Flagstar Bank to face trial over mortgage servicing – U.S.Judge Rakoff

NEW YORK, Sept 26 (Reuters) – Flagstar Bank, the ninth-largest mortgage lender in the United States, must face trial next month over allegations that it breached contracts for financial guaranty insurance on nearly $1 billion in securities backed by home equity loans.

A federal judge in New York, expanding on an order he issued in February, wrote in an opinion issued on Tuesday that the plaintiff, Assured Guaranty Municipal Corp, had provided enough evidence to survive the bank’s motion to throw out the case.

Flagstar spokeswoman Susan Bergesen said the savings bank had a policy of declining to comment on pending litigation.

In his opinion, U.S. District Judge Jed Rakoff said he was skeptical that Assured Guaranty’s allegations of Flagstar’s failure to follow customary servicing practices amounted to gross negligence, misfeasance or bad faith. But the judge added: “The court finds that the plaintiff has presented enough evidence to survive summary judgment on this claim.”

The trial is scheduled to start on Oct. 9, he said.

Read on.

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