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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

|         |                                                                                        
|-------- | ---------------------------------------------------------------------------------------
|Mark One
|         | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|         | For the quarterly period ended June 30, 2001                                           



OR

| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | 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          
No .

As of August 13, 2001, 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



|                                                                                                       |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  |  | 
|Part I. Financial Information                                                                         
|Statement of Financial Condition  June 30, 2001 (unaudited) and December 31, 2000                    
|Unaudited Statement of Earnings  For the three and six months ended June 30, 2001 and June 30, 2000  
|Unaudited Statement of Cash Flows  For the three and six months ended June 30, 2001 and June 30, 2000
|Condensed Notes to Consolidated Financial Statements  unaudited                                      
|Statement Re:  Computation of Earnings Per Share                                                      



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##### Table of Contents






PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

The unaudited condensed financial statements of the Registrant are as follows:

Statement of Financial Condition  June 30, 2001 (unaudited) and December
31, 2000

Unaudited Statement of Earnings  For the three and six months ended June
30, 2001 and June 30, 2000

Unaudited Statement of Cash Flows  For the three and six months ended
June 30, 2001 and June 30, 2000

Condensed Notes to Financial Statements  unaudited

2



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Flagstar Capital Corporation
Statement of Financial Condition
(in thousands)

|                                                                                                                                   |                                 |                                            |                            |         |             |         |         |              |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------ | -------------------------- | ------- | ----------- | ------- | ------- | ------------ | ------- | ------- | 
|                                                                                                                                   |                                 |                                            |                            |         | June 30,    |         |         | December 31, |        
|Assets                                                                                                                             |                                 |                                            | 2001                       |         |             | 2000    |        
|                                                                                                                                   |                                 |                                            |                            |         |             |         |        
|                                                                                                                                   |                                 |                                            |                            |         | (unaudited) |        
|Cash and cash equivalents                                                                                                          |                                 | $                                          | 11,319                     |         |             | $       | 3,736   |             
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                   | Mortgage loans                  |                                            |                            | 108,948 |             |         |         | 123,262      |        
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                   | Less: allowance for loan losses |                                            |                            | (250    | )           |         |         | (250         | )      
|                                                                                                                                   |                                 |                                            |                            |         |             |        
|Net mortgage loans                                                                                                                 |                                 |                                            | 108,698                    |         |             |         | 123,012 |             
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Accrued interest receivable                                                                                                        |                                 |                                            | 1,639                      |         |             |         | 1,534   |             
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Other assets                                                                                                                       |                                 |                                            | 8,048                      |         |             |         | 1,464   |             
|                                                                                                                                   |                                 |                                            |                            |         |             |        
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                   |                                 | Total assets                               |                            | $       | 129,704     |         |         | $            | 129,746 |        
|                                                                                                                                   |                                 |                                            |                            |         |             |        
|Liabilities and Stockholders Equity                                                                                              
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Liabilities                                                                                                                       
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Due to parent                                                                                                                      |                                 | $                                          | 569                        |         |             | $       | 630     |             
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Other liabilities                                                                                                                  |                                 |                                            | 58                         |         |             |         | 39      |             
|                                                                                                                                   |                                 |                                            |                            |         |             |        
|                                                                                                                                   |                                 |                                            | Total liabilities          |         |             | 627     |         |              |         | 669     | 
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stockholders Equity                                                                                                              
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Series A Preferred Stock  $25.00 liquidation value,
2,300,000 shares authorized and issued at December 31,
2000 and June 30, 2001 |                                 |                                            | 57,500                     |         |             |         | 57,500  |             
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Common stock  $1.00 par value, 1,000,000 shares
authorized and issued at December 31, 2000 and
June 30, 2001                      |                                 |                                            | 1,000                      |         |             |         | 1,000   |             
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Additional paid in capital                                                                                                         |                                 |                                            | 70,577                     |         |             |         | 70,577  |             
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Retained earnings                                                                                                                  |                                 |                                            |                           |         |             |         |        |             
|                                                                                                                                   |                                 |                                            |                            |         |             |        
|                                                                                                                                   |                                 |                                            | Total stockholders equity |         |             | 129,077 |         |              |         | 129,077 | 
|                                                                                                                                   |                                 |                                            |                            |         |             |        
|                                                                                                                                   |                                 | Total liabilities and stockholders equity |                            | $       | 129,704     |         |         | $            | 129,746 |        
|                                                                                                                                   |                                 |                                            |                            |         |             |        

The accompanying notes are an integral part of these statements.

3



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Flagstar Capital CorporationUnaudited Statement of Earnings(in thousands, except per share data)

|                                        |                                       |   |          |       |  |          |       |       |            |   |       |            |  |   |       |       | 
|--------------------------------------- | ------------------------------------- | - | -------- | ----- |  | -------- | ----- | ----- | ---------- | - | ----- | ---------- |  | - | ----- | ----- | 
|                                        |                                       |   | For the  |       |  | For the  |       |       | For the    |   |       | For the    | 
|                                        |                                       |   | quarter  |       |  | quarter  |       |       | six months |   |       | six months | 
|                                        |                                       |   | ended    |       |  | ended    |       |       | ended      |   |       | ended      | 
|                                        |                                       |   | June 30, |       |  | June 30, |       |       | June 30,   |   |       | June 30,   | 
|                                        |                                       |   | 2001     |       |  | 2000     |       |       | 2001       |   |       | 2000       | 
|                                        |                                       |   |          |       |  |          |       |       |            |   |       |            | 
|Income                                 
|                                       
|                                       
|                                       
|                                       
|                                        | Interest on loans                     |   | $        | 1,889 |  |          | $     | 1,858 |            |   | $     | 3,926      |  |   | $     | 3,621 | 
|                                       
|                                       
|                                       
|                                       
|Expenses                               
|                                       
|                                       
|                                       
|                                       
|                                        | Advisory fee expense  paid to parent |   |          | 62    |  |          |       | 63    |            |   |       | 125        |  |   |       | 125   | 
|                                       
|                                       
|                                       
|                                       
|                                        | General and administrative expenses   |   |          | 36    |  |          |       | 38    |            |   |       | 118        |  |   |       | 79    | 
|                                        |                                       |   |          |       |  |          |       |       |            |   |       |            | 
|                                        | Total expenses                        |   |          | 98    |  |          |       | 101   |            |   |       | 243        |  |   |       | 204   | 
|                                        |                                       |   |          |       |  |          |       |       |            |   |       |            | 
|                                       
|                                       
|                                       
|                                       
|Net earnings                            |                                       | $ | 1,791    |       |  | $        | 1,757 |       |            | $ | 3,683 |            |  | $ | 3,417 |      
|                                        |                                       |   |          |       |  |          |       |       |            |   |       |           
|Preferred stock dividends               |                                       | $ | 1,222    |       |  | $        | 1,222 |       |            | $ | 2,444 |            |  | $ | 2,444 |      
|                                        |                                       |   |          |       |  |          |       |       |            |   |       |           
|Net earnings available to common
shares |                                       | $ | 569      |       |  | $        | 535   |       |            | $ | 1,239 |            |  | $ | 973   |      
|                                        |                                       |   |          |       |  |          |       |       |            |   |       |           
|Earnings per common share  basic       |                                       | $ | 0.57     |       |  | $        | 0.53  |       |            | $ | 1.24  |            |  | $ | 0.97  |      
|                                        |                                       |   |          |       |  |          |       |       |            |   |       |           
|Earnings per common share  diluted     |                                       | $ | 0.57     |       |  | $        | 0.53  |       |            | $ | 1.24  |            |  | $ | 0.97  |      
|                                        |                                       |   |          |       |  |          |       |       |            |   |       |           

The accompanying notes are an integral part of these statements.

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

|                                                     |                                                                                    |                                                 |                                                     |       |              |        |        |              |         |        |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------- | ----- | ------------ | ------ | ------ | ------------ | ------- | ------ | -
|                                                     |                                                                                    |                                                 |                                                     |       | For the six  |        |        | For the six  |        
|                                                     |                                                                                    |                                                 |                                                     |       | months ended |        |        | months ended |        
|                                                     |                                                                                    |                                                 |                                                     |       | June 30,     |        |        | June 30,     |        
|                                                     |                                                                                    |                                                 |                                                     |       | 2001         |        |        | 2000         |        
|                                                     |                                                                                    |                                                 |                                                     |       |              |        |        |              |        
|Operating Activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net earnings                                                                       |                                                 | $                                                   | 3,683 |              |        | $      | 3,417        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net earnings to net cash
provided by
Operating activities
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Increase in accrued interest receivable         |                                                     |       | (105         | )      |        |              | (863    | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Increase in liabilities                         |                                                     |       | 18           |        |        |              |        |       
|                                                     |                                                                                    |                                                 |                                                     |       |              |       
|                                                     |                                                                                    |                                                 | Net cash provided by operating activities           |       |              | 3,596  |        |              |         | 2,554  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Investing Activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Purchase of mortgage loans                      |                                                     |       | (11,660      | )      |        |              | (12,215 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Principal repayments received on mortgage loans |                                                     |       | 19,390       |        |        |              | 6,561   |       
|                                                     |                                                                                    |                                                 |                                                     |       |              |       
|                                                     |                                                                                    |                                                 | Net cash provided by (used in) investing activities |       |              | 7,730  |        |              |         | (5,654 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Financing Activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Dividends paid to common stockholders           |                                                     |       | (1,299       | )      |        |              | (1,048  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    | Dividends paid to preferred stockholders        |                                                     |       | (2,444       | )      |        |              | (2,444  | )     
|                                                     |                                                                                    |                                                 |                                                     |       |              |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                    |                                                 | Net cash used in financing activities               |       |              | (3,743 | )      |              |         | (3,492 | )
|                                                     |                                                                                    |                                                 |                                                     |       |              |       
|Net increase (decrease) in cash and cash equivalents |                                                                                    |                                                 | 7,583                                               |       |              |        | (6,592 | )           
|                                                    
|                                                    
|                                                    
|                                                    
|Beginning cash and cash equivalents                  |                                                                                    |                                                 | 3,736                                               |       |              |        | 7,456  |             
|                                                     |                                                                                    |                                                 |                                                     |       |              |       
|                                                    
|                                                    
|                                                    
|                                                    
|Ending cash and cash equivalents                     |                                                                                    | $                                               | 11,319                                              |       |              | $      | 864    |             
|                                                     |                                                                                    |                                                 |                                                     |       |              |       

The accompanying notes are an integral part of these statements.

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Flagstar Capital Corporation
Notes to Consolidated Financial Statements-unaudited

Note 1  Nature of Business

Flagstar Capital Corporation (the Company) is an 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, 2001.

Note 3. Subsequent Events

Flagstar Capital, a real estate investment trust and second tier subsidiary of
Flagstar Bancorp, moved its preferred stock from the Nasdaq Stock Market to the
New York Stock Exchange. The securities, which formerly traded under the symbol
FLGSP, now trade under the symbol FBC-P.

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.

Results of Operation

The Company reported net earnings for the quarter ended June 30, 2001 of $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. The reported
net earnings for the quarter ended June 30, 2000 were also $1.8 million.
Interest income from loans was $1.9 million, which was offset by $38,000 in
administrative expenses and $63,000 in advisory fees during the 2000 period.

The Company reported net earnings of $3.7 million for the six months ended June
30, 2001. Interest income from loans was $3.9 million, which was offset by
$118,000 in administrative expenses and $125,000 in advisory fees. For the six
months ended June 30, 2000, the Company reported $3.4 in net earnings. Interest
income from loans was $3.6 million, which was offset by $79,000 in
administrative expenses and $125,000 in advisory fees.

The Company reported net earnings per common share of $ 0.57 for the quarter
ended June 30, 2001 and $0.53 for the quarter ended June 30, 2000. For the six
months ended June 30, 2001 and 2000, the Company reported net earnings per
common share of $1.24 and $0.97, respectively.

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Results of Operation cont

During the quarters ended June 30, 2001 and 2000, the Company declared and paid
$1,222,000 in preferred stock dividends. For the six months ended June 30, 2001
and 2000, the Company declared and paid $2,444,000 in preferred stock
dividends.

The Company declared and paid or accrued common stock distributions of $569,000 and $535,000 for the quarters ended June 30, 2001 and 2000, respectively. For the six months ended June 30, 2001 and 2000, the Company declared and paid or accrued common stock distributions of $1,238,000 and $973,000, respectively.

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, 2001.

|              |  |  |       |  |  |         |             |           |         |   |         |      |  |          |       |   |  |      |     |  |            |  |     |  |  |  |       |   |  | 
|------------- |  |  | ----- |  |  | ------- | ----------- | --------- | ------- | - | ------- | ---- |  | -------- | ----- | - |  | ---- | --- |  | ---------- |  | --- |  |  |  | ----- | - |  | 
|              |  |  |       |  |  |         |             | Principal |         |   | Average |      |  | Interest |      
|Product Type  |  |  | Loans |  |  | Balance |             |           | Balance |   |         | Rate |  |          | WAM   |   |  | WARM |     |  | % of Total | 
|              |  |  |       |  |  |         |             |           |         |   |         |      |  |          |       |   |  |      |     |  |            | 
|3 year ARM    |  |  | 109   |  |  | $       | 26,121,000  |           |         | $ | 239,644 |      |  |          | 7.459 | % |  |      | 360 |  |            |  | 331 |  |  |  | 24.2  |  
|             
|             
|             
|             
|5 year ARM    |  |  | 108   |  |  |         | 27,259,000  |           |         |   | 252,403 |      |  |          | 7.321 |   |  |      | 360 |  |            |  | 331 |  |  |  | 25.2  |  
|             
|             
|             
|             
|7 year ARM    |  |  | 87    |  |  |         | 20,580,000  |           |         |   | 236,549 |      |  |          | 6.953 |   |  |      | 360 |  |            |  | 326 |  |  |  | 19.1  |  
|             
|             
|             
|             
|15 year Fixed |  |  | 147   |  |  |         | 12,557,000  |           |         |   | 85,422  |      |  |          | 6.523 |   |  |      | 180 |  |            |  | 148 |  |  |  | 11.6  |  
|             
|             
|             
|             
|30 year Fixed |  |  | 166   |  |  |         | 21,497,000  |           |         |   | 129,498 |      |  |          | 6.952 |   |  |      | 360 |  |            |  | 324 |  |  |  | 19.9  |  
|              |  |  |       |  |  |         |             |           |         |   |         |      |  |          |       |   |  |      |     |  |            | 
|Total         |  |  | 617   |  |  | $       | 108,014,000 |           |         | $ | 175,064 |      |  |          | 7.118 | % |  |      | 339 |  |            |  | 307 |  |  |  | 100.0 | %
|              |  |  |       |  |  |         |             |           |         |   |         |      |  |          |       |   |  |      |     |  |            | 

7



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Allowance for Loan Losses

The Companys allowance for loan losses remained the same at $250,000 at June
30, 2001. Management has based the allowance on assessments of relevant factors
including the types and amount of delinquent loans, historical and anticipated
loss experience on such types of loans experienced by the Bank, and current and
projected 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 one mortgage loan totaling
$54,742, or 0.05% of the portfolio, at June 30, 2001. 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, 2000. The
Companys non-performing loans were limited to two mortgage loans totaling
$602,145, or 0.49% of the portfolio, at December 31, 2000 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, January 1, 2001                      |                                | $ | 250,000 |  
|                                             
|                                             
|                                             
|                                             
|                                              | Provision for loan losses      |   |         |  | 
|                                             
|                                             
|                                             
|                                             
|                                              | Charge-offs, net of recoveries |   |         |  | 
|                                              |                                |   |        
|Balance, June 30, 2001                        |                                | $ | 250,000 |  
|                                              |                                |   |        

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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 as discussed below in Other Matters.

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 May 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, their
estimated fair value. During May 2000, the Company purchased from the Bank
$12.2 million in principal balance of residential mortgage loans at a purchase price
of $12.3 million, their estimated fair value.

For the quarters ended June 30, 2001 and 2000, the Company received repayments
of principal from mortgage loans totaling approximately $14.8 million and
$1.8 million, respectively. For the six months ended June 30, 2001 and 2000,
the Company received principal repayments from mortgage loans totaling
approximately $19.4 million and $6.6 million, respectively.

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

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REIT Qualification

As of June 30, 2001, 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 95% 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 2001 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. When, in managements opinion, the coverage ratio is at risk of being
depleted, the Company must look to its parent company, the Bank, 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%.

At June 30, 2001 the Company had a liquidity coverage ratio (Projected interest
income divided by REIT dividends plus Advisory Fees plus Servicing Fees) of
1.50 versus 1.69 at December 31, 2000 and 1.58 at June 30, 2000.

10



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##### Table of Contents



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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##### Table of Contents



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 14, 2001 |  | /S/ Thomas J. Hammond                                                                                              
|                       |  |                                                                                                                    
|                       |  | Thomas J. Hammond
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Officer)                      
|                      
|                      
|                      
|                       |  | /S/ Michael W. Carrie                                                                                              
|                       |  |                                                                                                                    
|                       |  | Michael W. Carrie
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)

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##### Table of Contents



Exhibit Index

|            |  |                                      
|----------- |  | -------------------------------------
|Exhibit No. |  | Description                          
|            |  |                                      
|Exhibit 11. |  | Computation of Net Earnings per Share

13