theMReport.com Your trusted source for mortgage banking news
""MBIA Insurance Corporation,"":http://www.mbia.com/ based in Armonk, New York, filed suit against ""Flagstar Bancorp Inc.,"":https://www.flagstar.com/ based in Troy, Michigan, for allegedly misrepresenting the quality of mortgage-backed securities (MBS), which MBIA agreed to insure in 2006 and 2007.
[IMAGE]Totaling $1.02 billion, the MBS insured by MBIA resulted in a $165 million loss for the company, according to a complaint filed in a U.S. District Court in the Southern District of New York.
""To induce MBIA to guaranty payments due on certain securities, Flagstar made extensive warranties concerning its loans and operations, and attesting to the veracity of the representations it made,"" MBIA stated in its complaint. ""Flagstar's warranties were false.""
[COLUMN_BREAK]The warranties, according to MBIA, were an ""essential and fundamental consideration,"" which led to MBIA's agreement to insure the loans.
After loans began defaulting, MBIA reviewed a sample of the loans in the MBS and found that more than 90 percent of the loans in both pools ""breached the loan warranties.""
Furthermore, when MBIA approached Flagstar to repurchase the allegedly misrepresented loans, ""[i]n flagrant breach of its contractual obligations, Flagstar has refused to repurchase even a single defective loan,"" according to MBIA's court filing.
In a statement emailed to TheMReport.com, Kevin Brown, MBIA's director of corporate communications reiterated this claim, saying, ""Flagstar has refused to honor its contractual obligations to repurchase the ineligible mortgage loans it placed into securitizations insured by MBIA.""
""As a result,"" he added, ""MBIA was forced to initiate litigation to recover the losses it has incurred from Flagstar's wrongful behavior.""
Flagstar declined to comment on the pending litigation.
In its legal filing, MBIA attempted to establish evidence of a ""pattern of misconduct in securitizations"" at Flagstar.
In 2012, Flagstar settled a previous lawsuit related to misrepresentations of its underwriting process, and the company is also awaiting judgment in a case brought by Assured Guaranty Municipal Corporation, in which Assured alleges false representations of securitized loans.
