Flagstar Bancorp Inc., Troy, Mich., has had its lawsuit seeking recovering on a fidelity bond issued by the Chubb Group of Insurance Cos. dismissed by a federal judge, in a case involving mortgage warehouse lending fraud.The incident at the heart of the matter was discovered in March 2004. Flagstar discovered that a lender named Amerifunding fraudulently obtained a series of warehouse loans totaling $22.4 million. Flagstar was able to make a recovery of $13.4 billion by a seizure of cash and real property and received additional money through civil litigation. Flagstar filed suit against Chubb to cover its remaining loss after the insurer denied the fidelity bond claim under the forgery provision. "We carefully considered our position in this matter and we strongly disagree with the result in this case," said Mark T. Hammond, vice chairman and chief executive of Flagstar. "We believe that the court overlooked the inherent value in the promissory notes, which in this case were forged, and therefore our fidelity bond claim should have been paid regardless of the validity of the underlying collateral." A spokesman for Chubb said the company has a policy of not commenting on matters under litigation. Flagstar also has a suit against First Collateral Services, a previous warehouse lender to Amerifunding, alleging it misrepresented the fraud situation when providing a reference to Flagstar.

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