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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



|         |  |                                                         
|-------- |  | --------------------------------------------------------
|Mark One | 
|x        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF     
|         |  | THE SECURITIES EXCHANGE ACT OF 1934                     
|         |  |                                                         
|         |  | For the quarterly period ended June 30, 2002            
|         |  |                                                         
|OR      
|         |  |                                                         
|o        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|         |  | SECURITIES EXCHANGE ACT OF 1934                         

|                     |           | 
|-------------------- | --------- | 
|Commission File No.: | 000-23821 | 
|                     |           | 

FLAGSTAR CAPITAL CORPORATION

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Michigan                                                       |  | 38-3386801                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|5151 Corporate Drive, Troy Michigan                            |  | 48098-2639                          
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

|                                                    |                | 
|--------------------------------------------------- | -------------- | 
|Registrants telephone number, including area code: | (248) 312-2000 | 
|                                                    |                | 

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes x   No o .

As of August 12, 2002, 1,000,000 shares of the registrants Common Stock,
$1.00 par value, were issued and outstanding and 2,300,000 shares of the
registrants Series A Preferred Shares, $25.00 par value, were issued and
outstanding.





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TABLE OF CONTENTS



|                                                                                                        |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Statements of Financial Condition  June 30, 2002 (unaudited) and December 31, 2001                    
|Unaudited Statements of Earnings  For the three and six months ended June 30, 2002 and June 30, 2001  
|Unaudited Statements of Cash Flows  For the three and six months ended June 30, 2002 and June 30, 2001
|Condensed Notes to Financial Statements  unaudited                                                    
|Computation of Net Earnings Per Common Share                                                           



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##### Table of Contents



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

The condensed financial statements of the Registrant are as follows:



| |  | Statements of Financial Condition  June 30, 2002 (unaudited) and
December 31, 2001                    
| |  | -------------------------------------------------------------------------------------------------------
|
| |  | Unaudited Statements of Earnings  For the three and six months ended
June 30, 2002 and June 30, 2001  
|
| |  | Unaudited Statements of Cash Flows  For the three and six months ended
June 30, 2002 and June 30, 2001
|
| |  | Condensed Notes to Financial Statements  unaudited                                                    

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Flagstar Capital Corporation
Statements of Financial Condition
(In thousands)

|                                                                                                                                   |                |                    |                                            |                            |         |          |         |         |              |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------------------ | ------------------------------------------ | -------------------------- | ------- | -------- | ------- | ------- | ------------ | ------- | ------- | 
|                                                                                                                                   |                |                    |                                            |                            |         | June 30, |         |         | December 31, |        
|                                                                                                                                   |                |                    |                                            |                            |         | 2002     |         |         | 2001         |        
|                                                                                                                                   |                |                    |                                            |                            |         |          |         |         |              |        
|Assets                                                                                                                             |                |                    |                                            |                            |         |          |         |        
|Cash                                                                                                                               |                | $                  | 8,496                                      |                            |         | $        | 2,022   |        
|                                                                                                                                   | Mortgage loans |                    |                                            | 115,749                    |         |          |         | 119,782 |             
|                                                                                                                                   |                |                    | Allowance for loan losses                  |                            |         | 250      |         |         |              | 250     |        
|                                                                                                                                   |                |                    |                                            |                            |         |         
|                                                                                                                                   |                | Net mortgage loans |                                            |                            | 115,499 |          |         |         | 119,532      |        
|Investment in mortgage securities                                                                                                  |                |                    | 139,914                                    |                            |         |          | 117,612 |        
|Other investments                                                                                                                  |                |                    | 10,086                                     |                            |         |          | 32,388  |        
|Accrued interest receivable                                                                                                        |                |                    | 712                                        |                            |         |          | 1,897   |        
|Loan payments in process  due from parent                                                                                         |                |                    | 4,536                                      |                            |         |          | 8,980   |        
|Other assets                                                                                                                       |                |                    | 630                                        |                            |         |          | 721     |        
|                                                                                                                                   |                |                    |                                            |                            |         |         
|                                                                                                                                   |                |                    | Total assets                               |                            | $       | 279,873  |         |         | $            | 283,152 |        
|                                                                                                                                   |                |                    |                                            |                            |         |         
|Liabilities and stockholders equity                                                                                               |                |                    |                                            |                            |         |          |         |        
|Liabilities                                                                                                                        |                |                    |                                            |                            |         |          |         |        
|Due to parent                                                                                                                      |                | $                  | 503                                        |                            |         | $        | 2,789   |        
|Other liabilities                                                                                                                  |                |                    | 293                                        |                            |         |          | 1,286   |        
|                                                                                                                                   |                |                    |                                            |                            |         |         
|                                                                                                                                   |                |                    |                                            | Total liabilities          |         |          | 796     |         |              |         | 4,075   | 
|Stockholders equity                                                                                                               |                |                    |                                            |                            |         |          |         |        
|Series A preferred stock  $25.00 liquidation
value,
2,300,000 shares authorized and issued at
June 30, 2002 and December 31, 2001 |                |                    | 57,500                                     |                            |         |          | 57,500  |        
|Common stock  $1.00 par value, 1,000,000 shares
authorized and issued at June 30, 2002 and
December 31, 2001                      |                |                    | 1,000                                      |                            |         |          | 1,000   |        
|Additional paid in capital                                                                                                         |                |                    | 220,577                                    |                            |         |          | 220,577 |        
|Retained earnings                                                                                                                  |                |                    |                                           |                            |         |          |        |        
|                                                                                                                                   |                |                    |                                            |                            |         |         
|                                                                                                                                   |                |                    |                                            | Total stockholders equity |         |          | 279,077 |         |              |         | 279,077 | 
|                                                                                                                                   |                |                    |                                            |                            |         |         
|                                                                                                                                   |                |                    | Total liabilities and stockholders equity |                            | $       | 279,873  |         |         | $            | 283,152 |        
|                                                                                                                                   |                |                    |                                            |                            |         |         

The accompanying notes are an integral part of these statements.

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Flagstar Capital Corporation
Unaudited Statements of Earnings
(in thousands, except per share data)

|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             |  |   |       |       | 
|--------------------------------------------- | ------------------------------------- | - | -------- | ----- |  | -------- | ----- | ----- | ----------- | - | ----- | ----------- |  | - | ----- | ----- | 
|                                              |                                       |   | For the  |       |  | For the  |       |       | For the six |   |       | For the six | 
|                                              |                                       |   | quarter  |       |  | quarter  |       |       | months      |   |       | months      | 
|                                              |                                       |   | ended    |       |  | ended    |       |       | ended       |   |       | ended       | 
|                                              |                                       |   | June 30, |       |  | June 30, |       |       | June 30,    |   |       | June 30,    | 
|                                              |                                       |   | 2002     |       |  | 2001     |       |       | 2002        |   |       | 2001        | 
|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             | 
|Income                                        |                                       |   |          |       |  |          |       |       |             |   |       |             |  |   |       |      
|                                              | Interest on loans                     |   | $        | 1,023 |  |          | $     | 1,889 |             |   | $     | 2,841       |  |   | $     | 3,926 | 
|                                              | Interest on investments               |   |          | 1,643 |  |          |       |      |             |   |       | 3,167       |  |   |       |      | 
|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             | 
|                                              | Total income                          |   |          | 2,666 |  |          |       | 1,889 |             |   |       | 6,008       |  |   |       | 3,926 | 
|Expenses                                      |                                       |   |          |       |  |          |       |       |             |   |       |             |  |   |       |      
|                                              | Advisory fee expense  paid to
parent |   |          | 63    |  |          |       | 62    |             |   |       | 125         |  |   |       | 125   | 
|                                              | General and administrative expenses   |   |          | 36    |  |          |       | 36    |             |   |       | 64          |  |   |       | 118   | 
|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             | 
|                                              | Total expenses                        |   |          | 99    |  |          |       | 98    |             |   |       | 189         |  |   |       | 243   | 
|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             | 
|Net earnings                                  |                                       | $ | 2,567    |       |  | $        | 1,791 |       |             | $ | 5,819 |             |  | $ | 3,683 |      
|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             | 
|Preferred stock dividends                     |                                       | $ | 1,222    |       |  | $        | 1,222 |       |             | $ | 2,444 |             |  | $ | 2,444 |      
|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             | 
|Net earnings available to common
stockholders |                                       | $ | 1,345    |       |  | $        | 569   |       |             | $ | 3,375 |             |  | $ | 1,239 |      
|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             | 
|Earnings per common share                     |                                       | $ | 1.35     |       |  | $        | 0.57  |       |             | $ | 3.38  |             |  | $ | 1.24  |      
|                                              |                                       |   |          |       |  |          |       |       |             |   |       |             | 

The accompanying notes are an integral part of these statements.

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Flagstar Capital Corporation
Unaudited Statements of Cash Flows
(in thousands)

|                                          |                                                                                    |                                                    |                                           |       |              |        |        |              |         |        |  
|----------------------------------------- | ---------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | ----- | ------------ | ------ | ------ | ------------ | ------- | ------ | -
|                                          |                                                                                    |                                                    |                                           |       | For the six  |        |        | For the six  |        
|                                          |                                                                                    |                                                    |                                           |       | months ended |        |        | months ended |        
|                                          |                                                                                    |                                                    |                                           |       | June 30,     |        |        | June 30,     |        
|                                          |                                                                                    |                                                    |                                           |       | 2002         |        |        | 2001         |        
|                                          |                                                                                    |                                                    |                                           |       |              |        |        |              |        
|Operating Activities                      |                                                                                    |                                                    |                                           |       |              |        |        |             
|                                          | Net earnings                                                                       |                                                    | $                                         | 5,819 |              |        | $      | 3,683        |        
|                                          | Adjustments to reconcile net earnings to net cash provided
by operating activities |                                                    |                                           |       |              |        |        |              |        
|                                          |                                                                                    | Decrease (increase) in accrued interest receivable |                                           | 1,185 |              |        |        | (105         | )      
|                                          |                                                                                    | Decrease in other assets                           |                                           |       | 79           |        |        |              |        |       
|                                          |                                                                                    | (Decrease) increase in other liabilities           |                                           |       | (993         | )      |        |              | 18      |       
|                                          |                                                                                    |                                                    |                                           |       |              |        |       
|                                          |                                                                                    |                                                    | Net cash provided by operating activities |       |              | 6,090  |        |              |         | 3,596  |  
|Investing Activities                      |                                                                                    |                                                    |                                           |       |              |        |        |             
|                                          |                                                                                    | Net change in investment in mortgage securities    |                                           |       | (22,302      | )      |        |              |        |       
|                                          |                                                                                    | Net change in other investments                    |                                           |       | 22,302       |        |        |              |        |       
|                                          |                                                                                    | Purchase of mortgage loans                         |                                           |       | (29,888      | )      |        |              | (11,660 | )     
|                                          |                                                                                    | Principal repayments received on mortgage loans    |                                           |       | 38,367       |        |        |              | 19,390  |       
|                                          |                                                                                    |                                                    |                                           |       |              |        |       
|                                          |                                                                                    |                                                    | Net cash provided by investing activities |       |              | 8,479  |        |              |         | 7,730  |  
|Financing Activities                      |                                                                                    |                                                    |                                           |       |              |        |        |             
|                                          |                                                                                    | Dividends paid to common stockholder               |                                           |       | (5,651       | )      |        |              | (1,299  | )     
|                                          |                                                                                    | Dividends paid to preferred stockholders           |                                           |       | (2,444       | )      |        |              | (2,444  | )     
|                                          |                                                                                    |                                                    |                                           |       |              |        |       
|                                          |                                                                                    |                                                    | Net cash used in financing activities     |       |              | (8,095 | )      |              |         | (3,743 | )
|                                          |                                                                                    |                                                    |                                           |       |              |        |       
|Net increase in cash and cash equivalents |                                                                                    |                                                    | 6,474                                     |       |              |        | 7,583  |             
|Beginning cash and cash equivalents       |                                                                                    |                                                    | 2,022                                     |       |              |        | 3,736  |             
|                                          |                                                                                    |                                                    |                                           |       |              |        |       
|Ending cash and cash equivalents          |                                                                                    | $                                                  | 8,496                                     |       |              | $      | 11,319 |             
|                                          |                                                                                    |                                                    |                                           |       |              |       

The accompanying notes are an integral part of these statements.

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Flagstar Capital Corporation
Condensed Notes to Financial Statements-unaudited

Note 1  Nature of Business

Flagstar Capital Corporation (the Company) is a subsidiary of Flagstar
Intermediate Holding Company (IHC), a wholly-owned operating subsidiary of
Flagstar Bank, FSB (the Bank), a federally chartered stock savings bank
founded in 1987. The primary business of the Company is to acquire, hold, and
manage residential mortgage loans that will generate net earnings that can be
distributed to stockholders. The Company has elected to be treated as a Real
Estate Investment Trust (REIT) for federal tax purposes and must satisfy
various requirements as discussed herein.

Note 2.  Basis of Presentation

The accompanying consolidated unaudited financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim information and in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X as promulgated by the Securities and Exchange
Commission. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. All interim amounts are subject to year-end audit, the results
of operations for the interim period herein are not necessarily indicative of
the results that may be expected for the year ending December 31, 2002.

Note 3. Significant Events

The Company removed its preferred stock listing from the Nasdaq Stock Market on
July 12, 2001. On July 13, 2001, the Company moved those same shares to the New
York Stock Exchange. The securities, which formerly traded under the symbol
FLGSP, now trade under the symbol FBC-P.

In September, 2001, Flagstar Bank, FSB contributed its common stock investment
in the Company to Flagstar Intermediate Holding Company, a newly formed,
wholly-owned subsidiary. The purpose of the transaction is to allow the Bank
greater flexibility in the manner in which the common stock of the Company is
held. The change will also increase the mortgage investments the Company is
allowed to invest in while still complying with various federal tax
requirements. At the same time, IHC contributed $150 million of equity to the
Company. The Company then invested the proceeds in a 15% interest in mortgage
securities 100% owned by Flagstar LLC.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The principal business of the Company is to acquire, hold, and manage
residential mortgage loans that will generate net earnings that can be
distributed to stockholders. The Company intends to acquire all its mortgage
loans from the Bank.

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Results of Operation



| |  | Three months
| |  | ------------

The Company recorded a 43.3% increase in net earnings for the quarter ended
June 30, 2002 compared to the quarter ended June 30, 2001. This increase was
the result of a larger average investment in Mortgage Loans and mortgage
securities during the 2002 quarter. The Companys parent, IHC, contributed
$150 million of equity during September 2001 and the Company invested in
additional Mortgage Loans and mortgage securities.

The Company reported net earnings for the quarter ended June 30, 2002 of $2.6
million. Interest income from loans and investments was $2.7 million, which was
offset by $36,000 in administrative expenses and $63,000 in advisory fees. The
reported net earnings for the quarter ended June 30, 2001 were $1.8 million.
Interest income from loans was $1.9 million, which was offset by $36,000 in
administrative expenses and $62,000 in advisory fees during the 2001 period.

The Company reported net earnings per common share of $1.35 for the quarter
ended June 30, 2002 and $0.57 for the quarter ended June 30, 2001.

During the quarters ended June 30, 2002 and 2001, the Company declared and paid
$1,222,000 in preferred stock dividends.

The Company declared and paid or accrued common stock distributions of
$1,345,000 and $569,000 for the quarters ended June 30, 2002 and 2001,
respectively



| |  | Six months
| |  | ----------

Flagstar Capital recorded a 58.0 %, or $2.1 milllion, increase in net earnings
for the six months ended June 30, 2002 versus the same period in 2001. As
prevoiusly discussed this increase in net earning was the result of a higher
average investment in Mortgage Loans and mortgage securities during the six
months ended June 30, 2002 compared to the same period ended June 30, 2001. The
companys parent, IHC, contributed $150 million of equity during September 2001
and the Company invested in additional Mortgage Loans and mortgage securities.

The Company reported net earnings for the six months ended June 30, 2002 of
$5.8 million. Interest income from loans and investments was $6.0 million,
which was offset by $64,000 in administrative expenses and $125,000 in advisory
fees. The reported net earnings for the six months ended June 30, 2001 were
$3.7 million. Interest income from loans was $3.9 million, which was offset by
$118,000 in administrative expenses and $125,000 in advisory fees during the
2001 period.

The Company reported net earnings per common share of $3.38 and $1.24 for the
six months ended June 30, 2002 and 2001, respectively.

For the six months ended June 30, 2002 and 2001, the Company declared and paid
$2,444,000 in preferred stock dividends.

The Company declared and paid or accrued common stock distributions of
$3,375,000 and $1,239,000 for the six months ended June 30, 2002 and 2001,
respectively.

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Mortgage Loans

The Companys residential mortgage loans (Mortgage Loans) consist of
adjustable rate mortgages (ARMs), and fixed rate mortgages (FRMs).
Reinvestments made in Mortgage Loans will be initiated in a manner to maintain
the original composition of approximately 70% ARMs and 30% FRMs. All Mortgage
Loans are expected to be purchased from the Bank.

The following table gives a breakdown of the Mortgage Loans at June 30, 2002.

|             |            |       |     |     |         |  |            |            |             |  |         |         |         |          |       |       |       |   |     |            |     |  |     |     |     |  |      |      |       |  
|------------ | ---------- | ----- | --- | --- | ------- |  | ---------- | ---------- | ----------- |  | ------- | ------- | ------- | -------- | ----- | ----- | ----- | - | --- | ---------- | --- |  | --- | --- | --- |  | ---- | ---- | ----- | -
|             |            |       |     |     |         |  |            | Principal  |             |  | Average |         |         | Interest |       |       |       |   |     |            |     |  |     |     |     |  |     
|Product Type |            | Loans |     |     | Balance |  |            | Balance    |             |  | Rate    |         |         | WAM      |       |       | WARM  |   |     | % of Total |    
|             |            |       |     |     |         |  |            |            |             |  |         |         |         |          |       |       |       |   |     |            |    
|3            | year ARM   |       |     | 147 |         |  | $          | 36,209,000 |             |  | $       | 246,321 |         |          |       | 6.020 | %     |   |     | 360        |     |  |     | 343 |     |  |      | 31.5 |      
|5            | year ARM   |       |     | 85  |         |  |            | 29,511,000 |             |  |         | 347,182 |         |          |       | 6.655 |       |   |     | 358        |     |  |     | 339 |     |  |      | 25.6 |      
|7            | year ARM   |       |     | 85  |         |  |            | 28,132,000 |             |  |         | 330,969 |         |          |       | 6.731 |       |   |     | 357        |     |  |     | 335 |     |  |      | 24.4 |      
|15           | year Fixed |       | 115 |     |         |  | 9,108,000  |            |             |  | 79,201  |         |         |          | 6.528 |       |       |   | 180 |            |     |  | 137 |     |     |  | 7.9  |     
|30           | year Fixed |       | 101 |     |         |  | 12,203,000 |            |             |  | 120,822 |         |         |          | 6.905 |       |       |   | 360 |            |     |  | 311 |     |     |  | 10.6 |     
|             |            |       |     |     |         |  |            |            |             |  |         |         |         |          |       |       |       |   |     |            |    
|             |            | Total |     |     | 533     |  |            | $          | 115,163,000 |  |         | $       | 216,066 |          |       |       | 6.490 | % |     |            | 345 |  |     |     | 320 |  |      |      | 100.0 | %
|             |            |       |     |     |         |  |            |            |             |  |         |         |         |          |       |       |       |   |     |            |    

Allowance for Loan Losses

The Companys allowance for loan losses was $250,000 at June 30, 2002.
Management has based the allowance on assessments of relevant factors including
the types and amount of delinquent loans, historical loss experience on such
types of loans experienced by the Bank, and current economic conditions.
Management is of the opinion that the allowance for loan losses is adequate to
meet potential losses in the portfolio. The Companys non-performing assets
consisted of three mortgage loans totaling $698,121 or 0.61%, of the portfolio,
at June 30, 2002. The Company, in accordance with applicable disclosure
requirements, defines an asset as non-performing if it meets any of the
following criteria: 1) a loan more than 90 days past due; 2) real estate
acquired in a settlement of a loan; or 3) a restructured loan whose terms have
been modified due to the borrowers inability to pay as contractually specified
including loans the Company has classified as impaired. Loans are generally
placed into non-accrual status when they become 90 days delinquent.

The Company had a $250,000 allowance for loan losses at December 31, 2001. The
Companys non-performing loans were limited to three mortgage loans totaling
$1,250,000, or 1.05%, of the portfolio, at December 31, 2001. The Company has
certain representations and warranties from the Bank, which are related to the
performance of the Mortgage Loans.

The Bank, in its role as Advisor, has implemented comprehensive internal asset
review systems to provide for early detection of problem assets. Although this
system will not eliminate future losses due to unanticipated declines in the
real estate market or economic downturns, it should provide for timely
identification of any losses created from problem loans.

|                                              |                                |   |         |   | 
|--------------------------------------------- | ------------------------------ | - | ------- | - | 
|Activity within the Allowance for Loan Losses
|                                             
|Balance, December 31, 2001                    |                                | $ | 250,000 |  
|                                              | Provision for loan losses      |   |         |  | 
|                                              | Charge-offs, net of recoveries |   |         |  | 
|                                              |                                |   |        
|Balance, June 30, 2002                        |                                | $ | 250,000 |  
|                                              |                                |   |        

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Investment in Mortgage Securities

During September 2001, the Company invested in mortgage securities owned by
Flagstar, LLC, a second-tier subsidiary of the Bank. The Company currently has
a 15% interest in these mortgage securities, which is equal to $139.9 million.
The mortgage securities currently have a yield of 6.619% and interest payments
are made monthly to the Company. The mortgage securities are managed and
serviced by the Bank.

Liquidity

The objective of maintaining liquidity within the Company is to ensure the
availability of sufficient cash flows to meet all of the Companys financial
commitments. In managing liquidity, the Company takes into account various
legal limitations placed on a REIT.

The Companys principal liquidity needs are to maintain the current portfolio
size through the acquisition of additional Mortgage Loans as Mortgage Loans
currently in the portfolio mature, or prepay, and to pay dividends on the
Series A Preferred Shares and common stock. The acquisition of additional
Mortgage Loans is intended to be funded with the proceeds obtained from the
repayment of principal balances by individual borrowers.

During September 2001, the Company received an additional capital investment
from its parent company, IHC, of $150 million. This additional capital was
used to purchase REIT qualifying mortgage securities from Flagstar LLC, a
second-tier subsidiary of the Bank.

During the quarter ended June 30, 2002, the Company purchased from the Bank
$11.9 million in principal balance of residential mortgage loans at a purchase
price of $11.9 million. During the quarter ended June 30, 2001, the Company
purchased from the Bank $11.7 million in principal balance of residential
mortgage loans at a purchase price of $11.8 million.

During the six months ended June 30, 2002, the Company purchased from the Bank
$29.9 million in principal balance of residential mortgage loans at a purchase
price of $30.1 million. During the same period ended June 30, 2001, the Company
purchased from the Bank $11.7 million in principal balance of residential
mortgage loans at a purchase price of $11.8 million.

For the quarters ended June 30, 2002 and 2001, the Company received repayments
of principal from mortgage loans totaling approximately $14.2 million and $14.9
million, respectively. For the six months ended June 30, 2002 and 2001, the
Company received principal repayments from mortgage loans totaling
approximately $38.4 million and $19.4 million respectively.

At June 30, 2002 the Company had a liquidity coverage ratio (Projected interest
income divided by REIT dividends plus Advisory Fees plus Servicing Fees) of
3.27 versus 3.19 at December 31, 2001 and 1.50 at June 30, 2001.

The Company does not anticipate any material capital expenditures other than
for the acquisition of additional residential mortgage loans.

REIT Qualification

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##### Table of Contents



As of June 30, 2002, the Company believed that it was in compliance with the
REIT tax rules and that it will continue to qualify as a REIT under the
provision of the Internal Revenue Code (the Code). The Company calculates
that:



| |  | Its Qualified REIT Assets, as defined in the Code, are approximately 100%
of its total assets, as compared to the federal tax requirements that at
least 75% of its total assets must be Qualified REIT Assets.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | 100% of its revenues qualify for the 75% source of income test and 100%
of its revenues qualify for the 90% source of income test under the REIT
rules.                                                        
| 
| |  | None of the revenue was subject to the 30% income limitation under the REIT
rules.                                                                                                                             

The Company also met all REIT requirements regarding the ownership of its
common and preferred stocks and anticipates meeting the 2002 annual
distribution and administrative requirements.

Item 3. Market Risk

The Company considers that its primary business objective is to ensure the
availability of sufficient cash flows to meet the obligations mandated by the
Series A Preferred Shares. In managing its investments, the Company accepts a
certain credit risk posture and assumes some interest rate risk.

Interest rate risk generally refers to the potential volatility in net interest
income resulting from changes in interest rates. The Companys risk occurs when
it must replace amortized principal balances with new Mortgage Loans. These new
Mortgage Loans are chosen in a manner to maintain an interest rate risk posture
similar to the initial portfolio of Mortgage Loans. The Company must monitor
the ratio of fixed costs (the Series A Preferred Shares dividends, advisory
fees, and servicing costs) to the interest income potential of the Mortgage
Loans and mortgage securities. When, in managements opinion, the coverage
ratio is at risk of being depleted, the Company must look to its parent
company, IHC, for support or utilize the investment powers of the Company.

The Company will record higher levels of interest income in a rising interest
rate environment and will experience declining interest income during periods
of falling interest rates. This happens because the Companys assets reprice
while the Series A Preferred Shares have a fixed cost of 8.5%.

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PART II  OTHER INFORMATION

|        |  |                                                    
|------- |  | ---------------------------------------------------
|Item 1. |  | Legal Proceedings                                  
|       
|        |  | None.                                              
|       
|Item 2. |  | Changes in Securities                              
|       
|        |  | None.                                              
|       
|Item 3. |  | Defaults upon Senior Securities                    
|       
|        |  | None.                                              
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders
|       
|        |  | None.                                              
|       
|Item 5. |  | Other Information                                  
|       
|        |  | None.                                              
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                   



| | (a) |  | Exhibits           
| | --- |  | -------------------
|
| |     |  | Exhibit 11         
|
| | (b) |  | Reports on Form 8-K
|
| |     |  | None               

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                             |  |                                                                                                                                        
|---------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|FLAGSTAR CAPITAL CORPORATION |  |                                                                                                                                        
|                            
|                             |  |                                                                                                                                        
|                            
|Date: August 12, 2002        |  | /S/ Thomas J. HammondThomas J. Hammond
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Officer)                     
|                            
|                             |  | /S/ Michael W. CarrieMichael W. Carrie
Executive Vice President and
Chief Financial Officer
(PrincipalFinancial and Accounting Officer)

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EXHIBIT INDEX

|            |  |                                            
|----------- |  | -------------------------------------------
|EXHIBIT NO. |  |                                            
|            |  |                                            
|11          |  | Computation of Net Earning per Common Share

13