UPDATE: Compass Point Upgrades Flagstar Bancorp Following Disclosure of Fannie Mae Settlement

In a report published Thursday, Compass Point analyst Kevin Barker upgraded the rating on Flagstar Bancorp (NYSE: FBC) from Neutral to Buy, and raised the price target from $15.50 to $20.00.In the report, Compass Point noted, “We are upgrading shares of Flagstar Bank to Buy from Neutral and increasing our price target to $20 from $15.50 following the disclosure the bank entered into an agreement with Fannie Mae to resolve all representations and warranties for loans originated between 2000 and 2008. The total resolution is $121.5M, but after some adjustments, FBC will pay $93.5M. FBC is fully reserved for the settlement and we do not expect the company to incur additional provisions in any negotiations with Freddie Mac concerning the same origination vintages. We have remained on the sidelines with FBC given the overhang of the Fannie settlement and the potential hit to book value it may have caused. FBC screened as having the most exposure to GSE rep/warrants liabilities of any bank still dealing with GSE rep/warrants. With the announcement of this settlement, we estimate FBC will incur (including remaining liabilities with Freddie Mac) total losses on GSE rep/warrants equal to 0.96% of UPB sold between 2005 and 2009. This compares to the industry average loss rate of 1.29%. The settlement was the biggest hurdle the company needed to overcome before it could effectively restructure its balance sheet.”Flagstar Bancorp closed on Wednesday at $16.00.