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Flagstar Takes $161M Charge for Mortgage Suits

FEB 13, 2013 2:15pm ET

Flagstar Bancorp has set aside $161 million to cover lawsuits over its mortgage-underwriting practices.

The Troy, Mich., company announced Friday that it revised its fourth-quarter earnings to reflect last week's court judgment ordering the bank to pay $90 million, plus fees, to bond insurer Assured Guaranty Municipal Corp, formerly Financial Security Assurance. Flagstar increased its reserve for pending and threatened litigation by $161 million, to $244.6 million, as a result of this decision and other pending lawsuits, it said.

As a result, the bank lost $94.2 million, or $1.75 per share, for the quarter. The bank had reported a $66.8 million profit before the revision. The revision reduced its ratio of Tier 1 capital to assets to 9.26%, from 10.41%, and its risk-based capital to 17.18% from 19.16%.

U.S. District Court Judge Jed Rakoff of the Southern District of New York determined that Flagstar had violated insurance contracts with Assured by failing to follow its own mortgage-underwriting guidelines. Insurer MBIA brought a similar suit against Flagstar last month, claiming that the bank misrepresented mortgages that MBIA insured. The bank's potential losses in the MBIA suit, along with unspecified "other pending litigation," are included in its $161 million reserve. Flagstar could not immediately be reached for details.

Flagstar said that it disagrees with decision in the Assured case and intends to appeal.

The Treasury Department, which had previously announced that it would auction off the $266 million stake it owns in Flagstar through the Troubled Asset Relief Program, canceled plans to sell its Flagstar shares after the judgment was announced.