The Association of Financial Guaranty Insurers doesn’t exactly mince words. In a newly-released letter to Credit Suisse CEO Brady Dougan, the executive director of the bond insurance group, Teresa Casey, accused the bank of “materially” understating its obligation to repurchase deficient underlying mortgage loans securitized in Credit Suisse MBS offerings. “We estimate that Credit Suisse’s obligations in respect of the securities insured by AFGI members aggregate billions of dollars,” the AFGI letter said. “We seek to understand the reasons why the full magnitude of the liability has not yet been recognized by Credit Suisse.”

The letter is further evidence of the looming issue of bank liability for breaches of the representations and warranties on underlying mortgage loans. You’ll recall that the Securities and Exchange Commission sent MBS players a letter last October, warning them about disclosing reps and warranties liability and reserves; the Public Company Accounting Oversight Board also put out an MBS alert for auditors in December 2010.

The bond insurers that comprise the membership of AFGI have been in the vanguard on MBS reps and warranties claims; both MBIA and Ambac have been litigating against Credit Suisse in New York state supreme court for years. The AFGI letter cites that litigation, as well as more than a dozen other MBS cases against Credit Suisse, in asserting that “well more than half” of the mortgage loans backing Credit Suisse MBS “were ineligible for securitization.”

The letter includes a not-so-veiled threat, in a not-so-veiled attempt to force settlement discussions: “Some of our industry members have pursued a laborious loan-by-loan representation and warranty put-back process, with Credit Suisse refusing to repurchase any loans whatsoever,” the bond insurers said. “The failure by Credit Suisse to make any effort to honor its obligations can only be interpreted as bad faith.We write in the hope of resolving Credit Suisse’s contractual and legal obligations in a manner that will cause the least disruption to Credit Suisse while preserving our rights in advance of Credit Suisse’s year-end audit that we expect will put increasing pressure on accounting and disclosure obligations surrounding this liability.”

Did you catch that, Credit Suisse? The bond insurers are going to be scrutinizing your regulatory filings if you don’t come to the table. (For the record, in Credit Suisse’s most recent filing, the bank reported $1.6 billion in outstanding mortgage repurchase claims in the second quarter of 2011, up from $504 million in the first quarter.) “Our industry seeks acknowledgment and resolution of the massive debts owed by the major RMBS sponsors due to their breaches of representations and warranties of the quality of the mortgage loans underlying their RMBS,” said AFGI executive director Casey, in an e-mail statement to me.