(Updates with comments from lawsuit starting in second paragraph.)
Feb. 15 (Bloomberg) -- Syncora Guarantee Inc. sued JPMorgan Chase & Co.’s EMC Mortgage unit over mortgage-backed securities, alleging fraud and breach of contract in a lawsuit filed in New York state court.
The suit was brought in connection with a transaction known as SACO I Trust 2006-1, which involved the securitization of residential mortgage loans with an aggregate principal balance of more than $310 million, Syncora said in the complaint. That transaction served as collateral for the issuance of about $303 million in securities.
EMC Mortgage was a unit of Bear Stearns Cos. until the investment bank was bought by JPMorgan in 2008. Bear Stearns and EMC obtained a financial-guaranty insurance policy from New York-based bond insurer Syncora “to enhance the marketability of the securities and their return on the transaction,” according to the lawsuit.
Bear Stearns made “materially false and misleading representations to induce Syncora to insure the transaction,” and didn’t conduct “extensive due diligence” as it had promised, lawyers for the bond insurer said in the lawsuit.
The transaction had experienced cumulative losses of $96.7 million as of Sept. 30, which has resulted in Syncora making more than $51.9 million in claim payments, the complaint says.
Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan Chase, declined to comment on the lawsuit in an e-mail.
The case is Syncora Guarantee Inc. v. EMC Mortgage LLC, 650420/2012, New York State Supreme Court (Manhattan.)
--Editors: Fred Strasser, Glenn Holdcraft
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