NEW YORK (Reuters) - Allstate Corp has sued Bank of America Corp, its Countrywide lending unit and 17 other defendants for allegedly misrepresenting the risks on more than $700 million of mortgage securities it bought from Countrywide.

A Bank of America customer uses an ATM machine outside a branch in Washington October 8, 2010. REUTERS/Richard Clement

Allstate, the largest publicly traded U.S. home and auto insurer, alleged it suffered “significant losses” after Countrywide misled it into believing the securities were safe, and the quality of home loans backing them was high.

The lawsuit also names several former Countrywide officials as defendants, including longtime Chief Executive Angelo Mozilo. Countrywide was the largest U.S. mortgage lender before Bank of America bought it in July 2008.

Allstate said that starting in 2003, Countrywide quietly decided to boost market share and ignore its own underwriting standards by approving any mortgage product that a competitor was willing to offer, in a “proverbial race to the bottom.”

Countrywide then passed on the added risks to investors who bought debt backed by the mortgages, Allstate said.

“Defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default,” said the 150-page complaint filed on Monday in Manhattan federal court.

Allstate seeks to undo its securities purchases, which took place between 2005 and 2007, plus unspecified damages.

The Northbrook, Illinois-based company joined Charles Schwab Corp, the Federal Home Loan Banks and others in suing lenders for allegedly misleading them about mortgage securities.

Bank of America, the largest U.S. bank by assets, last month said it faced lawsuits over $54 billion of such debt.

A spokesman, Bill Halldin, in an email said the Charlotte, North Carolina-based bank is reviewing the complaint. “This unfortunately appears to be a situation where a sophisticated investor is looking for someone to blame for a downturn in the economy and losses on an investment it made,” he said.

David Siegel, a partner at Irell & Manella LLP who represents Mozilo, said in an email that Allstate has “retread allegations with no merit; and certainly no basis to name Mr. Mozilo other than to try to capture publicity.”

Daniel Brockett, a partner at Quinn Emanuel Urquhart & Sullivan LLP who represents Allstate, did not return a call seeking comment.

PROBES

Mozilo agreed in October to a $67.5 million settlement of a U.S. Securities and Exchange Commission civil fraud lawsuit.

The SEC accused Mozilo of misleading investors about Countrywide’s health and risk-taking, and generating roughly $140 million of improper gains from insider stock sales.

Mozilo was the first top executive personally punished over alleged wrongdoing tied to the nation’s housing collapse. Bank of America agreed to cover two-thirds of his penalty. Mozilo did not admit wrongdoing in agreeing to the SEC accord.

Bank of America also is among banks including Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co and Wells Fargo & Co to face SEC subpoenas as the regulator examines how mortgages were packaged for sale to investors, people familiar with the probe said.

The U.S. Justice Department and all 50 U.S. state attorneys general also are probing wrongdoing in mortgages, while Arizona and Nevada accused Bank of America in a lawsuit of misleading borrowers about home loan modifications.

Shares of Bank of America closed up 7 cents at $13.34, while those of Allstate closed down 9 cents at $32.

The case is Allstate Insurance Co et al v. Countrywide Financial Corp et al, U.S. District Court, Southern District of New York, No. 10-09591.