Flagstar Bancorp in Troy, Mich. must stand trial over charges it breached contracts for financial guaranty insurance on roughly $1 billion in RMBS it had issued during the run-up to the financial crisis.Bond insurer Assured Guaranty Municipal Corp., the plaintiff in the case, has put forward enough evidence to survive the $14.3 billion-asset company's motion to dismiss the case, U.S. District Judge Jed Rakoff in New York held Tuesday in an opinion that expanded on an order he issued in February.

"At trial, the trier of fact could conclude that these widespread failures to follow customary servicing practices constituted 'gross negligence, malfeasance or bad faith,'" Rakoff wrote. "Although the court is skeptical that plaintiff can meet this standard at trial, the court finds that the plaintiff has presented enough evidence to survive summary judgment on this claim."

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.