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MBS Lawsuits Shrink Flagstar Earnings

Flagstar Bancorp has revised its financial results from a $66.8 million profit in the fourth quarter to a $94.2 million loss due to lawsuits by MBS insurers.

The Troy, Mich., federal savings bank said it set aside $161 million as a result of an adverse ruling in a lawsuit brought by Assured Guaranty and another lawsuit recently filed by MBIA Insurance Corp.

Last week, a U.S. District Court judge ruled that Assured could seek recoveries from Flagstar for breaches of representations and warranties on insured mortgage-backed securities, including $90 billion in claims paid.

“Flagstar strongly disagrees with the court’s ruling and intends to vigorously contest the outcome on appeal,” the federal savings bank said following the Feb. 5 court ruling.

As a result of the ruling in the Assured case and the pending MBIA lawsuit, Flagstar increased its litigation reserve by $161 million to $244.6 million.

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