A U.S. District Court Judge ordered bank Flagstar Bancorp (FBC) to pay bond insurer Assured Guaranty (AG) $90.1 million in damages, plus interest, court costs and attorneys fees for failing to 'repurchase or cure' defective mortgages in two securitizations that Assured guaranteed for the Michigan-based bank.
Judge Jed Rakoff with the U.S. Southern District of New York issued that opinion Tuesday after analyzing months of evidence that both firms put forth in relation to the mortgage-bond deals that Assured guaranteed for Flagstar.
Assured Guaranty is just one of a few insurers who guaranteed securitizations backed by mortgages, only to push back against the issuing bank in court, claiming Flagstar made "pervasive and material breaches of representations and warranties" in contracts with the bond insurer.
Assured noted early on that it was seeking $108 million in a breach of contract case tied to $900 million in securities that it insured for Flagstar.
Because Flagstar refused to cure the defected underlying loans or substitute eligible loans, the court says Assured finally pushed back, demanding reimbursement for insurance claims paid out on the mortgage bonds.
Judge Rakoff held Tuesday that "Assured has sufficiently proven that it should be reimbursed in full for all claims paid on the underlying transactions, as the court accepts ... unrebutted testimony that Flagstar would be obligated to reimburse Assured for the entirety of the claims Assured paid under a wide range of defect rates."
The judge rejected numerous claims by Flagstar that a sampling of loans backing the securitizations was not enough for Assured Guaranty to prove its breach of contract claims.
The court said the loan samplings were "an appropriate method of proof in this case" and found "the loans underlying the trusts here at issue pervasively breached Flagstar’s contractual representations and warranties."
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