Reuters-
Flagstar Bancorp Inc had to know by 2009 that hundreds of loans it originated didn’t meet underwriting guidelines when it sold $900 million in mortgage-backed securities to investors, a lawyer for a bond insurer said on Wednesday.
At the start of a civil trial over Flagstar’s mortgage securities practices at the height of the housing boom, Assured Guaranty Ltd lawyer Jacob Buchdahl said the bank misrepresented the quality of home loans packaged together as investments.
Buchdahl said Troy, Michigan-based Flagstar was required to buy back mortgages that did not comply with standards for the investments, but did not do so.
“The defendant Flagstar failed to live up to its promises,” he told U.S. District Judge Jed Rakoff in Manhattan. The judge is hearing the case without a jury.
The case, filed last year, is one of the first to go to trial over claims tied to the bundling of mortgages that were sold to investors. The collapse of these securities when the housing market cooled has been blamed in part for the financial crisis.
[REUTERS]
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