The insurer, MBIA , claims that Morgan Stanley made loans to homeowners who couldn’t afford them, and packaged the risky loans into securities that did not meet its underwriting guidelines. They also allege that Morgan’s servicing arm did not have the staffing or ability to service the loans. MBIA, relying on Morgan’s misrepresentations, insured the securities for over $200 million. The complaint can be found here.
A homeowner who cannot afford the mortgage unlikely could afford to prove, in a lawsuit, what really happened in their individual case. As the big money comes in to play, the evidence will start gushing out.