| NEW YORK
NEW YORK Jan 11 Bond insurer MBIA Inc
sued Flagstar Bancorp Inc on Friday, accusing the bank
of making false representations about the quality of loans
underlying $1.02 billion in mortgage-backed securities.
The lawsuit, filed in U.S. District Court in Manhattan, was
the latest in a string of cases pitting bond insurers and
investors against banks that packaged the mortgage-backed
offerings at the heart of the 2008 financial crisis.
MBIA, based in Armonk, New York, said in its court papers
that it had agreed to insure two mortgage-backed transactions by
Flagstar in 2006 and 2007.
But as a result of defaults of mortgages underlying the
transactions and charge-offs, MBIA said in the complaint, it has
had to pay out $165 million.
MBIA, which has filed similar cases against other banks,
said a review of a sample of loans in each of the two
transactions found that more than 90 percent breached
contractual warranties Flagstar made about the securitized
"Flagstar's warranties were false," MBIA said in the
Susan Cherry-Bergesen, a spokeswoman for Flagstar, declined
Kevin Brown, a spokesman for MBIA, said the bond insurer
was forced to bring the lawsuit after Flagstar "refused to honor
its contractual obligations to repurchase the ineligible
mortgage loans it placed into securitizations insured by MBIA."
Flagstar, a Troy, Michigan-based lender, has already been
sued in a similar complaint by another bond insurer, Assured
Guaranty Ltd, which is seeking $116 million.
A trial in federal court in Manhattan in that case ended in
November. U.S. District Judge Jed Rakoff, who heard the case
without a jury, has said he planned to issue a ruling by the end
MBIA is citing both the case by Assured and a separate case
brought by the U.S. Department of Justice over the approval of
mortgages as evidence that its "experience with Flagstar's
misrepresentations is not unique."
In the Justice Department cSE, Flagstar agreed in February
2012 to pay $132.8 million to settle civil fraud claims that the
bank improperly approved mortgages for government insurance.
The case is MBIA Insurance Corporation v. Flagstar ABS, LLC,
U.S. District Court, Southern District of New York, 13-0262.