| NEW YORK
NEW YORK May 2 Flagstar Bancorp Inc
said Thursday it would pay $110 million to settle a lawsuit by
MBIA Inc accusing the bank of misrepresenting the
quality of loans underlying $1.1 billion in mortgage-backed
MBIA filed the lawsuit in January in the latest legal spat
between bond insurers and banks that packaged mortgage financial
products at the center of the 2008 financial crisis.
"Today's announcement represents another major milestone in
putting legacy challenges behind us," Flagstar CEO Michael
Tierney said in a statement.
MBIA, based in Armonk, New York, in the lawsuit said it had
agreed to insure two mortgage-backed transactions by Flagstar in
2006 and 2007. But mortgage defaults mounted, resulting in MBIA
paying out $165 million, the lawsuit said.
MBIA CEO Jay Brown in a statement said the settlement amount
was "consistent with our recovery expectations."
The settlement has no impact on a separate lawsuit filed in
2011 by another bond insurer, Assured Guaranty Ltd,
which following a trial won a $106.5 million judgment against
the Troy, Michigan-based lender.
Flagstar is appealing that decision, which came out of the
first trial in the bond insurers' lawsuits against the banks.
MBIA's case had been assigned to the same judge, U.S. District
Judge Jed Rakoff in Manhattan.
MBIA said Thursday that Flagstar would pay the settlement to
its structured finance insurer MBIA Insurance Corporation.
The subsidiary will in turn use the money in part to pay
down a secured loan from MBIA's municipal bond insurer, National
Public Finance Guarantee Corp.
The amount of the loan outstanding at the time of the
settlement was $1.7 billion, MBIA said in Feb. 27 in a filing
with the U.S. Securities and Exchange Commission.
The loan was secured in part by any future receivables MBIA
expected in pursuing claims against banks over mortgage-backed
MBIA has cases still pending against other banks, including
Countrywide Financial Corp, which Bank of America Corp
bought in 2008.
The case is MBIA Insurance Corporation v. Flagstar ABS, LLC,
U.S. District Court, Southern District of New York, 13-0262.