Flagstar Bancorp Inc. will pay $110 million to settle a lawsuit brought by MBIA Inc. The bank was accused of misrepresenting the quality of loans underlying $1.1 billion in mortgage-backed securities. MBIA filed the lawsuit in January in the latest legal battle between bond insurers and banks that packaged mortgage financial products at the center of the 2008 financial crisis. The banks’ conduct was about as bad as it gets. Greed and irresponsibility led to lots of people and businesses being badly hurt.
MBIA, based in Armonk, N.Y., had agreed to insure two mortgage-backed transactions by Flagstar in 2006 and 2007. It was alleged that mortgage defaults mounted, resulting in MBIA paying out $165 million. The settlement has no impact on a separate lawsuit filed in 2011, Assured Guaranty Ltd., another bond insurer. The trial in that case resulted in a $106.5 million judgment against the Troy, Mich., based lender. Flagstar has appealed 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.
It was reported that Flagstar will pay the settlement to MBIA’s structured finance insurer MBIA Insurance Corporation. The subsidiary will in turn use the money to partially pay down a secured loan from MBIA’s municipal bond insurer, National Public Finance Guarantee Corp. According to a MBIA filing with the U.S. Securities and Exchange Commission (SEC) the amount of the loan outstanding at the time of the settlement was $1.7 billion. The loan was secured in part by any future receivables MBIA expected in pursuing claims against banks over mortgage-backed securities.
MBIA still has cases pending against other banks, including Countrywide Financial Corp, which Bank of America Corp bought in 2008. This case is MBIA Insurance Corporation v. Flagstar ABS, LLC, U.S. District Court, Southern District of New York.
Source: Chicago Tribune
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.