Financial services firm MBIA filed suit against Flagstar Bancorp alleging that the bank misrepresented the conditions of loans it packaged into mortgage-backed securities that MBIA insured, National Mortgage News reported Jan. 15. MBIA says the $1.02 billion in securitizations lost $225 million and it was forced to pay $165 million in claims.

MBIA filed its suit in U.S. District Court in Manhattan

The case stems from Flagstar’s sponsorship of two mortgage-backed securities, one in 2006 and the other in 2007. The quality of both was allegedly misrepresented before both ultimately were insured by MBIA, according to the suit, National Mortgage News reported.

The 2006 securitization consisted of 8,300 mortgages with a total balance of $400 million, while the 2007 securitization included 12,500 mortgages with a balance of $625 million.

“To induce MBIA to guaranty payments due on certain securities, Flagstar made extensive warranties concerning its loans and operations and attesting to the veracity of the representations it made. Flagstar's warranties were false.” MBIA’s filing claimed, National Mortgage News reported.

This suit is not the first against Flagstar, which agreed in February 2012 to pay $133 million to settle charges over its underwriting practices on loans insured by the Federal Housing Administration. In September 2012, a federal judge in New York ruled that Flagstar must stand trial over allegations that the bank breached contracts for financial guaranty insurance on roughly $1 billion in mortgage-backed securities it issued.