday in the federal court in Boston names Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N), Barclays Plc (BARC.L), UBS AG UBSN.VX and several bank officials as defendants.

It accuses the banks of misleading MassMutual, one of the nation’s biggest insurers, about the risks on certificates they underwrote between 2005 and 2007 that were backed by home loans issued by American Home Mortgage Investment Corp.

American Home lent to people who could not fully document their income and assets. It had been the 10th largest U.S. mortgage lender before its bankruptcy in August 2007.

Insurers, eager to improve their returns, had before the nation’s housing slump been drawn to seemingly safe mortgage debt to boost yields, only to later see it turn toxic.

They and other investors have filed tens of billions of dollars of lawsuits against banks, lenders and others that issues the mortgages or packaged them into securities.

MassMutual said the American Home certificates it bought are now “junk,” with 21.5 percent to 44.8 percent of the loans in each of six securitizations being delinquent, in default or foreclosed upon. It said this caused the market value of the certificates to plunge 77 percent to just $41 million.

“In a properly underwritten pool of loans, one would not expect to see such a large spike of defaults occurring shortly after origination,” the complaint said.

Representatives of Goldman, JPMorgan, Barclays and UBS declined to comment.

MassMutual had in February filed a lawsuit against Credit Suisse Group AG CSGN.VX over alleged mortgage losses.

Similarly, home and auto insurer Allstate Corp (ALL.N) has since late December sued several banks in a New York state court to recover losses on about $2.1 billion of risky mortgage-backed debt it said had been marketed as safe.

The case is Massachusetts Mutual Life Insurance Co v. Goldman Sachs Mortgage Co et al, U.S. District Court, District of Massachusetts, No. 11-30126. (Reporting by Jonathan Stempel in New York; Additional reporting by Ben Berkowitz in New York and Aaron Pressman in Boston; Editing by Ted Kerr, Bernard Orr)

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