Flagstar Bank has announced that it has eliminated its exposure to a shuttered reverse mortgage lender.
Flagstar announced that it has completed the sale of all the securities it acquired as collateral for its loan to Live Well.
“I am very pleased to have put this situation behind us,” said Alessandro DiNello, president and CEO of Flagstar. “Criminal and civil proceedings are progressing as expected against Live Well and its principals. We continue to cooperate with prosecutors and the SEC, and will otherwise actively pursue all legal remedies available to us.
Based on the results of the sale, Flagstar said it expected a recovery of $1 million in the third quarter.
“While any additional recoveries are uncertain, we are confident in the merits of our case, and, considering assets identified by the government, are hopeful that we will realize additional recoveries,” DiNello said.
Flagstar was a major lender to Live Well Financial, a reverse mortgage company that unexpectedly ceased operations in May, apparently owing millions to creditors. Flagstar alone said that Live Well owed it $74 million.
Live Well has since been forced into involuntary bankruptcy. Its founder and former CEO, Michael Hild, has been charged with orchestrating a $140 million-plus scam to fraudulently inflate the value of the company’s bond portfolio in order to induce creditors to lend Live Well more money.
Hild has pleaded not guilty in the case. However, two other former Live Well execs – former CFO Eric Rohr and former head trader Darren Stumberger – have pleaded guilty to the alleged scheme and are cooperating with federal investigators.