Flagstar Bancorp Inc. in Troy, Mich., has agreed to pay up to $133 million to settle claims regarding unspecified underwriting practices associated with loans insured by the Federal Housing Administration.

The $13.6 billion-asset company said Friday that in its agreement with the Justice Department that it will make an initial payment of $15 million. It will then pay up to another $118 million assuming that the company meets certain hurdles related to its financial health.

In order to make those extra payments, the bank will have to generate income for a sustained period, be able to take advantage of a deferred tax asset valuation allowance, and either meet its obligation to repay $266.7 million in Troubled Asset Relief Program debt or manage to get that debt excluded from its regulatory capital ratios.

The company said that it will restate its fourth-quarter and 2011 financial statements to "recognize an accrued liability, based upon the initial payment of $15 million" at Dec. 31. Flagstar said that it expects to increase its loss by between $25.9 million and $34.3 million for the fourth quarter. This would include the initial $15 million payment and the fair value of additional payments ranging from $10.9 million to $19.3 million.

The additional payments will be evaluated on a quarterly basis based upon the company's progress and may vary substantially, Flagstar said.

In January, Flagstar reported a fourth-quarter loss of $44.9 million as credit costs rose. Since 2007, Flagstar has lost almost $1.4 billion.

As part of Flagstar's FHA deal, the company pledged to meet HUD's underwriting standards going forward. It also agreed to a monitoring period by an independent third party.

Flagstar did not identify the specific underwriting failures that were subject to the agreement. The number of loans or their net value was likewise omitted, and a call to a HUD spokesman was not immediately returned.

Other banks have paid penalties for failing to comply with FHA underwriting guidelines. Citigroup Inc. agreed in recent weeks to pay $158.3 million to settle claims that its mortgage unit improperly originated FHA loans.

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