Midwest regional bank chain Flagstar Bancorp (FBC) the holding company of the Flagstar Bank chain, rose dramatically on Nov. 6 after the company settled a claim against Fannie Mae ($FNMA) over mortgage repurchase obligations, and was in turn given a significant upgrade by Compass Point.
The repurchase requests and obligations concern loans originated between January 2000 and December 2008, or the majority of the American housing boom and bust. In the deal, Flagstar paid $93.5 million to Fannie Mae on a total resolution amount of $121.5 million.
Flagstar, the largest bank headquartered in Michigan, was relieved to resolve an issue that had been weighing on them since the onset of the Great Recession, with Alessandro (Sandro) DiNello, Flagstar's President and Chief Executive Officer, telling investors "This agreement represents another significant milestone in Flagstar's resolution of legacy issues."
Following the settlement, Compass Point analyst Kevin Barker changed his rating of the company from neutral to buy, and raised the price target from $15.50 to $20 a share, explaining that “the settlement was the biggest hurdle the company needed to overcome before it could effectively restructure its balance sheet,” a hurdle that has now been cleared.
Flagstar jumped on the settlement and subsequent upgrade, rising 11.69 percent in midday trading to hit $17.87 a share. Fannie Mae also experienced a nice gain, edging up 4.35 percent to hit $2.40 a share.
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