Flagstar Revises Earnings Due to Litigation Risk

Flagstar Bancorp has revised its financial results from a $66.8 million profit in the fourth quarter to a $94.2 million loss due to lawsuits by MBS insurers.

The Troy, Mich., federal savings bank said it set aside $161 million as a result of an adverse ruling in a lawsuit brought by Assured Guaranty and another lawsuit recently filed by MBIA Insurance Corp.

The U.S. District Court judge ruled that Assured could seek recoveries from Flagstar for breaches of representations and warranties on insured mortgage-backed securities, including $90 billion in claims paid.

“Flagstar strongly disagrees with the court’s ruling and intends to vigorously contest the outcome on appeal,” the federal savings bank said following the Feb. 5 court ruling.

As a result of the ruling in the Assured case and the pending MBIA lawsuit, Flagstar increased its litigation reserve by $161 million to $244.6 million.