November 23, 2005
Mail Stop 4561
By U.S. Mail and facsimile to (248) 312-6833
Mr. Paul D. Borja
Chief Financial Officer
Flagstar Bancorp, Inc.
5151 Corporate Drive
Troy, Michigan 48098-2639
Re: Flagstar Bancorp, Inc.
Form 10-K filed March 23, 2005
File No. 001-16577
Dear Mr. Borja:
We have reviewed your response letter dated August 23, 2005
and
have the following comments. Where indicated, we think you should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with supplemental information so we may better
understand your disclosure. After reviewing this information, we
may
or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the Year Ended December 31, 2004:
Business
Asset Quality - Repurchased Assets, page 12
1. We continue to disagree with your assertion that all of your
loans
are sold on a non-recourse basis. Section 4.16 of the AICPA Audit
and Accounting Guide for Depository and Lending Institutions
defines
recourse risk as the risk that an investor may either reject a
loan
or require the mortgage lender to repurchase the loan if there is
a
defect in underwriting or documentation, or if the loan becomes
delinquent within a specified amount of time after purchase. We
continue to believe that your obligation to repurchase the loans
or
indemnify the purchaser for any related losses in the event of a
breach in representations and warranties meets the definition of
recourse risk. As previously requested, please revise throughout
the
document to clarify and reflect that loans are sold on a limited-
recourse basis with respect to certain representations and
warranties. If you continue to believe otherwise, please provide
us
with your complete legal analysis of the risks you retained and
copies of the contracts for the major types of loan sales. In
addition, revise to clearly identify the triggers or motivation
for
repurchasing these loans if you believe you were not legally
obligated to repurchase them or otherwise bear the risk of loss.
Financial Statements
Note 2 - Corporate Structure, page 76
2. Please revise your disclosure regarding Flagstar Credit
Corporation to quantify the exposure to losses for reinsurance
assumed as of each balance sheet date. Separately disclose the
amount of such reinsurance assumed related to loans you have sold
from reinsurance assumed related to loans held in your portfolio.
If
you believe the amount of such exposure is not material to your
results of operations or cash flows, please tell us the amounts.
3. Tell us whether Flagstar Credit Corporation assumed PMI risk on
any of the loans you repurchased and subsequently recorded losses
on
through the Secondary Marketing Reserve. Tell us whether the
third-
party PMI insurer has paid any claims on loans where they ceded
reinsurance to Flagstar Credit. If so, tell us the amounts
involved
and why reinsurance claims were not triggered.
Note 4 - Summary of Significant Accounting Policies
Loans, page 82
4. We note your response to comment 2 of our letter dated July 7,
2005. We disagree with your assertions that you do not hold any
retained interests in the loans sold to the FHLBI and that you do
not
maintain any recourse on these loans. It is our position that you
do
hold a beneficial interest in the loans sold to the FHLBI as you
maintain a right to receive all or a portion of specified cash
inflows from the loans via the Lender Risk Account (LRA). It is
also
our position that you have a recourse obligation related to these
loans as you are exposed to credit losses up to the amount of the
LRA.
* As a result, the cash basis accounting you have employed to date
would not be an acceptable method of accounting for the LRA.
Please
revise your financial statements accordingly.
* Please revise to disclose how you account for all assets
obtained
and liabilities incurred in the sale of loans to the FHLBI. Refer
to
Questions 67 and 68 of the Q&A on SFAS 140 for additional
guidance.
* Please provide us with an analysis of your history of
collections
on the LRA that supports your estimates of the LRA used in your
revised methodology for these amounts.
Secondary Marketing Reserve, page 84
5. We note your response to comment 4 of our letter dated July 7,
2005. We are still unclear as to the purpose of and accounting
for
your secondary market reserve. You disclose that the secondary
marketing reserve is "a reserve against probable losses that will
be
incurred due to the repurchase of mortgage loans sold in the
secondary market." Please advise us as follows with respect to
this
reserve:
* Please revise to disclose whether you are recording an
obligation
for the actual repurchase of these loans or whether you are
recording
an allowance for potential credit losses that you may realize once
these loans are repurchased.
* If the purpose of this reserve is to record an obligation for
the
repurchase of these loans due to breaches in representations and
warranties, please tell us how your accounting complies with the
guidance set forth in FIN 45 related to guarantees. In addition,
please revise future filings to provide the disclosures required
by
paragraph 13 of FIN 45.
* If the purpose of this reserve is to record an allowance for
potential credit losses expected to be realized once these loans
are
repurchased, please tell us the authoritative literature upon
which
you relied in determining this accounting to be appropriate and
how
you determined that it was appropriate to net the Provision for
such
losses against your Gain on sale.
6. Please revise to provide a rollforward of this account balance
for
the last three years.
7. Please revise to clearly identify the timing of the provision
for
the secondary market reserve. Separately quantify the amounts
that
were recorded at the time of the sale versus the amounts that were
recorded subsequent to the sale.
Controls and Procedures - page 122
8. As requested in comment 6 of our previous letter, please revise
to
provide the disclosures required by Item 307 of Regulation S-K
with
respect to your disclosure controls and procedures.
* * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
You may contact Angela Connell at (202) 551-3426 or me at
(202)
551-3494 if you have questions regarding comments on the financial
statements and related matters.
Sincerely,
Kevin W. Vaughn
Accounting Branch Chief
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Mr. Paul D. Borja
Flagstar Bancorp, Inc.
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