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From Reuters yesterday:

Ambac Assurance Corp, a unit of Ambac Financial Group Inc. has sued Credit Suisse Group, alleging the company misrepresented the risks of mortgage-backed securities in a deal Ambac insured in 2007. Ambac claimed that many of the loans involved were fraudulent, based on misstatements of income or occupancy.

Ambac increased its estimate of remediation recoveries on residential mortgage backed securities (NASDAQ:RMBS) transactions due to breaches of representations and warranties by approximately $738 million during the third quarter. Ambac is actively working on these transactions to resolve these breaches through litigation or otherwise, and continues to believe that the assumed recovery time of three years to be appropriate.

This follows on the news that FNM, FRE and the FHA are reviewing more and more loan files to determine if any loans were inappropriate or fraudulent. I have a funny feeling that banks will be taking a lot more loans back. BAC and JPM will probably bear the brunt.

Disclosure: Author holds a long position in BAC preferreds