Bond insurer Assured Guaranty Ltd filed new claims against JPMorgan Chase & Co over a mortgage-backed security sold by Bear Stearns, saying more than 35 witnesses have come forward to testify about how loans in the $337 million transaction were misrepresented.

The lawsuit contends Bear Stearns and its EMC mortgage arm, acquired by JPMorgan after their collapse in 2008, knew the pool of more than 6,000 home-equity lines of credit that served as collateral for the investment was filled with defective loans.

Bear don't care, was the mantra of underwriters at Watterson Prime, the due diligence firm hired by Bear to review loans for mortgage securitizations, according to the lawsuit, filed in U.S. District Court in Manhattan and made public on Monday.

Jennifer Zuccarelli, a spokesman for JPMorgan, declined comment. A spokeswoman for Watterson Prime was not immediately available.

Assured, backed by billionaire investor Wilbur Ross, is among several insurers, including Ambac Financial Group Inc, that claim they were misled into insuring mortgage-backed securities before the housing market meltdown. They are seeking repurchase of defective loans and payment for claims. Assured said as of October 25 it had paid out more than $43 million in claims and anticipates tens of millions more.

The lawsuit cites examples of how defective loans were approved from witnesses who said Bear Stearns valued quantity over quality in its mortgage business.

The unnamed witnesses include former underwriters at EMC and Watterson Prime and former employees of loan originator GreenPoint Mortgage Fund, according to the lawsuit.

All loans whose borrowers' last names began with a Z were to be approved regardless of guidelines, one former Watterson Prime underwriter said she was once told, according to the 171-page complaint.

Loan applications from security guards, janitors, and barbers who claimed they earned over $8,000 or $10,000 a month also were put through, another underwriter said.

The $337 million transaction is one of hundreds of mortgage-backed securities that Bear Stearns churned out in the mid-2000s.

The firm purchased and securitized just under a million mortgage loans originally valued in excess of $212 billion from 2003 to 2007, the lawsuit says, citing a prospectus.

Assured had sued EMC in July 2010 over the transaction. The revised case adds JPMorgan as a defendant, and includes information from the confidential witnesses.

Thomas Marano, the Bear Stearns senior managing director responsible for its mortgage securitization business, admitted to liquidating his personal holdings in bond insurers in November 2007 before the extent of the bad collateral was public, according to the filing.

A call to Marano, now chief executive officer of mortgage operations at Ally Financial Inc, was not immediately returned.

The case is Assured Guaranty Corp. v EMC Mortgage Corp, 10:cv-05367, U.S. District Court, Southern District of New York.

(Editing by Gerald E. McCormick)

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