Banking & Finance and Law

Flagstar settles mortgage flap with Assured Guaranty Ltd.

June 26, 2013
| By Pete Daly |
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Flagstar Bancorp Inc. of Troy has agreed to pay Assured Guaranty Ltd. $105 million to settle a lawsuit filed by the Bermuda bond insurer, which accused the bank of misrepresenting the quality of loans within $902 million worth of home mortgage-backed securities issued in 2005 and 2006.

In February, the U.S. District Court in the Southern District of New York ruled in favor of Assured, ordering Flagstar to pay $106.5 million. The $105 million settlement means Flagstar will not appeal the February decision, and will repay Assured for any future claims on the insurance it had provided to Flagstar. The bank will receive from Assured all future reimbursements for claims paid to which Assured would have been entitled.

Flagstar said it was now able to recognize $48.3 million in income arising from its deemed receipt of the net fair value of the assets in the securities backed by mortgages, and the reversal of its related reserves for pending and threatened litigation.

“This agreement with Assured represents a favorable resolution of Flagstar’s last remaining significant legacy legal matter,” said Sandro DiNello, Flagstar’s president and CEO, adding that the bank is “continuing to focus on our business as we put legacy issues behind us.”

On May 2, Flagstar announced it had settled the suit filed by MBIA Insurance Corp. in early 2013, with an agreement to pay MBIA $110 million. That related to $1.1 billion of non-agency securitization transactions by Flagstar in 2006 and 2007, involving fixed and adjustable rate second mortgage loans that MBIA insures.

There have been numerous lawsuits resulting from the “toxic” mortgages that backed bank-issued securities, which contributed to the financial crisis in 2008. Many suits were filed by bond insurers trying to hold the banks accountable. According to Reuters, Assured’s suit against Flagstar was the first to go to trial, in 2011.

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