Flagstar Bancorp (FBC) will pay $105 million to settle allegations it misrepresented the quality of loans backing securities insured by Assured Guaranty (AGO).

The settlement ends a lawsuit filed by Assured in 2011 that charged $13.1 billion-asset Flagstar, based in Troy, Mich., with breaching warranties on $900 million in securities. Those securities were issued in 2005 and 2006 and backed by home-equity loans.

As part of the pact, Flagstar has agreed to drop an appeal of a February ruling by Judge Jed Rakoff of the U.S. District Court for the Southern District of New York that found Flagstar had failed to follow its own underwriting practices and ordered it to pay Assured $90 million.

Flagstar also will assume liability for future claims associated with two home-equity trusts that Assured insures. Flagstar said the obligation entitles it to receive future reimbursements for claims to which Assured would have been entitled. Flagstar added it will recognize $48 million in income because of the value of the assets in the trusts and the cancellation of accruals the company had earmarked for litigation.

The settlement frees Flagstar from the second of two lawsuits that charged it with misleading insurers of mortgage-backed securities issued in the run-up to the financial crisis. In May, Flagstar agreed to pay $110 million to settle a lawsuit by MBIA Insurance Corporation accusing it of lying about the quality of loans backing $1.1 billion in securities that MBIA insured in 2006 and 2007.

"This agreement with Assured represents a favorable resolution of Flagstar's last remaining significant legacy legal matter," Alessandro DiNello, Flagstar's chief executive, said in a press release.

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