May 3 (Bloomberg) -- MBIA Inc. said Flagstar Bancorp Inc. agreed to pay $110 million to settle a lawsuit accusing it of making misrepresentations to induce MBIA to insure mortgage-backed securitizations that defaulted.
MBIA, based in Armonk, New York, alleged that Troy, Michigan-based Flagstar sponsored two securitizations and avowed that it had originated or acquired all of the loans and each complied with underwriting guidelines, according to a complaint filed Jan. 11 in Manhattan federal court.
The suit concerned about $1.1 billion of securitization transactions backed by second-lien mortgages insured by MBIA in 2006 and 2007, the insurer said yesterday in a statement. Flagstar will pay $110 million in cash and other unspecified consideration, and MBIA will use the cash to repay a portion of its secured loan from National Public Finance Guarantee Corp., the company said.
MBIA Chief Executive Officer Jay Brown called the settlement “consistent with our recovery expectations.”
“We will continue to focus on resolving our remaining litigation with other parties so that National Public Finance Guarantee Corp., our U.S. muni-only insurer, can resume its role as a leader in the U.S. public finance insurance market,” he said in the statement.
The announcement is a “major milestone” in moving past the “legacy challenges” of Flagstar, Michael Tierney, the bank’s CEO, said in a statement. Flagstar in February was ordered to pay Assured Guaranty Municipal Corp. $90.1 million the bond insurer paid when home-equity loans underlying two Flagstar mortgage-backed securities defaulted.
“We can now focus more time and attention on our national mortgage business and our community banking operations in Michigan,” Tierney said.
The case is MBIA Insurance Corp. v. Flagstar ABS LLC, 13-0262, U.S. District Court, Southern District of New York (Manhattan).
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