Lender Flagstar Bank (FBC) doesn’t exactly personify the old ‘phoenix rising from the ashes’ story line, but it’s pretty close. 

The firm faced a slew of negative headlines in mid-2013, as it struggled to get legacy claims over mortgages it sold off under control. 

Last May, the Detroit-based lender paid $110 million to settle litigation with MBIA (MBI) after the mortgage insurer claimed it unfairly lost money while guaranteeing mortgage securities backed by Flagstar.

A few months before, the firm agreed to pay insurer Assured Guaranty well over $100 million to settle mortgage repurchase claims. A U.S. District Court Judge in that case said Flagstar would have to 'repurchase or cure' defective mortgages in two securitizations that Assured guaranteed for the lender.

But fast-forward to today, and Flagstar is doing much better – or at least one analyst group thinks so.

Compass Point Research & Trading Group analysts rated Flagstar stock as a "buy", giving it a price target of $23 per share, up from $21.

The reason for this newfound optimism is simple: Flagstar now has a large percentage of reps and warrants claims behind it.

In late December, the firm announced it would settle all reps and warrants claims linked to mortgages sold to Freddie Mac from 2000 through 2008.

The deal concluded the action for $10.8 million.

"In addition, we expect the company to report either a gain on sale or at least a material markup in the fair value of its mortgage servicing rights during fourth quarter earnings," Compass Point said. "These two events, should put the company in a better position to report positive earnings in the face mortgage banking headwinds and potentially release the valuation allowance on the deferred tax assets. Due to some slight adjustments to our model, we are moving our 4Q13E GAAP EPS to $0.53 from $1.17 and operating EPS to $0.09 from $0.02."

While Flagstar is not tracked on HousingWire’s exclusive index of mortgage finance stocks, the HW 30 did edge up 8.11 points or (0.74%) on Wednesday as lenders as a whole rose. In observing the index, it aso became clear Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) finished the trading day up.

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