Exhibit 10.1
SUPERVISORY AGREEMENT
     This Supervisory Agreement (Agreement) is made this 27th day of January,
2010 (Effective Date), by and through the Board of Directors (Board) of Flagstar
Bank, FSB, Troy, Michigan, OTS Docket No. 08412 (Association) and the Office of
Thrift Supervision (OTS), acting by and through its Regional Director for the
Central Region (Regional Director).
     WHEREAS, the Association is subject to examination, regulation and
supervision by the OTS;
     WHEREAS, based on its August 3, 2009 examination of the Association, the
OTS finds that the Association has engaged in unsafe or unsound practices in
conducting its operations; and
     WHEREAS, in furtherance of their common goal to ensure that the Association
addresses the unsafe or unsound practices identified by the OTS in its Report of
Examination of the Association dated August 3, 2009 (ROE), the Association and
the OTS have mutually agreed to enter into this Agreement.
     NOW THEREFORE, in consideration of the above premises, it is agreed as
follows:
Business Plan.

1.   (a) By the Effective Date, the Association shall submit to the Regional
Director revisions to the Association’s current business plan (Business Plan),
acceptable to the Regional Director, to address the requirements of this
Agreement. The Business Plan shall cover the period beginning with the quarter
beginning January 1, 2010 through the quarter ending December 31, 2012 and, at a
minimum, shall include:

(i) development and implementation of operating strategies by business line to
achieve increased core deposits, realistic core earnings and net income levels,
which will result in profitable operation of the Association;
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(ii) detail the Association’s capital preservation and enhancement strategies
with specific narrative goals;
(iii) address the amount of additional capital that will be needed under
different forward-looking scenarios involving progressively stressed economic
environments. If additional capital is determined to be necessary, then identify
the specific sources of additional capital and detail timeframes by which the
additional capital will be raised and provide specific target quarter-end
capital levels;
(iv) Board oversight and maintenance of adequate Allowance for Loan and Lease
Losses (ALLL) provisions;
(v) detailed quarterly financial projections for the Association on a
stand-alone basis; and
(vi) detailed assumptions used for all financial projections, such as the
assumed interest rate scenarios; assumptions used for noninterest income and
noninterest expense; assumptions used to determine disposition of real estate
owned (REO); assumptions used to determine the ALLL; assumptions for loan
origination rates, using recent experience and taking into consideration current
national and regional economic conditions; and assumptions supporting the cost
of funds projections.

(b)   Upon receipt of the Regional Director’s written determination of
non-objection to the Business Plan, the Board shall adopt the Business Plan and
the adopted Business Plan shall be incorporated herein by reference and become a
part of this Agreement and any

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    material deviation1 of the Business Plan shall be a violation of this
Agreement. Thereafter, the Association must operate within the parameters of its
Business Plan. Any proposed material deviations from or changes to the Business
Plan shall be submitted for the prior, written non-objection of the Regional
Director. Requests for any material deviations or changes must be submitted at
least forty-five (45) days before a proposed change is implemented.   (c)   On a
quarterly basis, beginning with the quarter ending March 31, 2010, the Board
shall review written reports comparing projected operating results contained
within the Business Plan to actual results (Variance Analysis Reports) within
forty-five (45) days after the end of each quarter. The Board shall review and
assess the Senior Executive Officers’2 implementation of and the Association’s
compliance with the Business Plan. The Board’s review of Variance Analysis
Reports and compliance with the Business Plan shall be fully documented in the
appropriate Board meeting minutes.   (d)   Within sixty (60) days of the end of
each quarter, the Board shall provide the Regional Director with a copy of the
Variance Analysis Report required by this Paragraph.

Asset Quality.

2.   (a)Within sixty (60) days, the Association shall implement a written plan
acceptable to the Regional Director to reduce the level of the Association’s
assets classified as Doubtful or Substandard by its internal asset review
process (Classified Assets Plan).

 

1   A deviation shall be considered material under this Paragraph of the
Agreement if the Association plans to: (a) engage in any activity that is
inconsistent with the Business Plan; or (b) exceed the level of any activity
contemplated in the Business Plan or fail to meet target amounts established in
the Business Plan by more than ten percent (10%), unless the activity involves
assets risk-weighted fifty percent (50%) or less, in which case a variance of
more than twenty-five percent (25%) shall be deemed to be a material deviation.
  2   The term “Senior Executive Officer” is defined at 12 C.F.R. § 563.555.

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    The Classified Assets Plan shall contain a quarterly schedule detailing the
projected level of classified assets during calendar years 2010 and 2011. The
Classified Assets Plan shall express quarterly targets as a percentage of the
Association’s Tier 1 (Core) Capital plus the Association’s ALLL and shall
reflect reductions to be accomplished by:

     (i) charge-off;
     (ii) collection; or
     (iii) sufficient improvement in the quality of the classified asset so as
to warrant removing any adverse classification.

    (b) On a monthly basis, beginning with March 2010, the Board shall review a
written progress report comparing the Association’s actual to projected levels
of classified assets. The monthly progress reports shall be submitted
simultaneously to the Board and Regional Director within thirty (30) days of the
end of each calendar month.

Loan Administration Policy.
3. Within sixty (60) days, the Association shall submit to the Regional Director
revisions to the Association’s policies and procedures governing loan
administration (Credit Administration Policy) to address all corrective actions
discussed in the ROE. Such revisions shall be acceptable to the Regional
Director.
Liquidity Risk Management Program.
4. Within thirty (30) days, the Association shall submit to the Regional
Director revisions to the Association’s liquidity risk management program,
acceptable to the Regional Director, that enhance the Association’s continuous
identification and monitoring of its current and projected funding needs and its
access to sufficient funds to meet those needs. Such revisions to measure
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and monitor liquidity risk and to achieve and maintain sufficient liquidity
shall include at a minimum:
     (a) increasing the Association’s liquidity levels commensurate with the
Association’s risk profile;
     (b) adding risk limits for early identification of potential restrictions
to expected funding capacity and the reduction of brokered deposit funding
sources;
     (c) increasing diversification of funding sources based on a thorough
understanding of the collateral requirements, if any, of each funding source in
a variety of stress scenarios;
     (d) submitting an acceptable liquidity and cash flow analysis to the
Regional Director;
     (e) monitoring the current market conditions affecting liquidity generally
as well as the specific funding sources relied on by the Association; and
     (f) addressing the Contingency Funding Plan corrective actions contained in
the ROE. Within thirty (30) days of receipt of the Regional Director’s comments,
the Association shall revise its liquidity risk management program based on such
comments.
Market Risk Exposure.

5.   (a) Within sixty (60) days, the Board shall adopt specific timeframes
acceptable to the Regional Director for the remediation of all recommendations
and corrective actions in the Sensitivity to Market Risk section of the ROE and
assign a Senior Executive Officer responsibility to report to the Board monthly
on the progress of such remediation.       (b) Within ninety (90) days, the
Association shall engage a qualified and independent third party to perform a
model validation and prepare a model validation report as

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    recommended in the ROE. Within one-hundred eighty (180) days, the model
validation report prepared by the third party shall be transmitted
simultaneously to the Board and the Regional Director.

Mortgage Servicing Rights Asset.

6.   (a) Within thirty (30) days, the Association shall revise its asset
concentration policy to establish the existing concentration limit for the
mortgage servicing rights (MSR) asset at a level consistent with the revised
Business Plan submitted in accordance with Paragraph 1 above and acceptable to
the Regional Director.       (b) Within ninety (90) days, the Board shall adopt
specific timeframes acceptable to the Regional Director for the remediation of
all recommendations and corrective actions in the ROE regarding the
Association’s mortgage servicing rights (MSR) and assign a Senior Executive
Officer responsibility to report to the Board monthly on the progress of such
remediation.

Compliance Program.
7. Within ninety (90) days, the Association shall establish a new written
consumer compliance program (Compliance Program) that is: (a) appropriate for
the Association’s size, complexity, product lines and business operations; and
(b) designed to ensure the Association’s compliance with all applicable consumer
and other compliance laws and regulations (Compliance Laws and Regulations)3 on
an ongoing basis. At a minimum, the Compliance Program shall:
(a) address all recommended corrective actions set forth in the ROE relating to
compliance;
 

3   The term “consumer and other compliance laws and regulations” means all laws
and regulations referenced in Section 1100 (Compliance Oversight Examination
Program) of the OTS Examination Handbook.

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(b) conform to applicable regulatory guidelines;
(c) include written descriptions of the duties and responsibilities of the
Compliance Officer and other key compliance positions that clearly define
authority and accountability and establish the compliance organizational and
reporting structure, including any Board-level compliance committees;
(d) provide for the allocation of adequate resources, including staffing with
qualified and experienced personnel;
(e) include a formal training program that provides for ongoing training in
Compliance Laws and Regulations for all Association employees;
(f) include a formal compliance review process for new or changed products and
services;
(g) include detailed recordkeeping processes, reporting requirements and
internal control systems to facilitate the Board and Senior Executive Officer’s
oversight of the effectiveness of the Compliance Program and
(h) require the Audit Committee to prepare a written report on all internal and
external compliance audit findings (Compliance Audit Report).
Flood Insurance.

8.   (a) Within ninety (90) days, the Association shall revise its policies,
procedures and systems for compliance with the requirements of the National
Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as
amended, 42 U.S.C. §§ 4001-4129, as implemented by Part 572 of the OTS’s Rules
and Regulations, 12 C.F.R. Part 572 (collectively, Flood Laws and Regulations)
to address all recommended corrective actions set forth in the ROE relating to
Flood Laws and Regulations.

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    (b) Within ninety (90) days, the Association shall conduct a review of all
loans originated by the Association on or after September 30, 2008 (Relevant
Loans) for compliance with the Flood Laws and Regulations. The Association shall
identify all Relevant Loans that are secured by buildings or mobile homes
located in special flood hazard areas and prepare a written report (Flood Loan
Report) that, at a minimum:

(i) identifies and provides details for all loans that were or are not in
compliance with the Flood Act Laws and Regulations; and
(ii) sets forth recommended corrective actions with respect to each loan
identified.
Remediation of ROE Comments.
9. Within thirty (30) days, the Board shall adopt specific actions and
timeframes acceptable to the Regional Director to ensure that the Association
addresses all Matters Requiring Board Attention and Corrective Actions noted in
the ROE not otherwise covered in this Agreement. The minutes of Board meetings
shall document each such action adopted, the completion of each action, and the
measures implemented to prevent recurrence.
Growth.
10. Effective immediately, the Association is subject to and shall comply with
the requirements and provisions of OTS Regulatory Bulletin 3b. Without the prior
written approval of the Regional Director, the Association shall not increase
its total assets during any quarter beginning with the quarter starting
January 1, 2010, in excess of an amount equal to net interest credited on
deposit liabilities during the quarter. The growth restrictions imposed by this
Paragraph shall remain in effect until the Regional Director approves the
Association’s Business Plan as required under Paragraph 1 of this Agreement.
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Dividends.
11. Effective immediately, the Board shall not declare or pay dividends or make
any other capital distributions, as that term is defined in 12 C.F.R. § 563.141,
without receiving the prior written approval of the Regional Director. The
Association’s written request for written approval should be submitted to the
Regional Director at least sixty (60) days prior to the anticipated date of the
proposed dividend or distribution of capital.
Severance and Indemnification Payments.
12. Effective immediately, the Association shall not make any golden parachute
payment4 or any prohibited indemnification payment5 unless, with respect to each
such payment, the Association has complied with the requirements of 12 C.F.R.
Part 359 and, as to indemnification payments, 12 C.F.R. § 545.121.
Directorate and Management Changes.
13. Effective immediately, the Association shall comply with the prior
notification requirements for changes in directors and Senior Executive Officers
set forth in 12 C.F.R. Part 563, Subpart H.
Employment Contracts and Compensation Arrangements.

14.   (a) Effective immediately, the Association shall not enter into, renew,
extend, or revise any contractual arrangement relating to compensation or
benefits for any Senior Executive Officer or director of the Association, unless
it first provides the Regional Director with not less than thirty (30) days
prior written notice of the proposed transaction. The notice to the Regional
Director shall include a copy of the proposed employment contract or
compensation arrangement or a detailed, written description of

 

4   The term “golden parachute payment” is defined at 12 C.F.R. § 359.1(f).   5
  The term “prohibited indemnification payment” is defined at 12 C.F.R. §
359.1(1).

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    the compensation arrangement to be offered to such officer or director,
including all benefits and perquisites. The Board shall ensure that any
contract, agreement, or arrangement submitted to the Regional Director fully
complies with the requirements of 12 C.F.R. Part 359, 12 C.F.R. §§ 563.39 and
563.161(b), and 12 C.F.R. Part 570 — Appendix A.       (b) Effective
immediately, the Association shall not increase any salaries, bonuses, or
director’s fees or make any other similar payments, directly or indirectly, to
the Association’s directors or Senior Executive Officers without prior written
non-objection from the Regional Director.

Third Party Contracts.
15. Effective immediately, the Association shall not enter into any arrangement
or contract with a third party service provider that is significant to the
overall operation or financial condition of the Association6 or outside the
Association’s normal course of business unless, with respect to each such
contract, the Association has: (a) provided the Regional Director with a minimum
of thirty (30) days prior written notice of such arrangement or contract;
(b) determined that the arrangement or contract complies with the standards and
guidelines set forth in OTS Thrift Bulletin 82a; and (c) received written notice
of non-objection from the Regional Director.
Effective Date.
16. This Agreement is effective on the Effective Date as shown on the first
page.
Duration.
17. This Agreement shall remain in effect until terminated, modified or
suspended, by written notice of such action by the OTS, acting by and through
its authorized representatives.
 

6   A contract will be considered significant to the overall operation or
financial condition of the Association where the annual contract amount equals
or exceeds two percent (2%) of the Association’s total capital.

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Time Calculations.
18. Calculation of time limitations for compliance with the terms of this
Agreement run from the Effective Date and shall be based on calendar days,
unless otherwise noted.
19. The Regional Director or an OTS authorized representative may extend any of
the deadlines set forth in the provisions of this Agreement upon written request
by the Association that includes reasons in support for any extension. Any OTS
extension shall be made in writing.
Submissions and Notices.
20. All submissions, including progress reports, to the OTS that are required by
or contemplated by the Agreement shall be submitted within the specified
timeframes.
21. Except as otherwise provided herein, all submissions, requests,
communications, consents or other documents relating to this Agreement shall be
in writing and sent by first class U.S. mail (or by reputable overnight carrier,
electronic facsimile transmission or hand delivery by messenger) addressed as
follows:

  (a)   To the OTS:

Regional Director
Office of Thrift Supervision
One South Wacker Drive, Suite 2000
Chicago, Illinois 60606
Facsimile: (312) 917-5001     (b)   To the Association:

Chairman of the Board
Flagstar Bank, FSB
5151 Corporate Drive
Troy, Michigan 48098
Facsimile: (248) 312-6823

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No Violations Authorized.
22. Nothing in this Agreement shall be construed as allowing the Association,
its Board, officers or employees to violate any law, rule, or regulation.
OTS Authority Not Affected.
23. Nothing in this Agreement shall inhibit, estop, bar or otherwise prevent the
OTS from taking any other action affecting the Association if at any time the
OTS deems it appropriate to do so to fulfill the responsibilities placed upon
the OTS by law.
Other Governmental Actions Not Affected.
24. The Association acknowledges and agrees that its execution of the Agreement
is solely for the purpose of resolving the matters addressed herein, consistent
with Paragraph 23 above, and does not otherwise release, discharge, compromise,
settle, dismiss, resolve, or in any way affect any actions, charges against, or
liability of the Association that arise pursuant to this action or otherwise,
and that may be or have been brought by any governmental entity other than the
OTS.
Miscellaneous.
25. The laws of the United States of America shall govern the construction and
validity of this Agreement.
26. If any provision of this Agreement is ruled to be invalid, illegal, or
unenforceable by the decision of any Court of competent jurisdiction, the
validity, legality, and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby, unless the Regional Director in
his or her sole discretion determines otherwise.
27. All references to the OTS in this Agreement shall also mean any of the OTS’s
predecessors, successors, and assigns.
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28. The section and paragraph headings in this Agreement are for convenience
only and shall not affect the interpretation of this Agreement.
29. The terms of this Agreement represent the final agreement of the parties
with respect to the subject matters thereof, and constitute the sole agreement
of the parties with respect to such subject matters.
Enforceability of Agreement.
30. This Agreement is a “written agreement” entered into with an agency within
the meaning and for the purposes of 12 U.S.C. § 1818.
Signature of Directors/Board Resolution.
31. Each Director signing this Agreement attests that he or she voted in favor
of a Board Resolution authorizing the consent of the Association to the issuance
and execution of the Agreement. This Agreement may be executed in counterparts
by the directors after approval of execution of the Agreement at a duly called
board meeting.
     WHEREFORE, the OTS, acting by and through its Regional Director, and the
Board of the Association, hereby execute this Agreement.

              FLAGSTAR BANK, FSB
Troy, Michigan       Accepted by:
Office of Thrift Supervision
 
           
/s/ Joseph P. Campanelli
      By:   /s/ Daniel T. McKee
 
           
Joseph P. Campanelli, Chairman
          Daniel T. McKee
 
          Regional Director, Central Region
 
           
/s/ Walter N. Carter
      Date:   See Effective Date on page 1
 
           
Walter N. Carter, Director
           
 
           
/s/ James D. Coleman
           
 
           
James D. Coleman, M.D., Director
           

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/s/ Gregory Eng
 
Gregory Eng, Director
   
 
   
/s/ Lesley Goldwasser
 
Lesley Goldwasser, Director
   
 
   
/s/ Jay J. Hansen
 
Jay J. Hansen, Director
   
 
   
/s/ David J. Matlin
 
David J. Matlin, Director
   
 
   
/s/ Mark R. Patterson
 
Mark R. Patterson, Director
   
 
   
/s/ David L. Treadwell
 
David L. Treadwell, Director
   

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