NEW YORK, June 21 (Reuters) - Flagstar Bancorp Inc said Friday it agreed to pay Assured Guaranty Ltd $105 million to settle a lawsuit accusing the bank of misrepresenting the quality of loans contained in $900 million of mortgage-backed securities.
The settlement resolves litigation that had resulted in a federal judge in Manhattan ordering Flagstar to pay the bond insurer $106.5 million. The case has been closely watched by banks that had put together similar troubled securities that had been at the heart of the financial crisis.
According to Assured Guaranty, Flagstar will also reimburse it for future claims on its insurance policies.
"This agreement with Assured represents a favorable resolution of Flagstar's last remaining significant legacy legal matter," Flagstar CEO Alessandro DiNello said.
As a result of the settlement, Flagstar said it will record $48.3 million in income.
Flagstar's shares closed Friday at $13.24, up 21 cents or 1.61 percent on the New York Stock Exchange. Assured's shares closed at $22.00, down 19 cents or 0.86 percent on NYSE.
The settlement came in one of what became a wave of lawsuits over mortgage-backed securities.
Many were brought by bond insurers such as Assured to hold banks accountable for losses incurred insuring the securities. Assured's case against Flagstar was the first to go to trial.
The 2011 lawsuit accused Troy, Michigan-based Flagstar of misrepresenting the quality of home loans packaged into two securitizations issued in 2005 and 2006.
In February, U.S. District Judge Jed Rakoff in Manhattan had ruled for Assured, and Flagstar at the time intended to appeal.
The accord followed several other recent settlements in bondholder lawsuits against banks.
Bank of America Corp agreed in May to pay MBIA Inc $1.6 billion to resolve lawsuits including one the insurer filed accusing its Countrywide unit of fraud.
Flagstar's settlement with Assured followed an earlier $110 million settlement with MBIA.
The case is Assured Guaranty Municipal Corp v. Flagstar Bank FSB, U.S. District Court, Southern District of New York, No. 11-02375.