Judge raises Flagstar liability in mortgage case to $106.5 mln

NEW YORK, April 1 Mon Apr 1, 2013 7:49pm EDT

NEW YORK, April 1 (Reuters) - Flagstar Bancorp Inc was ordered on Monday to pay another $17.3 million to bond insurer Assured Guaranty Ltd in a lawsuit accusing the bank of misrepresenting the quality of loans packed into $900 million of mortgage-backed securities.

The payout ordered by U.S. District Judge Jed Rakoff in Manhattan brings Flagstar's total liability to $106.5 million. A copy of the order was made available to Reuters.

Assured's lawsuit has been closely watched as a test of bond insurers' ability to sue banks over losses on mortgage-backed securities.

The company and its rivals have filed several such lawsuits, but the Flagstar case was the first to reach a final judgment.

Rakoff increased the damage portion of the award to nearly $90.7 million and awarded almost $15.9 million in interest, reflecting the sums asked for by Assured, said Jacob Buchdahl, a lawyer for Assured.

"The court also indicated that Assured is entitled to expenses and attorney's fees, making clear that this $106.5 million judgment is not the end, but only the beginning," Buchdahl said in a statement.

A spokeswoman for Flagstar did not immediately respond to a request for comment.

Filed in 2011, the lawsuit accused Troy, Michigan-based Flagstar of misrepresenting the quality of home loans packaged into two mortgage securitizations issued in 2005 and 2006.

Rakoff earlier this year awarded Assured at least $89.2 million, but the companies later battled over the extent to which a judgment should cover future losses.

Assured had sought more than $124 million, according to a letter made public by the court on Friday. It also in a separate request sought $41.5 million to cover potential future claims on insuring the two transactions.

Flagstar had sought to have Rakoff assign it the rights to occasional reimbursements Assured receives for claims paid.

Rakoff did not address either of those requests in his two-page order. He did not give a reason, but said he would issue a longer opinion at a later date.

He also declined to rule on Assured's request for $14.75 million in attorneys fees and $2.94 million in expenses, saying he would wait for any appeal to be completed. He previously ruled that Assured is entitled to attorneys fees and expenses.

The case is Assured Guaranty Municipal Corp v. Flagstar Bank FSB, U.S. District Court, Southern District of New York, No. 11-02375.