A court decision last week ordering Flagstar Bank to pay $90.1 million to bond insurer Assured Guaranty as compensation for losses incurred on insured mortgage-backed securities should benefit other financial guarantors by giving them leverage in their own lawsuits against banks for losses sustained during the financial crisis, according to Moody’s Investors Service.
“The Assured/Flagstar case is the first of the ‘mortgage-putback’ cases brought by financial guarantors against mortgage originators to go to trial,” say James Eck, vice president and senior credit officer of Moody’s and David Fanger, Moody’s senior vice president in the ratings agency’s latest Weekly Credit Outlook.
Companies such as Assured Guaranty and MBIA, among others, have argued that banks misrepresented the quality of loans that were packaged into mortgage-backed securities insured by bond insurers.
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