10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-16577

FLAGSTAR BANCORP, INC.

(Exact name of registrant as specified in its charter)

Michigan	38-3150651
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
5151 Corporate Drive, Troy, Michigan	48098
(Address of principal executive offices)	(Zip Code)

(248) 312-2000

(Registrant’s telephone number, including area code)

     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 þ No o.

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ.

     As of August 2, 2006, 63,544,838 shares of the registrant’s common stock, $0.01 par value, were issued and outstanding.

FORWARD—LOOKING STATEMENTS

     This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company and these statements are subject to risk and uncertainty. Forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, include those using words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions.

     There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the heading “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, including: (1) competitive pressures among depository institutions increase significantly; (2) changes in the interest rate environment reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; (4) general economic conditions, either national or in the states in which the Company does business, are less favorable than expected; (5) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions adversely affect the businesses in which the Company is engaged; (7) changes and trends in the securities markets; (8) a delayed or incomplete resolution of regulatory issues; (9) the impact of reputational risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity; and (10) the outcome of regulatory and legal investigations and proceedings.

     The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

 Amended and Restated Articles of Incorporation

 Second Amended and Restated Bylaws

 Statement Regarding Computation of Net Earnings per Share

 Section 302 Certification of Chief Executive Officer

 Section 302 Certification of Chief Financial Officer

 Section 906 Certification by Chief Executive Officer

 Section 906 Certification by Chief Financial Officer

3

Flagstar Bancorp, Inc.

Consolidated Statements of Financial Condition

(In thousands, except for share data)

	At June 30,			At December 31,
	2006			2005
	(Unaudited)
Assets
Cash and cash equivalents	$	174,150		$	201,163
Mortgage-backed securities held to maturity (fair value $1.7 billion and $1.4 billion at June 30, 2006 and December 31, 2005, respectively)		1,664,171			1,414,986
Securities available for sale		31,324			26,148
Other investments		24,320			21,957
Loans available for sale		2,817,428			1,773,394
Loans held for investment		9,427,066			10,576,471
Less: allowance for loan losses		(39,606	)		(39,140	)
Loans held for investment, net		9,387,460			10,537,331
Total earning assets		13,924,703			13,773,816
Accrued interest receivable		50,266			48,399
Repossessed assets, net		69,253			47,724
Federal Home Loan Bank stock		292,118			292,118
Premises and equipment, net		210,320			200,789
Mortgage servicing rights, net		230,984			315,678
Other assets		274,070			195,743
Total assets	$	15,225,864		$	15,075,430
Liabilities and Stockholders’ Equity
Liabilities
Deposits	$	7,843,249		$	7,979,000
Federal Home Loan Bank advances		4,290,000			4,225,000
Security repurchase agreements		1,145,578			1,060,097
Long term debt		207,497			207,497
Total interest-bearing liabilities		13,486,324			13,471,594
Accrued interest payable		46,091			41,288
Undisbursed payments on loans serviced for others		382,420			407,104
Escrow accounts		320,717			219,028
Liability for checks issued		18,100			23,222
Federal income taxes payable		94,073			75,271
Secondary market reserve		20,600			17,550
Other liabilities		53,595			48,490
Total liabilities		14,421,920			14,303,547
Commitments and Contingencies		—			—
Stockholders’ Equity
Common stock — $.01 par value, 150,000,000 shares authorized; 63,529,388 and 63,208,038 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively		635			632
Additional paid in capital		61,760			57,304
Accumulated other comprehensive income		6,936			7,834
Retained earnings		734,613			706,113
Total stockholders’ equity		803,944			771,883
Total liabilities and stockholders’ equity	$	15,225,864		$	15,075,430

The accompanying notes are an integral part of these consolidated financial statements.

4

Flagstar Bancorp, Inc.

Consolidated Statements of Earnings

(In thousands, except per share data)

	For the three months ended					For the six months ended
	June 30,					June 30,
	2006			2005		2006			2005
	(Unaudited)
Interest Income
Loans	$	170,121		$	165,617	$	341,893		$	328,306
Mortgage-backed securities held to maturity		21,148			271		38,300			554
Other		1,379			223		3,754			377
Total interest income		192,648			166,111		383,947			329,237
Interest Expense
Deposits		82,055			61,698		157,272			114,659
FHLB advances		42,497			41,138		82,470			82,190
Security repurchase agreements		13,051			—		26,546			—
Other		4,307			4,834		8,246			8,737
Total interest expense		141,910			107,670		274,534			205,586
Net interest income		50,738			58,441		109,413			123,651
Provision for loan losses		5,859			2,903		9,923			9,150
Net interest income after provision for loan losses		44,879			55,538		99,490			114,501
Non-Interest Income
Loan fees and charges		1,239			3,213		2,850			5,835
Deposit fees and charges		5,692			4,400		10,503			7,977
Loan administration		309			1,669		4,664			7,614
Net gain on loan sales		9,650			32,348		26,735			41,924
Net gain on sales of mortgage servicing rights		34,932			2,262		43,518			6,510
Net loss on securities available for sale		—			—		(3,557	)		—
Other fees and charges		9,750			10,977		19,481			20,570
Total non-interest income		61,572			54,869		104,194			90,430
Non-Interest Expense
Compensation and benefits		34,943			31,620		71,217			62,339
Occupancy and equipment		16,722			18,048		33,609			34,446
Communication		963			1,563		2,187			3,116
Other taxes		(3,659	)		2,463		(1,630	)		4,531
General and administrative		13,385			13,380		25,041			26,364
Total non-interest expense		62,354			67,074		130,424			130,796
Earnings before federal income taxes		44,097			43,333		73,260			74,135
Provision for federal income taxes		15,457			15,533		25,710			26,557
Net Earnings	$	28,640		$	27,800	$	47,550		$	47,578
Net earnings per share — basic	$	0.45		$	0.45	$	0.75		$	0.77
Net earnings per share — diluted	$	0.44		$	0.43	$	0.74		$	0.74

The accompanying notes are an integral part of these consolidated financial statements.

5

Flagstar Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

(In thousands, except per share data)

					Accumulated
			Additional		Other						Total
	Common		Paid in		Comprehensive			Retained			Stockholders’
	Stock		Capital		Income			Earnings			Equity
Balance at January 1, 2005	$	614	$	40,754	$	5,343		$	682,243		$	728,954
Net earnings		—		—		—			79,865			79,865
Reclassification of gain on swap extinguishment – net of tax		—		—		(1,335	)		—			(1,335	)
Net unrealized gain on swaps used in cash flow hedges – net of tax		—		—		3,328			—			3,328
Net unrealized gain on securities available for sale – net of tax		—		—		498			—			498
Total comprehensive income		—		—		—			—			82,356
Stock options exercised and grants issued, net		18		8,171		—			—			8,189
Tax benefit from stock-based compensation		—		8,379		—			—			8,379
Dividends paid ($0.90 per share)		—		—		—			(55,995	)		(55,995	)
Balance at December 31, 2005 (Unaudited)		632		57,304		7,834			706,113			771,883
Net earnings		—		—		—			47,550			47,550
Reclassification of gain on swap extinguishment – net of tax		—		—		(668	)		—			(668	)
Net unrealized gain on swaps used in cash flow hedges – net of tax		—		—		1,162			—			1,162
Net unrealized loss on securities available for sale – net of tax		—		—		(1,392	)		—			(1,392	)
Total comprehensive income		—		—		—			—			46,652
Stock options exercised and grants issued, net		3		3,625		—			—			3,628
Tax benefit from stock-based compensation		—		831		—			—			831
Dividends paid ($0.30 per share)		—		—		—			(19,050	)		(19,050	)
Balance at June 30, 2006	$	635	$	61,760	$	6,936		$	734,613		$	803,944

The accompanying notes are an integral part of these consolidated financial statements.

6

Flagstar Bancorp, Inc.

Consolidated Statements of Cash Flows

(In thousands)

	For the six months ended
	June 30,
	2006			2005
	(Unaudited)
Operating Activities
Net earnings	$	47,550		$	47,578
Adjustments to net earnings to net cash used in operating activities
Provision for loan losses		9,923			9,150
Depreciation and amortization		62,464			52,036
FHLB stock dividends		—			(5,035	)
Net gain on the sale of assets		(172	)		(1,062	)
Net gain on loan sales		(26,735	)		(41,924	)
Net gain on sales of mortgage servicing rights		(43,518	)		(6,510	)
Net loss on securities available for sale		3,557			—
Proceeds from sales of loans available for sale		7,863,488			11,343,851
Originations and repurchase of mortgage loans available for sale, net of principal repayments		(8,231,544	)		(12,199,085	)
Increase in accrued interest receivable		(1,867	)		(8,684	)
(Increase) decrease in other assets		(76,989	)		74,688
Increase in accrued interest payable		4,803			4,669
(Decrease) increase in the liability for checks issued		(5,122	)		2,843
Increase in federal income taxes payable		16,564			25,529
Increase (decrease) in other liabilities		8,155			(9,076	)
Net cash used in operating activities		(369,443	)		(711,032	)
Investing Activities
Net change in other investments		(2,363	)		(2,271	)
Purchase of mortgage-backed securities held to maturity		(39,649	)		—
Repayments of mortgage-backed securities held to maturity		223,937			2,868
Origination of portfolio loans, net of principal repayments		2,661			(817,377	)
Purchases of Federal Home Loan Bank stock		—			(22,597	)
Investment in unconsolidated subsidiaries		—			2,321
Proceeds from the disposition of repossessed assets		22,699			22,567
Acquisitions of premises and equipment, net of proceeds		(22,963	)		(24,613	)
Capitalization of mortgage servicing rights, net of amortization		(113,538	)		(162,286	)
Proceeds from the sale of mortgage servicing rights		194,502			36,262
Net cash provided by (used in) investing activities		265,286			(965,126	)
Financing Activities
Net (decrease) increase in deposit accounts		(135,751	)		507,373
Net increase in security repurchase agreements		85,481			—
Issuance of junior subordinated debt		—			75,000
Net increase in Federal Home Loan Bank advances		65,000			1,071,035
Net disbursement of payments of loans serviced for others		(24,684	)		(19,127	)
Net receipt of escrow payments		101,689			101,371
Proceeds from the exercise of stock options		3,628			3,603
Net tax benefit for stock grants issued		831			—
Dividends paid to stockholders		(19,050	)		(30,917	)
Net cash provided by financing activities		77,144			1,708,338
Net (decrease) increase in cash and cash equivalents		(27,013	)		32,180
Beginning cash and cash equivalents		201,163			168,442
Ending cash and cash equivalents	$	174,150		$	200,622

7

Flagstar Bancorp, Inc.
Consolidated Statements of Cash Flows — Continued
(In thousands)

	For the six months ended
	June 30,
	2006		2005
	(Unaudited)
Supplemental disclosure of cash flow information:
Loans held for investment transferred to repossessed assets	$	53,388	$	19,446
Total interest payments made on deposits and other borrowings	$	269,130	$	200,917
Federal income taxes paid	$	8,353	$	—
Mortgage loans available for sale transferred to held for investment	$	156,584	$	441,492
Mortgage loans held for investment transferred to available for sale	$	814,560	$	—
Recharacterization of loans held for investment to mortgage-backed securities held to maturity	$	435,380	$	—

The accompanying notes are an integral part of these consolidated financial statements.

8

Flagstar Bancorp, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Nature of Business

     Flagstar Bancorp, Inc. (“Flagstar” or the “Company”) is a New York Stock Exchange – listed company (NYSE: FBC) headquartered in Troy, Michigan, which serves as the holding company for Flagstar Bank, FSB (the “Bank”), a federally chartered stock savings bank founded in 1987. With $15.2 billion in assets at June 30, 2006, Flagstar is the largest publicly traded savings bank headquartered in the Midwest.

     The Company’s principal business is investing in various types of loans using funds obtained in the form of deposits and borrowings. The acquisition or origination of single-family mortgage loans is the Company’s primary lending activity. The Company also originates consumer loans, commercial real estate loans, and non-real estate commercial loans.

     The Company sells or securitizes most of the mortgage loans that it originates, and it generally retains the right to service the mortgage loans it sells. These mortgage servicing rights (“MSRs”) generate loan administration income for the Company and are periodically sold by the Company as loans are originated (“flow basis”) or after a sufficient amount of MSRs have been accumulated (“bulk basis”) in transactions separate from the sale of the underlying mortgages. The Company may also retain loans for its own portfolio as part of its asset growth and retail bank strategies and to receive the interest spread between interest-earning assets and interest-paying liabilities.

     The Bank is a member of the Federal Home Loan Bank of Indianapolis (“FHLB”) and is subject to regulation, examination and supervision by the Office of Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured by the FDIC up to the applicable limits.

     On May 30, 2006, the Company formed Flagstar Capital Markets Corporation (“FCMC”) as a wholly-owned subsidiary of the Bank. FCMC performs functions that were previously handled by the Bank’s capital markets group, which was transferred to FCMC at the time of its creation. These functions include the sale and securitization of mortgage loans, the maintenance and sale of mortgage servicing rights, the development of new loan products, the establishment of pricing for mortgage loans to be acquired, providing for lock-in support, and the management of the interest rate risk associated with these activities.

Note 2. Basis of Presentation

     The accompanying unaudited consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated. In accordance with current accounting principles, our trust subsidiaries are not consolidated. In addition, certain prior period amounts have been reclassified to conform to the current period presentation.

     The unaudited consolidated 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. The accompanying interim financial statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and six months periods ended June 30, 2006, are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For further information, you should refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The Form 10-K can be found on the Company’s Investor Relations web page, at www.flagstar.com, and on the website of the Securities and Exchange Commission, at www.sec.gov.

Note 3. Recent Accounting Developments

     In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”, (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,

9

disclosure and transition. FIN No. 48 is required to be adopted by the Company effective January 1, 2007. Management is currently analyzing the impact of this interpretation on the Company’s financial condition, results of operation and liquidity.

Note 4. Stock-Based Compensation

     On May 26, 2006, the Company’s shareholders approved the Flagstar Bancorp, Inc. 2006 Equity Incentive Plan (the “2006 Plan”). The 2006 Plan consolidates, amends and restates the Company’s 1997 Employees and Directors Stock Option Plan, its 2000 Stock Incentive Plan, and its 1997 Incentive Compensation Plan (each, a “Prior Plan”). Awards still outstanding under any of the Prior Plans will continue to be governed by their respective terms. Under the 2006 Plan, key employees, officers, directors and others expected to provide significant services to the Company and its affiliates are eligible to receive awards. Awards that may be granted under the 2006 Plan include stock options, incentive stock options, cash-settled stock appreciation rights, restricted stock units, performance shares and performance units and other awards.

     Under the 2006 Plan, the exercise price of any option granted must be at least equal to the fair market value of the Company’s common stock on the date of grant. Non-qualified stock options granted to directors expire five years from the date of grant. Grants other than non-qualified stock options have term limits set by the Board in the applicable agreement. Stock appreciation rights expire seven years from the date of grant.

     In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment,” (“SFAS No. 123R”) which requires that compensation costs related to share-based payment transactions be recognized in financial statements. SFAS No. 123R eliminated the alternative to use the intrinsic method of accounting previously allowed under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” which generally did not require any compensation expense to be recognized in the financial statements for the grant of stock options to employees if certain conditions were met. Only certain pro forma disclosures of share-based payments were required.

     On January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective method. SFAS No. 123R requires all share-based payment to employees, including grants of employee stock options, to be recognized as expense in the consolidated statement of earnings based on their fair values. Only certain pro forma disclosures of share-based payments were required. The amount of compensation expense is determined based on the fair value of the options when granted and is expensed over the required service period, which is normally the vesting period of the options. SFAS No. 123R applies to awards granted or modified on or after January 1, 2006, and to any unvested awards that were outstanding at December 31, 2005. Consequently, compensation expense is recorded for prior option grants that vest on or after January 1, 2006, the date of adoption.

     Prior to the adoption of SFAS No. 123R, the Company accounted for its Prior Plan under the recognition and measurement principles of APB Opinion No. 25. The Company reported all tax benefits resulting from the exercise of stock options as financing cash flows in the consolidated statements of cash flows. In accordance with SFAS No. 123R, for the period beginning January 1, 2006, only the excess tax benefits from the exercise of stock options are presented as financing cash flows. The excess tax benefits totaled $0.7 million and $0.8 million for the three and six months ended June 30, 2006, respectively.

     The fair value concepts were not changed significantly in SFAS No. 123R; however, in adopting this standard, companies must choose among alternative valuation models and amortization assumptions. The Company has elected to continue to use both the Black-Scholes option pricing model and the straight-line method of amortization of compensation expense over the requisite service period of the grant. The Company will reconsider use of the Black-Scholes model if additional information in the future indicates another model would be more appropriate at that time, or if grants issued in future periods have characteristics that could not be reasonably estimated using this model.

     The Company used the following weighted average assumptions in applying the Black-Scholes model to determine the fair value of options it issued during the year ended December 31, 2005: dividend yield of 4.80%: expected volatility of 45.28%; a risk-free rate of 3.80%; and an expected life of 5 years. There were no options granted during the six-month period ending June 30, 2006.

10

     The following table summarizes the activity that occurred in the period ended June 30, 2006, and the year ended December 31, 2005:

	Number of Shares
				December 31,
	June 30, 2006			2005
	(Unaudited)
Options outstanding, beginning of period		3,417,366			4,961,529
Options granted		—			372,792
Options exercised		(284,301	)		(1,788,354	)
Options canceled, forfeited and expired		(15,763	)		(128,601	)
Options outstanding, end of period		3,117,302			3,417,366
Options exercisable, end of period		2,968,031			2,861,884
	Weighted Average Exercise Price
				December 31,
	June 30, 2006			2005
	(Unaudited)
Options outstanding, beginning of period	$	13.20		$	9.34
Options granted		—			20.50
Options exercised		5.80			4.17
Options canceled, forfeited and expired		15.18			15.64
Options outstanding, end of period		13.67			13.20
Options exercisable, end of period		13.73			13.20

     The following information pertains to the stock options under the Prior Plans, and now contained in the 2006 Plan, that were not exercised at June 30, 2006 (unaudited):

		Options Outstanding						Options Exercisable
				Weighted
		Number of		Average		Weighted		Number of		Weighted
		Options		Remaining		Average		Options		Average
		Outstanding		Contractual		Exercise		Exercisable		Exercise
Range of Grant Price		at June 30, 2006		Life (Years)		Price		at June 30, 2006		Price
$	1.76		140,462		3.96	$	1.76		140,462	$	1.76
	1.96 – 4.77		28,050		2.70		3.49		28,050		3.49
	5.01		99,351		4.90		5.01		99,351		5.01
	5.29 – 6.06		109,651		2.98		5.34		109,651		5.34
	11.80		1,141,231		4.63		11.80		1,141,231		11.80
	12.27 – 15.23		778,433		5.09		12.31		629,162		12.27
	19.35 – 20.06		36,429		6.07		19.70		36,429		19.70
	20.73		339,863		7.09		20.73		339,863		20.73
	22.68		287,456		7.62		22.68		287,456		22.68
	24.72		156,376		6.76		24.72		156,376		24.72
			3,117,302			$	13.67		2,968,031	$	13.73

At June 30, 2006, the number of options available for future grants was 1,409,202.

     The Company used the following weighted average assumptions in applying the Black-Scholes model to determine the fair value of the cash-settled stock appreciation rights it issued during the six months ended June 30, 2006; dividend yield of 3.68%; expected volatility of 21.98%; a risk-free rate of 4.99%; and an expected life of 5 years.

11

     The following table presents the status and changes in cash-settled stock appreciation rights issued under the 2006 Plan:

			Weighted Average
Stock Appreciation Rights Awarded:	Shares		Fair Value
Non-vested balance at December 31, 2005		—
Granted		328,873	$	2.99
Vested		—
Forfeited		—
Non-vested balance at June 30, 2006		328,873

     The following table illustrates the effect on net earnings and earnings per share as of and for the three and six months ended June 30, 2005 if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation (in thousands, except per share data):

	For the three			For the six
	months ended			months ended
	June 30, 2005			June 30, 2005
Net earnings, as reported	$	27,800		$	47,578
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(575	)		(1,151	)
Pro forma net earnings	$	27,225		$	46,427
Basic earnings per share
As reported	$	0.45		$	0.77
Pro forma	$	0.44		$	0.75
Diluted earnings per share
As reported	$	0.43		$	0.74
Pro forma	$	0.42		$	0.72

     For the three and six months ended June 30, 2006, the Company recorded stock-based compensation expense of $0.7 million ($0.4 million net of tax) and $1.4 million ($0.9 million net of tax), respectively or less than $0.01 per share and $0.01 per share, diluted. The future effect of SFAS No. 123R on results of operations will depend on the level of future grants, the vesting period of those grants and the fair value of the options granted at such date and the fair value of the cash-settled stock appreciation rights. Consequently, the current effects on the Company’s results as a result of adopting FASB No. 123R in 2006 are not necessarily representative of effects for future periods.

Note 5. Securities Available for Sale

     The Company recorded $26.1 million in residual interests as of December 31, 2005, as a result of its non-agency securitization of $600 million in home equity line of credit loans (the “HELOC Securitization”). In addition, each month, draws on the home equity lines of credit in the trust established in the HELOC Securitization are purchased from the Company by the trust, resulting in additional residual interests to the Company. These residual interests are recorded as securities available for sale, and are therefore recorded at fair value. Any gains or losses realized on the sale of such securities or any unrealized losses that are deemed to be an other-than-temporary impairment (“OTTI”) are reported in the consolidated statement of earnings. All unrealized gains or losses that are deemed to be temporary are reported in other comprehensive income, net of tax.

     At June 30, 2006, key assumptions used in determining the fair value of residual interests resulting from the securitization completed in December 2005 were a prepayment speed of 50%, projected credit losses of 1.25% and a discount rate of 15%.

     On April 28, 2006, the Company completed a guaranteed mortgage securitization transaction of approximately $400 million of fixed second mortgage loans the Company held in its investment portfolio (the “Second Mortgage Securitization”). The transaction was treated as a recharacterization of loans held for investment to mortgage-backed securities held to maturity, therefore no gain on sale was recorded. The securitization resulted in the Company recording a residual interest of

12

approximately $9.9 million that is carried as a security available for sale. At June 30, 2006, key assumptions used in determining the value of residual interests resulting from this securitization were a prepayment speed of 25%, projected credit losses of 1.50% and a discount rate of 15%.

     The table below, sets forth key economic assumptions and the hypothetical sensitivity of the fair value of residual interests to an immediate adverse change in any single key assumption. Changes in fair value based on 10% and 20% variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. The effect of a variation in a particular assumption on the fair value of the residual interest is calculated without changing any other assumptions. In practice, changes in one factor may result in changes in other factors, such as increases in market interest rates that may magnify or counteract sensitivities:

	Assumptions
			Prepayment			Projected			Discount
HELOC Securitization	Fair Value		Speed			Credit Losses			Rate
	(Dollars in thousands)
Residual asset as of June 30, 2006	$	21,115		50	%		1.25	%		15	%
Impact on fair value of 10% adverse change in assumption			$	152		$	390		$	614
Impact on fair value of 20% adverse change in assumption			$	—	(1)	$	718		$	1,154

	Assumptions
Second Mortgage			Prepayment			Projected			Discount
Securitization	Fair Value		Speed			Credit Losses			Rate
	(Dollars in thousands)
Residual asset as of June 30, 2006	$	10,209		25	%		1.50	%		15	%
Impact on fair value in 10% adverse change in assumption			$	—	(1)	$	396		$	561
Impact on fair value in 20% adverse change in assumption			$	—	(1)	$	790		$	1,081

(1) At this level of prepayment speed, the residual value would not be negatively impaired. However, should the prepayment speed increase beyond this level, significant deterioration of the residual value would likely occur.

Note 6. Segment Information

     The Company’s operations are comprised of two business segments: banking and home lending. Each business operates under the same banking charter but is reported on a segmented basis for this report and each is complementary to the other.

     The banking operation includes the gathering of deposits and investing those deposits in duration-matched assets. It holds these loans in the investment portfolio in order to earn income based on the difference, or “spread,” between the interest earned on loans and the interest paid for deposits and other borrowed funds. All of the non-bank consolidated subsidiaries are included in the banking operation.

     The home lending operation involves the origination, packaging, and sale of loans in order to receive transaction income. The lending operation also services mortgage loans for others and sells such mortgage servicing rights into the secondary market. Funding for the lending operation is provided by deposits garnered and borrowings incurred by the banking group, as well as proceeds from loan and MSR sales generated by the home lending group.

13

     Following is a presentation of financial information by segment for the periods indicated (in thousands):

	For the three months ended June 30, 2006
	Banking		Home Lending
	Operation		Operation			Elimination			Combined
Net interest income	$	38,738	$	12,000		$	—		$	50,738
Gain on sale revenue		—		44,582			—			44,582
Other income		8,867		8,123			—			16,990
Total net interest income and non-interest income		47,605		64,705			—			112,310
Earnings before federal income taxes		14,002		30,095			—			44,097
Depreciation and amortization		2,308		28,737			—			31,045
Capital expenditures		9,438		—			—			9,438
Identifiable assets		14,278,882		3,396,982			(2,450,000	)		15,225,864
Inter-segment income (expense)		18,375		(18,375	)		—			—

	For the six months ended June 30, 2006
	Banking		Home Lending
	Operation		Operation			Elimination			Combined
Net interest income	$	82,687	$	26,726		$	—		$	109,413
Gain on sale revenue		—		70,253			—			70,253
Other income		14,251		19,690			—			33,941
Total net interest income and non-interest income		96,938		116,669			—			213,607
Earnings before federal income taxes		33,211		40,049			—			73,260
Depreciation and amortization		4,717		57,747			—			62,464
Capital expenditures		22,097		740			—			22,837
Identifiable assets		14,278,882		3,396,982			(2,450,000	)		15,225,864
Inter-segment income (expense)		34,425		(34,425	)		—			—

	For the three months ended June 30, 2005
	Banking		Home Lending
	Operation		Operation			Elimination			Combined
Net interest income	$	42,116	$	16,325		$	—		$	58,441
Gain on sale revenue		—		34,610			—			34,610
Other income		14,918		5,341			—			20,259
Total net interest income and non-interest income		57,034		56,276			—			113,310
Earnings before federal income taxes		27,564		15,769			—			43,333
Depreciation and amortization		3,049		25,807			—			28,856
Capital expenditures		14,024		2,212			—			16,236
Identifiable assets		13,862,387		2,534,129			(1,470,000	)		14,926,516
Inter-segment income (expense)		11,025		(11,025	)		—			—

	For the six months ended June 30, 2005
	Banking		Home Lending
	Operation		Operation			Elimination			Combined
Net interest income	$	92,546	$	31,105		$	—		$	123,651
Gain on sale revenue		—		48,434			—			48,434
Other income		24,409		17,587			—			41,996
Total net interest income and non-interest income		116,955		97,126			—			214,081
Earnings before federal income taxes		58,098		16,037			—			74,135
Depreciation and amortization		5,071		46,965			—			52,036
Capital expenditures		19,597		4,971			—			24,568
Identifiable assets		13,862,387		2,534,129			(1,470,000	)		14,926,516
Inter-segment income (expense)		22,275		(22,275	)		—			—

14

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

     Where we say “we”, “us”, or “our”, we usually mean Flagstar Bancorp, Inc. In some cases, a reference to “we”, “us”, or “our” will include our wholly-owned subsidiary Flagstar Bank, FSB, and FCMC, its wholly-owned subsidiary, which we collectively refer to as the “Bank.”

General

     We have no significant business other than of our wholly-owned subsidiary, Flagstar Bank, FSB, which we refer to as the Bank. Operations of the Bank are categorized into two business segments: banking and home lending. Each segment operates under the same banking charter, but is reported on a segmented basis for financial reporting purposes. For certain financial information concerning the results of operations of our banking and home lending operations, see Note 6 of the Notes to Consolidated Financial Statements, in Item 1, Financial Statements, herein.

     Banking Operation. We provide a full range of banking services to consumers and small businesses in Michigan, Indiana and Georgia. Our banking operation involves the gathering of deposits and the borrowing of funds and investing all these amounts in duration-matched assets consisting primarily of mortgages originated by our home lending operation. The banking operation holds these loans in its loans held for investment portfolio in order to earn income based on the difference, or “spread”, between the interest earned on loans and the interest paid for deposits and other borrowed funds. At June 30, 2006, we operated a branch network of 145 banking centers. We continue to focus on expanding our branch network to increase our access to retail deposit funding sources. During the first six months of 2006, we opened eight banking centers. During the remainder of 2006, we expect to open a total of seven more banking centers in the Atlanta area and in Michigan.

     Home Lending Operation. Our home lending operation originates, packages and sells residential mortgage loans in order to generate transactional income. The home lending operation also services mortgage loans on a fee basis for others and sells mortgage servicing rights (“MSRs”) into the secondary market. Funding for our home lending operation is provided by deposits obtained from our banking operations and other borrowings.

Critical Accounting Policies

     Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified four policies that, due to the judgment, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to (a) the determination of our allowance for loan losses; (b) the valuation of our MSRs; (c) the valuation of our derivatives; and (d) the determination of our secondary market reserve. We believe that the judgment, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. For further information on our critical accounting policies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2005, which is available on our website, www.flagstar.com, under the Investor Relations section, or on the website of the SEC, at www.sec.gov.

15

Selected Financial Ratios (dollars in thousands, except per share data)

	For the three months ended						For the six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Return on average assets		0.76	%		0.77	%		0.63	%		0.67	%
Return on average equity		14.46	%		14.88	%		12.12	%		12.80	%
Efficiency ratio		55.5	%		59.2	%		61.1	%		61.1	%
Equity/assets ratio (average for the period)		5.22	%		5.15	%		5.18	%		5.25	%
Mortgage loans originated or purchased	$	4,736,918		$	7,003,094		$	9,085,071		$	14,216,187
Other loans originated or purchased	$	522,991		$	541,464		$	848,930		$	898,972
Mortgage loans sold	$	3,964,625		$	5,891,492		$	7,858,695		$	11,329,539
Interest rate spread1		1.41	%		1.71	%		1.48	%		1.71	%
Net interest margin2		1.49	%		1.79	%		1.60	%		1.90	%
Average common shares outstanding		63,509			62,078			63,438			61,770
Average fully diluted shares outstanding		64,446			64,265			64,333			64,083
Charge-offs to average investment loans (annualized)		0.23	%		0.19	%		0.20	%		0.19	%

	June 30,			March 31,			December 31,			June 30,
	2006			2006			2005			2005
Equity-to-assets ratio		5.28	%		5.20	%		5.12	%		5.02	%
Core capital ratio3		6.39	%		6.33	%		6.26	%		6.07	%
Total risk-based capital ratio3		11.15	%		11.20	%		11.09	%		10.50	%
Book value per share	$	12.65		$	12.33		$	12.21		$	12.04
Number of common shares outstanding		63,529			63,488			63,208			62,244
Mortgage loans serviced for others	$	22,379,937		$	29,242,906		$	29,648,088		$	26,646,532
Capitalized value of mortgage servicing rights		1.03	%		1.10	%		1.06	%		1.07	%
Ratio of allowance to non-performing loans		79.2	%		68.2	%		60.7	%		56.7	%
Ratio of allowance to loans held for investment		0.42	%		0.40	%		0.37	%		0.31	%
Ratio of non-performing assets to total assets		0.99	%		1.00	%		0.98	%		0.93	%
Number of banking centers		145			141			137			128
Number of home lending centers		87			97			101			114
Number of salaried employees		2,548			2,421			2,405			2,431
Number of commissioned employees		530	4		594	4		689			800

1	Interest rate spread is the difference between the annualized average yield earned on average interest-earning assets for the period and the annualized average rate of interest paid on average interest-bearing liabilities for the period.
2	Net interest margin is the annualized effect of the net interest income divided by that period’s average interest-earning assets.
3	Based on adjusted total assets for purposes of tangible capital and core capital, and risk-weighted assets for purposes of the risk-based capital and the total risk based capital. These ratios are applicable to the Bank only.
4	Commissioned employees also receive a base salary.

16

RESULTS OF OPERATIONS

Net Earnings

     Three months. Net earnings for the three months ended June 30, 2006 was $28.6 million ($0.44 per share-diluted), an $0.8 million increase from the $27.8 million ($0.43 per share-diluted) reported in the comparable 2005 period. The overall increase resulted from a $6.7 million increase in non-interest income and a $4.7 million decrease in non-interest expense, offset in part by a $10.6 million decrease in net interest income after provision for loan losses.

     Six months. Net earnings for the six months ended June 30, 2006 was $47.6 million ($0.74 per share-diluted), unchanged from the comparable 2005 period. On a period-to-period comparison basis, there was a $13.8 million increase in non-interest income, a $0.4 million decrease in non-interest expense in the 2006 period, offset by a $15.0 million decrease in net interest income after provision for loan losses and a $0.8 million decrease in federal income tax expense.

Net Interest Income

     Three months. We recorded $50.7 million in net interest income for the three months ended June 30, 2006, a 13.2% decline from the $58.4 million recorded for the comparable 2005 period. The decline reflects a $26.5 million increase in interest income offset by a $34.2 million increase in interest expense, primarily as a result of increasing rates paid on deposits, FHLB advances and security repurchase agreements which were greater than the increase in yields earned on loans and mortgage backed securities. In this same period, we increased both our average interest-earning assets and average interest-paying liabilities by $0.6 billion.

     Average interest-earning assets as a whole repriced up 56 basis points during the three months ended June 30, 2006, while average interest-bearing liabilities repriced up 86 basis points during the same period, resulting in the decrease in our net interest spread of 30 basis points to 1.41% for the three months ended June 30, 2006, from 1.71% for the comparable 2005 period.

     On a sequential quarter basis, we had a 16 basis point decrease in the interest rate spread and a 23 basis point decrease in the net interest margin from the first quarter of 2006. The decline in net interest margin reflects the $8.0 million decline in net interest income as compared to the prior quarter, while the amount of average interest-earning assets declined by only $0.1 billion.

     Six months. We recorded $109.4 million in net interest income for the six months ended June 30, 2006, an 11.6% decline from the $123.7 million recorded for the comparable 2005 period. The decline reflects a $54.7 million increase in interest revenue offset by a $68.9 million increase in interest expense, primarily as a result of increasing rates paid on deposits, FHLB advances and security repurchase agreements which were greater than the increase in yields earned on loans and mortgage backed securities. In this same period, we increased our average paying liabilities by $0.3 billion more than we increased our average interest-earning assets. This caused a decline in the ratio of average interest-earning assets to average interest-bearing liabilities for the six months ended June 30, 2006 to 102% from 104% for the six months ended June 30, 2005. This decline is reflected in the reduction in the net interest margin, to 1.60% for the second quarter of 2006 from 1.90% for the second quarter of 2005.

     Average interest-earning assets as a whole repriced up 57 basis points during the six months ended June 30, 2006 while average interest-bearing liabilities repriced up 80 basis points during the same period, resulting in the decrease in our net interest spread of 23 basis points to 1.48% for the six months ended June 30, 2006 from 1.71% for the comparable 2005 period.

17

     Average Yields Earned and Rates Paid. The following table presents interest income from average interest-earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates. Interest income from earning assets includes the amortization of net premiums and net deferred loan origination costs of $9.4 million and $8.2 million for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, interest income from earning assets included $16.0 million and $13.8 million of amortization of net premiums and net deferred loan origination costs, respectively. Non-accruing loans were included in the average loan amounts outstanding.

	Three months ended June 30,
	2006							2005
	(Dollars in thousands)
	Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets:
Loans receivable, net	$	11,862,874	$	170,121		5.58	%	$	12,982,651	$	165,617		5.10	%
Mortgage-backed securities-held to maturity		1,622,432		21,148		5.21	%		18,511		271		5.86	%
Other		164,713		1,379		3.35	%		60,518		223		1.46	%
Total interest-earning assets		13,650,019	$	192,648		5.65	%		13,061,680	$	166,111		5.09	%
Other assets		1,512,362							1,465,351
Total assets	$	15,162,381						$	14,527,031
Interest-bearing liabilities:
Deposits	$	8,132,394	$	82,055		4.05	%	$	7,949,306	$	61,698		3.11	%
FHLB advances		4,007,320		42,497		4.25	%		4,532,299		41,138		3.64	%
Security repurchase agreements		1,045,762		13,051		5.01	%		—		—		—
Other		241,943		4,307		7.14	%		314,241		4,834		6.17	%
Total interest-bearing liabilities		13,427,419	$	141,910		4.24	%		12,795,846	$	107,670		3.38	%
Other liabilities		942,964							983,733
Stockholders’ equity		791,998							747,452
Total liabilities and stockholders’ equity	$	15,162,381						$	14,527,031
Net interest-earning assets	$	222,600						$	265,834
Net interest income			$	50,738						$	58,441
Interest rate spread1						1.41	%						1.71	%
Net interest margin2						1.49	%						1.79	%
Ratio of average interest-earning assets to average interest-bearing liabilities						102	%						102	%

1	Interest rate spread is the difference between the annualized average yield earned on average interest-earning assets for the period and the annualized average rate of interest paid on average interest-bearing liabilities for the period.
2	Net interest margin is the annualized effect of the net interest income divided by that period’s average interest-earning assets.

18

	Six months ended June 30,
	2006							2005
	(Dollars in thousands)
	Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets:
Loans receivable, net	$	12,094,447	$	341,893		5.58	%	$	13,024,404	$	328,306		5.04	%
Mortgage-backed securities-held to maturity		1,515,919		38,300		5.05	%		19,116		554		5.80	%
Other		136,403		3,754		5.50	%		64,879		377		1.16	%
Total interest-earning assets		13,747,769	$	383,947		5.59	%		13,108,399	$	329,237		5.02	%
Other assets		1,391,172							1,062,191
Total assets	$	15,138,941						$	14,170,590
Interest-bearing liabilities:
Deposits	$	8,135,310	$	157,272		3.91	%	$	7,765,514	$	114,659		2.99	%
FHLB advances		4,001,745		82,470		4.17	%		4,512,715		82,190		3.68	%
Security repurchase agreements		1,122,118		26,546		4.78	%		—		—		—
Other		250,078		8,246		6.67	%		298,325		8,737		5.92	%
Total interest-bearing liabilities		13,509,251	$	274,534		4.11	%		12,576,554	$	205,586		3.31	%
Other liabilities		844,862							850,418
Stockholders’ equity		784,828							743,618
Total liabilities and stockholders’ equity	$	15,138,941						$	14,170,590
Net interest-earning assets	$	238,518						$	531,845
Net interest income			$	109,413						$	123,651
Interest rate spread1						1.48	%						1.71	%
Net interest margin2						1.60	%						1.90	%
Ratio of average interest-earning assets to average interest-bearing liabilities						102	%						104	%

1	Interest rate spread is the difference between the annualized average yield earned on average interest-earning assets for the period and the annualized average rate of interest paid on average interest-bearing liabilities for the period.
2	Net interest margin is the annualized effect of the net interest income divided by that period’s average interest-earning assets.

19

     Rate/Volume Analysis. The following table presents the dollar amount of changes in interest income and interest expense for the components of interest-earning assets and interest-bearing liabilities, which are presented in the preceding table. The table below distinguishes between the changes related to average outstanding balances (changes in volume while holding the initial rate constant) and the changes related to average interest rates (changes in average rates while holding the initial balance constant). Changes attributable to both a change in volume and a change in rates are included as changes in rate.

	Three months ended June 30,
	2006 versus 2005
	Increase (Decrease) due to:
	Rate			Volume			Total
	(In thousands)
Interest-earning assets:
Loans receivable, net	$	18,780		$	(14,276	)	$	4,504
Mortgage-backed securities-held to maturity		(2,620	)		23,497			20,877
Other		777			379			1,156
Total	$	16,937		$	9,600		$	26,537
Interest-bearing liabilities:
Deposits	$	18,937		$	1,420		$	20,357
FHLB advances		6,123			(4,764	)		1,359
Security repurchase agreements		—			13,051			13,051
Other		585			(1,112	)		(527	)
Total	$	25,645		$	8,595		$	34,240
Change in net interest income	$	(8,708	)	$	1,005		$	(7,703	)

	Six months ended June 30,
	2006 versus 2005
	Increase (Decrease) due to:
	Rate			Volume			Total
				(In thousands)
Interest-earning assets:
Loans receivable, net	$	37,022		$	(23,435	)	$	13,587
Mortgage-backed securities-held to maturity		(5,690	)		43,436			37,746
Other		2,962			415			3,377
Total	$	34,294		$	20,416		$	54,710
Interest-bearing liabilities:
Deposits	$	37,130		$	5,483		$	42,613
FHLB advances		9,605			(9,325	)		280
Security repurchase agreements		—			26,546			26,546
Other		924			(1,415	)		(491	)
Total	$	47,659		$	21,289		$	68,948
Change in net interest income	$	(13,365	)	$	(873	)	$	(14,238	)

     The rate/volume table above indicates that, in general, interest rates on deposits and other liabilities increased to a greater extent than interest rates on our loan products and securities during the three and six months ended June 30, 2006. These rate changes negatively impacted our net interest margin for the periods and were only partially offset by increases in the volume of both our interest-earning assets and interest-earning liabilities.

     Our interest income on loans increased as a result of increased yields on new loan production. This increase offset the decline in interest income attributable to a reduced volume of loans, which declined as certain loans were pooled and exchanged for mortgage-backed securities that we hold on our balance sheet as an investment. Similarly, the increase in interest income arising from mortgage-backed securities held-to-maturity related principally to the increase in the volume of such securities created using our investment loans.

     The increase also relates to our use of security repurchase agreements, which are intended to provide lower funding costs than FHLB advances or borrowings with similar short-term maturities. Our interest expense from security repurchase agreements, $13.1 million and $26.5 million for the three and six months ended June 30, 2006, respectively, were only partly offset by the related reduction in interest expense from FHLB advances. This reflects the shift of funding needs to the security repurchase agreements, despite their higher average cost of 5.01% and 4.78% for the three and six month periods ended June 30,

20

2006, respectively, as compared to FHLB advances costs of 4.25% and 4.17% for the similar respective periods. This differential reflects the combined long-term and short-term nature of the FHLB advances on its average rate, as compared to the primarily short-term nature of the security repurchase agreements.

     Our interest expense related to deposits increased because of increases in both our rates and our volume of deposits. The rate increase reflects the continuing competition for deposits we face with our Midwest branches, as well as our use of higher-yielding certificates of deposits as a market penetration tool when opening new branches.

Provision for Loan Losses

     Three months. During the three months ended June 30, 2006, we recorded a provision for loan losses of $5.9 million as compared to $2.9 million recorded during the same period in 2005. The provisions reflect our estimates to maintain the allowance for loan losses at a level management believes is appropriate to cover probable losses in the portfolio for each of the respective periods. Net charge-offs declined in the 2006 period to $5.8 million, compared to $6.6 million for the same period in 2005 but, as a percentage of investment loans, increased to an annualized 0.23% from 0.19%, reflecting the relative decline in our investment loan portfolio as we continue to convert investment loans to mortgage-backed securities held to maturity as part of our overall risk management and funding cost containment strategies. See “Financial Condition – Allowance for Loan Losses,” below, for further information.

     Six months. During the six months ended June 30, 2006, we recorded a provision for loan losses of $9.9 million as compared to $9.2 million recorded during the same period in 2005. The provisions reflect our estimates to maintain the allowance for loan losses at a level management believes is appropriate to cover probable losses in the portfolio for each of the respective periods. Net charge-offs in the 2006 period totaled $9.5 million compared to $13.4 million for the same period in 2005. Net charge-offs were an annualized 0.20% and 0.19% of average investment loans for the six months ended June 30, 2006 and 2005, respectively, also reflecting the conversion of investment loans to mortgage-backed securities held to maturity. See “Financial Condition – Allowance for Loan Losses,” below, for further information.

Non-Interest Income

     Our non-interest income consists of (i) loan fees and charges, (ii) deposit fees and charges, (iii) loan administration fees, (iv) net gains from loan sales, (v) net gains from sales of MSRs, (vi) net loss on securities available for sale and (vii) other fees and charges. During the three months ended June 30, 2006, non-interest income increased $6.7 million to $61.6 million from $54.9 million in the comparable 2005 period. During the six months ended June 30, 2006, non-interest income increased $13.8 million to $104.2 million from $90.4 million in the comparable 2005 period.

     Loan Fees and Charges. Both our home lending operation and banking operation earn loan origination fees and collect other charges in connection with originating residential mortgages and other types of loans.

     Three months. Loan fees collected during the three months ended June 30, 2006 totaled $1.2 million compared to $3.2 million collected during the comparable 2005 period. This decrease is the result of the $2.2 billion decrease in total loan production to $5.3 billion for the quarter ended June 30, 2006, compared to $7.5 billion in the same 2005 period which resulted in the reduction of certain fees that are not capitalized under SFAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases” (“SFAS No. 91”).

     Six months. Loan fees collected during the six months ended June 30, 2006 totaled $2.9 million compared to $5.8 million collected during the comparable 2005 period. This decrease is the result of the $5.2 billion decrease in total loan production to $9.9 billion for the six months ended June 30, 2006, compared to $15.1 billion in the same 2005 period which resulted in the reduction of certain fees that are not capitalized under SFAS No. 91.

     Deposit Fees and Charges. Our banking operation collects deposit fees and other charges such as fees for non-sufficient funds checks, cashier check fees, ATM fees, overdraft protection, and other account fees for services we provide to our banking customers. The amount of these fees tends to increase as a function of the growth in our average deposit base.

     Three months. During the three months ended June 30, 2006, we collected $5.7 million in deposit fees versus $4.4 million collected in the comparable 2005 period. This increase is attributable to the increase in our average deposit base as our banking franchise continues to expand, as well as our general increase in deposit fees during the 2006 quarter.

     Six months. During the six months ended June 30, 2006, we collected $10.5 million in deposit fees versus $8.0 million collected in the comparable 2005 period. This increase is attributable to the increase in our deposits as our banking franchise continues to expand, as well as our general increase in deposit fees during the second quarter of 2006.

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     Loan Administration. When our home lending operation sells mortgage loans in the secondary market, it usually retains the right to continue to service these loans and earn a servicing fee. When an underlying loan is prepaid or refinanced, the MSR for that loan is extinguished through an accelerated amortization expense and no further fees will be earned for servicing the loan.

     Three months. Net loan administration fee income decreased to $0.3 million during the three months ended June 30, 2006, from $1.7 million in the 2005 period. This $1.4 million decrease was the result of the $2.0 million increase in the servicing fee revenue, which was offset by the $3.4 million increase in amortization of the MSRs. The increase in the servicing fee revenue was the result of loans serviced for others averaging $25.9 billion during the 2006 period versus $24.5 billion during the 2005 period. The increase in amortization was the result of the increased average balance of MSRs in comparison to the corresponding period in 2005.

     The unpaid principal balance of loans serviced for others was $22.4 billion at June 30, 2006, versus $29.6 billion serviced at December 31, 2005, and $26.6 billion serviced at June 30, 2005. At June 30, 2006, the weighted average servicing fee on these loans was 0.356 % (i.e., 35.6 basis points) and the weighted average age was 18 months.

     Six months. Net loan administration fee income decreased to $4.7 million during the six months ended June 30, 2006, from $7.6 million in the 2005 period. This $2.9 million decrease was the result of the $8.1 million increase in the servicing fee revenue, which was offset by the $11.0 million increase in amortization of the MSRs. The increase in the servicing fee revenue was the result of loans serviced for others averaging $27.0 billion during the 2006 period versus $23.6 billion during the 2005 period. The increase in amortization was the result of the increased average balance of MSRs in comparison to the corresponding period in 2005.

     Net Gain on Loan Sales. Our home lending operation records the transaction fee income it generates from the origination, securitization, and sale of mortgage loans in the secondary market. The amount of net gain on loan sales recognized is a function of the volume of mortgage loans sold and the gain on sale spread achieved. Net gain on loan sales is also increased or decreased by any mark to market pricing adjustments on loan commitments and forward sales commitments in accordance with SFAS No. 133, “Accounting for Derivative Instruments” (“SFAS 133”), increases to the secondary market reserve related to loans sold during the period, and related administrative expenses. The volatility in the gain on sale spread is attributable to market pricing, which changes with demand and the general level of interest rates. Generally, we are able to sell loans into the secondary market at a higher gain during periods of low or decreasing interest rates. Typically, as the volume of acquirable loans increases in a lower or falling interest rate environment, we are able to pay less to acquire loans and are then able to achieve higher spreads on the eventual sale of the acquired loans. In contrast, when interest rates rise, the volume of acquirable loans decreases and therefore we may need to pay more in the acquisition phase, thus decreasing our net gain achievable. Our net gain was also affected by declining spreads available from Fannie Mae and Freddie Mac, which collectively acquire most of the loans that we sell, and by an over-capacity in the mortgage business that has placed continuing downward pressure on loan pricing opportunities for conventional residential mortgage products.

     The following table provides a reconciliation of the net gain on sale recorded on loans sold within the periods shown (dollars in thousands):

	For the three months ended June 30,						For the six months ended June 30,
	2006			2005			2006			2005
Net gain on loan sales	$	9,650		$	32,348		$	26,735		$	41,924
Add: SFAS 133 adjustments		(3,337	)		(5,866	)		(8,719	)		(9,001	)
Add: provision to secondary market reserve		1,420			1,281			2,426			2,462
Total gain on loans sold	$	7,733		$	27,763		$	20,442		$	35,385
Loans sold and securitized	$	3,964,625		$	5,891,492		$	7,858,695		$	11,329,539
Spread achieved		0.20	%		0.47	%		0.26	%		0.31	%

     Three months. For the three months ended June 30, 2006, net gain on loan sales decreased $22.6 million, to $9.7 million, from $32.3 million in the 2005 period. The 2006 period reflects the sale of $4.0 billion in loans versus $5.9 billion sold in the 2005 period. The interest rate environment and continued significant competition for mortgage loans in the 2006 period resulted in a lower mortgage loan origination volume ($4.7 billion in the 2006 period vs. $7.0 billion in the 2005 period) and a lower overall gain on sale spread (20 basis points in the 2006 period versus 47 basis points in the 2005 period).

     Six months. For the six months ended June 30, 2006, net gain on loan sales decreased $15.2 million, to $26.7 million, from $41.9 million in the 2005 period. The 2006 period reflects the sale of $7.9 billion in loans versus $11.3 billion sold in the

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2005 period. The interest rate environment and continued significant competition for mortgage loans in the 2006 period resulted in a lower mortgage loan origination volume ($9.0 billion in the 2006 period vs. $14.2 billion in the 2005 period) and a lower overall gain on sale spread (26 basis points in the 2006 period versus 31 basis points in the 2005 period).

     Net Gain on the Sale of Mortgage Servicing Rights. Our home lending operation sells MSRs from time to time in transactions separate from the sale of the underlying loans. At the time of the MSR sale, we record a gain or loss based on the selling price of the MSRs less our carrying value and transaction costs. Accordingly, the amount of net gains on MSR sales depends upon the gain on sale spread and the volume of MSRs sold. The spread is attributable to market pricing, which changes with demand and the general level of interest rates. In general, if an MSR is sold on a “flow basis” shortly after it is acquired, little or no gain will be realized on the sale. MSRs created in a lower interest rate environment generally will have a higher market value because the underlying loan is less likely to be prepaid. Conversely, an MSR created in a higher interest rate environment will generally sell at a market price below the original fair value recorded because of the increased likelihood of prepayment of the underlying loans, resulting in a loss.

     Three months. We sold MSRs attributable to underlying loans totaling $10.0 billion during the three month period ending June 30, 2006 versus $0.3 billion during the 2005 period. During the three month period ending June 30, 2006, we sold $9.9 billion of servicing rights on a bulk basis and $0.1 billion of loans on a servicing released basis. We did not sell any servicing rights on a bulk basis, but sold $0.3 billion of loans on a servicing released basis during the 2005 period.

     For the three months ended June 30, 2006, the net gain on the sale of MSRs increased from $2.3 million during the 2005 period to $34.9 million. The increase in the 2006 period reflected better pricing achieved due to the increasing interest rate environment, as well as the substantially higher volume of sales in the 2006 period.

     Six months. We sold MSRs attributable to underlying loans totaling $13.2 billion during the six month period ending June 30, 2006 versus $3.3 billion during the 2005 period. During the six month period ending June 30, 2006, we sold $12.3 billion of servicing rights on a bulk basis and $0.9 billion of loans on a servicing released basis. For the same period in 2005, we sold $2.5 billion of servicing rights on a bulk basis and $0.8 billion on a servicing released basis for 2005.

     For the six months ended June 30, 2006, the net gain on the sale of MSRs increased from $6.5 million during the 2005 period to $43.5 million. The increase in the 2006 period reflected better pricing achieved due to the increasing interest rate environment, as well as the substantially higher volume of sales in the 2006 period.

     Net Loss on Securities Available for Sale. Currently, securities classified as available for sale are comprised of residual interests as a result of private securitizations. Net loss on securities available for sale is the result of a reduction in the estimated fair value of the security that has been deemed to be an other-than-temporary impairment.

     Three months. During the three months ended June 30, 2006, there were no other-than-temporary impairments in our residual interest in securitizations completed in 2005 and 2006.

     Six months. For the six months ended June 30, 2006, we recognized a $3.6 million other-than-temporary impairment in our residual interest in a securitization completed in 2005. Although the residual interest is accounted for as an available for sale asset, we determined that this impairment was other than temporary and therefore reflected this as an expense. For the six months ended June 30, 2005, there were no securities available for sale. For additional information, see Note 5 to the Notes to Consolidated Financial Statements, in Item 1, Financial Statements, herein.

     Other Fees and Charges. Other fees and charges include certain miscellaneous fees, including dividends received on FHLB stock and income generated by our subsidiaries.

     Three months. During the three months ended June 30, 2006, we recorded $3.6 million in cash dividends received on FHLB stock, compared to $2.5 million received during the three months ended June 30, 2005. At June 30, 2006 and 2005, we owned $292.1 million and $262.5 million of FHLB stock, respectively. We also recorded $0.9 million and $1.2 million in subsidiary income for the three months ended June 30, 2006 and 2005, respectively.

     Six months. During the six months ended June 30, 2006, we recorded $7.1 million in cash dividends received on FHLB stock, compared to the $5.0 million received during the six months ended June 30, 2005. We also recorded $2.0 million and $2.4 million in subsidiary income for the six months ended June 30, 2006 and 2005, respectively.

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Non-Interest Expense

     The following table sets forth the components of our non-interest expense, along with the allocation of expenses related to loan originations that are deferred pursuant to SFAS No. 91. As required by SFAS No. 91, mortgage loan fees and certain direct origination costs (principally compensation and benefits) are capitalized as an adjustment to the basis of the loans originated during the period rather than immediately expensed. Certain other expenses associated with loan production, however, are not required or allowed to be capitalized and are, therefore, expensed when incurred.

	For the three months ended June 30,						For the six months ended June 30,
	2006			2005			2006			2005
	(Dollars in thousands)
Compensation and benefits	$	38,758		$	38,477		$	78,631		$	76,032
Commissions		20,911			22,887			37,878			43,967
Occupancy and equipment		16,748			18,302			33,656			34,953
Advertising		2,149			2,111			3,638			4,236
Federal insurance premium		279			284			576			580
Communication		1,478			1,563			3,131			3,116
Other taxes		(3,157	)		2,463			(710	)		4,531
Other		10,957			11,860			20,828			23,299
Subtotal		88,123			97,947			177,628			190,714
Less: capitalized direct costs of loan closings, under SFAS No. 91		(25,769	)		(30,873	)		(47,204	)		(59,918	)
Non-interest expense	$	62,354		$	67,074		$	130,424		$	130,796
Efficiency ratio1		55.5	%		59.2	%		61.1	%		61.1	%

¹ Total operating and administrative expenses divided by the sum of net interest income and non-interest income.

     Three months. The following are the major changes affecting non-interest expense as reflected in the statements of earnings:

• The banking operation conducted business from 17 more facilities at June 30, 2006 than at June 30, 2005.

• We conducted business from 27 fewer home lending centers at June 30, 2006 than at June 30, 2005.

• The home lending operation originated $4.7 billion in residential mortgage loans during the 2006 quarter versus $7.0 billion in the comparable 2005 quarter.

• We employed 2,548 salaried employees at June 30, 2006 versus 2,431 salaried employees at June 30, 2005.

• We employed 122 full-time national account executives at June 30, 2006 versus 133 at June 30, 2005.

• We employed 408 full-time retail loan originators at June 30, 2006 versus 667 at June 30, 2005.

     Non-interest expense, before the capitalization of direct loan origination costs, decreased $9.8 million to $88.1 million during the three months ended June 30, 2006, from $97.9 million for the comparable 2005 period.

     Compensation and benefits expense increased $0.3 million during the 2006 period from the comparable 2005 period to $38.8 million and was primarily attributable to regular salary increases for employees and additional staff and support personnel for the newly opened banking centers.

     The change in commissions paid to the commissioned sales staff, on a period over period basis was a $2.0 million decrease. This decrease is the direct result of the decreased volume of mortgage loan originations during the period, offset in part by a change in the compensation structure. During the 2006 period, commissions were 44 basis points of loan originations versus 33 basis points during the 2005 period.

     During the quarter ended June 30, 2006, we decided to transfer our secondary mortgage activities into a newly formed wholly-owned subsidiary of the Bank to allow us a higher profile in the marketplace and permit a more robust development of our capital market activities. It also had the benefit of reducing our overall state tax exposure going forward.

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     The 7.6% decrease in other expense during the 2006 period from the comparable 2005 period is reflective of the decreased mortgage loan originations and the decreased number of retail loan origination centers offset in part by the increased number of banking centers in operation during the period.

     During the three months ended June 30, 2006, we capitalized direct loan origination costs of $25.8 million, a decrease of $5.1 million from $30.9 million for the comparable 2005 period. This 16.5% decrease is a result of the decrease in mortgage loan production during the 2006 period versus the 2005 production.

     Six months. Non-interest expense, before the capitalization of direct loan origination costs, decreased $13.1 million to $177.6 million during the six months ended June 30, 2006, from $190.7 million for the comparable 2005 period.

     Compensation and benefits expense increased $2.6 million during the 2006 period from the comparable 2005 period to $78.6 million and was primarily attributable to regular salary increases for employees and additional staff and support personnel for the newly opened banking centers.

     The largest change occurred in commissions paid to the commissioned sales staff. On a year over year basis there was a $6.1 million decrease. This decrease is the direct result of the decreased volume of mortgage loan originations during the period, offset in part by the change in the compensation structure. During the 2006 period, commissions were 42.3 basis points of loan originations versus 31.1 basis points during the 2005 period.

     During the six months ended June 30, 2006, we decided to transfer our secondary mortgage activities into a newly formed wholly-owned subsidiary of the Bank to allow us a higher profile in the marketplace and to permit a more robust development of our capital market activities. It also had the benefit of reducing our overall state tax exposure going forward.

     The 10.6% decrease in other expense during the 2006 period from the comparable 2005 period is reflective of the decreased mortgage loan originations and the decreased number of home lending centers offset in part by the increased number of banking centers in operation during the period.

     During the six months ended June 30, 2006, we capitalized direct loan origination costs of $47.2 million, a decrease of $12.7 million from $59.9 million for the comparable 2005 period. This 21.2% decrease is a result of the decrease in mortgage loan production during the 2006 period versus the 2005 production.

Financial Condition

     Assets. Our assets totaled $15.2 billion at June 30, 2006, which an increase of $0.1 billion, or 0.7%, as compared to $15.1 billion at December 31, 2005.

     Mortgage-backed Securities Held to Maturity. Mortgage-backed securities increased from $1.4 billion at December 31, 2005 to $1.7 billion at June 30, 2006. The increase was attributable to the creation of $384.5 million in mortgage-backed securities resulting from a private on-balance sheet securitization of second mortgage fixed rate loans in April 2006. At June 30, 2006, approximately $1.2 billion of these mortgage-backed securities were pledged as collateral under security repurchase agreements. At December 31, 2005, $1.2 billion of the mortgage-backed securities were pledged as collateral under security repurchase agreements and $2.9 million under interest rate swap agreements.

     Securities Available for Sale. Securities available for sale, which are comprised solely of residual interest from securitization of mortgage loan products, increased from $26.1 million at December 31, 2005 to $31.3 million at June 30, 2006. The increase was principally due to the securitization of fixed second mortgage loans that resulted in a residual interest of $9.9 million, offset by a $6.0 million adjustment to fair value in March 2006 of the residual interest related to our December 2005 securitization.

     The current balance is comprised of the residual interests in trusts created for the purpose of our securitization of home equity lines of credit and the guaranteed mortgage securitization of fixed home equity loans during the fourth quarter of 2005 and second quarter of 2006, respectively. Draws on home equity lines of credit are purchased by the trust, resulting in additional residual interest to us. The guaranteed mortgage securitization of fixed home equity loans is treated as a recharacterization of such loans to mortgage-backed securities, whereby no gain on sale is recorded. For more information, see Note 5 to Consolidated Financial Statements, in Item 1, Financial Statements, herein.

     Loans Available for Sale. We sell a majority of the mortgage loans we produce into the secondary market on a whole loan basis or by securitizing the loans into mortgage-backed securities. We generally sell or securitize our longer-term, fixed-rate mortgage loans, while we hold the shorter duration and adjustable rate mortgage loans for investment.

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     Loans available for sale increased $1.0 billion, or 55.6%, to $2.8 billion at June 30, 2006, from $1.8 billion at December 31, 2005. This increase is primarily attributable to the accumulation of currently originated HELOCs and pay-option adjustable rate mortgages for sale or securitization

     Loans Held for Investment. Loans held for investment at June 30, 2006 decreased $1.2 billion from December 31, 2005. The decrease was principally caused by a guaranteed mortgage securitization of approximately $400 million of second mortgage loans and a reclassification of approximately $800 million of pay-option adjustable rate mortgages to loans available for sale of which approximately $600 million were subsequently sold during the period. Subsequently, substantially all pay-option adjustable-rate mortgages originated were included as loans available for sale.

     The following table sets forth the composition of our investment loan portfolio as of the dates indicated.

	June 30, 2006		December 31, 2005		June 30, 2005
	(Dollars in thousands)
Loans held for investment:
Mortgage loans	$	7,091,818	$	8,248,897	$	9,371,300
Second mortgage loans		470,885		700,492		293,582
Construction loans		62,847		65,646		67,749
Commercial real estate loans		1,210,212		995,411		850,260
Warehouse lending		190,466		146,694		289,244
Non-real estate commercial loans		11,670		8,411		7,732
Consumer loans		389,168		410,920		908,185
Total	$	9,427,066	$	10,576,471	$	11,788,052

     Allowance for Loan Losses. The allowance for loan losses represents management’s estimate of probable losses in our loans held for investment portfolio as of the date of the consolidated financial statements. The allowance provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent in the loan portfolio, but that have not been specifically identified.

     The allowance for loan losses increased to $39.6 million at June 30, 2006 from $39.1 million at December 31, 2005, respectively. The allowance for loan losses as a percentage of non-performing loans increased to 79.2% from 60.7% at June 30, 2006 and December 31, 2005, respectively, despite a decrease in the investment loan portfolio. Our non-performing loans (i.e., loans that are past due 90 days or more) declined to $50.0 million from $64.5 million at June 30, 2006 and December 31, 2005, respectively. The allowance for loan losses as a percentage of investment loans increased to 0.42% from 0.37% at June 30, 2006 and December 31, 2005, respectively. The increase in the allowance for loan losses at June 30, 2006, reflects management’s assessment of the effect of increased charge-offs and 90-day plus delinquencies in specific loan categories despite the overall decline in loan delinquencies.

     The allowance for loan losses is considered adequate based upon management’s assessment of relevant factors, including the types and amounts of non-performing loans, historical and current loss experience on such types of loans, and the current economic environment. The following table provides the amount of delinquent loans at the dates listed. At June 30, 2006, 86.6% of all delinquent loans are loans in which we had a first lien position on residential real estate.

	June 30,			December 31,			June 30,
	2006			2005			2005
	(Dollars in thousands)
Days Delinquent
30	$	28,703		$	30,972		$	28,728
60		15,253			20,456			24,155
90		50,027			64,466			65,168
Total	$	93,983		$	115,894		$	118,051
Investment loans	$	9,427,066		$	10,576,471		$	11,788,052
Delinquency %		1.00	%		1.10	%		1.00	%

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     The following table shows the activity in the allowance for loan losses during the indicated periods (dollars in thousands):

Activity Within the Allowance For Loan Losses

	Six months ended						Year ended
	June 30, 2006			June 30, 2005			December 31, 2005
Beginning balance	$	39,140		$	37,627		$	38,318
Provision for loan losses		9,923			9,150			18,876
Charge-offs
Mortgage		(4,781	)		(9,733	)		(11,853	)
Consumer		(3,124	)		(1,927	)		(4,713	)
Commercial		(1,305	)		(4,474	)		(3,055	)
Other		(1,742	)		(91	)		(286	)
Total charge-offs		(10,952	)		(16,225	)		(19,907	)
Recoveries
Mortgage		285			463			1,508
Consumer		988			137			247
Commercial		40			2,193			98
Other		182			27			—
Total recoveries		1,495			2,820			1,853
Charge-offs, net of recoveries		(9,457	)		(13,405	)		(18,054	)
Ending balance	$	39,606		$	33,372		$	39,140
Net charge-off ratio (annualized)		0.20	%		0.19	%		0.16	%

     Accrued Interest Receivable. Accrued interest receivable increased from $48.4 million at December 31, 2005 to $50.2 million at June 30, 2006 due to the timing of payments. We typically collect loan interest one month in arrears.

     Repurchased Assets. We sell a majority of the mortgage loans we produce into the secondary market on a whole loan basis or by securitizing the loans into mortgage-backed securities. When we sell mortgage loans, we make customary representations and warranties to the purchasers about various characteristics of each loan, such as the manner of origination, the nature and extent of underwriting standards applied and the types of documentation being provided. When a loan that we have sold fails to perform according to its contractual terms, the purchaser will typically review the loan file to determine whether defects in the origination process occurred and if such defects constitute a violation of our representations and warranties. If there are no such defects, we have no liability to the purchaser for losses it may incur on such loan. If a defect is identified, we may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. Loans that are repurchased and that are performing according to their terms are included within our loans held for investment portfolio. Loans we have repurchased and are non-performing are recorded instead as repurchased assets.

     Repurchased assets totaled $13.6 million at December 31, 2005 and $9.9 million at June 30, 2006. During the three months ended June 30, 2006 and 2005 we repurchased $16.7 million and $13.0 million in non-performing loans, respectively. In the six months ended June 30, 2006 and 2005, we repurchased $29 million and $27.6 million in non-performing loans, respectively. In most instances, these loans are acquired and subsequently foreclosed upon and later sold. Repurchased assets are included within other assets in our consolidated financial statements.

     Premises and Equipment. Premises and equipment, net of accumulated depreciation, totaled $210.3 million at June 30, 2006, an increase of $9.5 million, or 4.7%, from $200.8 million at December 31, 2005. The increase was the result of the continued expansion of our retail banking center network.

     Mortgage Servicing Rights. MSRs totaled $231.0 million at June 30, 2006, a decrease of $84.7 million from the $315.7 million reported at December 31, 2005. During the six months ended June 30, 2006, we capitalized $113.5 million, amortized $47.2 million, and sold $151.0 million in MSRs.

     At June 30, 2006, the fair value of the MSRs was approximately $328.7 million based on an internal valuation model which utilized an average discounted cash flow rate equal to 10.67%, an average cost to service of $40 per conventional loan and $55 per government or adjustable rate loan, and a weighted prepayment rate assumption of 22.1%. The portfolio contained

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121,670 loans, had a weighted average interest rate of 6.15%, a weighted average remaining term of 312 months, and had been seasoned 14 months.

     The principal balance of the loans serviced for others stands at $22.4 billion at June 30, 2006 versus $29.6 billion at December 31, 2005. The capitalized value of the MSRs was 1.03% at June 30, 2006 and 1.06% at December 31, 2005.

Activity of Mortgage Loans Serviced for Others (in thousands):

	For the three months ended June 30,						For the six months ended June 30,
	2006			2005			2006			2005
Balance at beginning of year	$	29,242,906		$	22,518,180		$	29,648,088		$	21,354,724
Loan servicing originated		3,964,625			5,891,492			7,858,695			11,329,539
Loan amortization/prepayments		(818,138	)		(291,663	)		(1,980,819	)		(2,755,684	)
Loan servicing sales		(10,009,456	)		(1,471,477	)		(13,146,027	)		(3,282,047	)
Ending balance	$	22,379,937		$	26,646,532		$	22,379,937		$	26,646,532

     Other Assets. Other assets increased $78.4 million, or 40.1%, to $274.1 million at June 30, 2006, from $195.7 million at December 31, 2005. The majority of this increase was attributable to the sale of MSRs during the quarter. Upon the sale of the MSRs, a receivable is recorded for a portion of the sale proceeds. The balance due is normally received within 180 days after the sale date.

     Liabilities. Our total liabilities increased $0.1 billion to $14.4 billion at June 30, 2006 from $14.3 billion at December 31, 2005.

     Deposit Accounts. Deposit accounts decreased $0.2 billion to $7.8 billion at June 30, 2006, from $8.0 billion at December 31, 2005, as certificates of deposit increased while all other deposit types decreased. The composition of our deposits is as follows:

Deposit Portfolio
(Dollars in thousands)

	June 30, 2006								December 31, 2005
			Weighted			Percent					Weighted			Percent
			Average			of					Average			of
	Balance		Rate			Balance			Balance		Rate			Balance
Demand accounts	$	340,843		0.75	%		4.3	%	$	374,816		0.60	%		4.7	%
Savings accounts		184,103		1.64			2.3			239,215		1.52			3.0
MMDA		656,902		3.88			8.4			781,087		2.98			9.8
Certificates of deposit (1)		3,723,086		4.52			47.5			3,450,450		3.94			43.2
Total Retail Deposits		4,904,934		4.06			62.5			4,845,568		3.41			60.7
Municipal deposits		1,448,077		5.16			18.5			1,353,633		4.30			17.0
National accounts		1,490,238		3.53			19.0			1,779,799		3.42			22.3
Total Deposits	$	7,843,249		4.17	%		100.0	%	$	7,979,000		3.56	%		100.0	%

(1) The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $1.3 billion and $2.4 billion at June 30, 2006 and December 31, 2005, respectively.

     The change in composition of our deposits reflects the migration from lower-yielding demand deposit accounts and savings accounts to certificates of deposits. Principal causes of this migration include our use of high yielding CDs to penetrate new markets in which we have recently established branches as well as the currently competitive nature of deposit-gathering throughout the nation, especially in the Midwest in which most of our branches are located.

     The municipal deposit channel now totals $1.4 billion. The account totals remained relatively unchanged during the six months ended June 30, 2006. These deposits have been garnered from local government units within our retail market area.

28

     National deposit accounts, which are generated through nationwide advertising of deposit rates and through investment brokers located across the country, decreased a net $0.3 billion to $1.5 billion at June 30, 2006, from $1.8 billion at December 31, 2005. These deposits had a weighted maturity of 14.26 months and are used for interest rate risk management.

     FHLB Advances. The portfolio of FHLB advances contains floating rate daily adjustable advances, fixed rate convertible (i.e., “putable”) advances, and fixed rate term (i.e., “bullet”) advances. The following is a breakdown of the advances outstanding (dollars in thousands):

	June 30, 2006					December 31, 2005
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
Floating rate daily advances	$	—		—	%	$	766,000		4.18	%
Fixed rate putable advances		500,000		4.55			700,000		4.49
Fixed rate term advances		3,790,000		4.31			2,759,000		3.69
Total	$	4,290,000		4.34	%	$	4,225,000		3.91	%

     FHLB advances increased $0.1 billion to $4.3 billion at June 30, 2006, from $4.2 billion at December 31, 2005. We rely upon such advances as a source of funding for the origination or purchase of loans for sale in the secondary market and for providing duration specific medium-term financing. The outstanding balance of FHLB advances fluctuates from time to time depending upon our current inventory of loans available for sale and the availability of lower cost funding from our retail deposit base, our escrow accounts and security repurchase agreements. We have an approved line with the FHLB of $6.8 billion at June 30, 2006.

     Security Repurchase Agreements. Securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold plus accrued interest. Securities, generally mortgage backed securities, are pledged as collateral under these financing arrangements. The fair value of collateral provided to a party is continually monitored, and additional collateral is obtained or requested to be returned, as appropriate. At both June 30, 2006 and December 31, 2005, we had security repurchase agreements amounting to $1.1 billion.

     Long Term Debt. Our long-term debt principally consists of junior subordinated notes related to trust preferred securities issued by our special purpose trust subsidiaries. The notes mature in 30 years from issuance, are callable after five years, pay interest quarterly, and the interest expense issued by our special purpose trust subsidiaries is deductible for federal income tax purposes. At both June 30, 2006 and December 31, 2005, we had $207.5 million of long-term debt.

     Accrued Interest Payable. Our accrued interest payable increased $4.8 million from December 31, 2005 to $46.1 million at June 30, 2006. The increase is principally due to the increase in interest rates on the interest-bearing liabilities.

     Undisbursed Payments on Loans Serviced for Others. Undisbursed payments on loans serviced for others decreased $24.7 million to $382.4 million at June 30, 2006, from $407.1 million at December 31, 2005. These amounts represent payments received from borrowers for interest, principal and related loan charges, which have not been remitted to the respective investors. These balances fluctuate with the size of the servicing portfolio and may increase during a time of high payoff or refinance volume.

     Escrow Accounts. Customer escrow accounts increased $101.7 million to $320.7 million at June 30, 2006, from $219.0 million at December 31, 2005. These amounts represent payments received from borrowers for taxes and insurance payments and have not yet been remitted to the tax authorities or insurance providers. These balances fluctuate with the size of the servicing portfolio and during the year before and after the remittance of scheduled payments. A large amount of escrowed tax payments are made in July and December to local school districts and municipal agencies.

     Liability for Checks Issued. Liability for checks issued decreased $5.1 million to $18.1 million at June 30, 2006, from $23.2 million at December 31, 2005. These amounts represent checks issued to acquire mortgage loans that have not cleared for payment. These balances fluctuate with the size of the mortgage pipeline.

     Federal Income Taxes Payable. Federal income taxes payable increased $18.8 million to $94.1 million at June 30, 2006, from $75.3 million at December 31, 2005. This increase is attributable to the provision for federal income taxes on earnings and the change in federal income tax on other comprehensive income during the quarter, offset by estimated tax payments.

29

     Secondary Market Reserve. We sell most of the residential mortgage loans that we originate into the secondary mortgage market. When we sell mortgage loans, we make customary representations and warranties to the purchasers about various characteristics of each loan, such as the manner of origination, the nature and extent of underwriting standards applied and the types of documentation being provided. If a defect in the origination process is identified, we may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. If there are no such defects, we have no liability to the purchaser for losses it may incur on such loan. We maintain a secondary market reserve to account for the expected losses related to loans we may be required to repurchase (or the indemnity payments we may have to make to purchasers). The secondary market reserve takes into account both our estimate of expected losses on loans sold during the current accounting period, as well as adjustments to our previous estimates of expected losses on loans sold during the preceding five years. In each case, these estimates are based on our most recent data regarding loan repurchases, actual credit losses on repurchased loans and recovery history, among other factors. Changes in the secondary market reserve due to current loan sales decrease our gain on loan sales, while changes relating to our previous estimates are recorded as an increase or decrease in our other fees and charges. The amount of the secondary market reserve equaled $20.6 million at June 30, 2006 and $17.6 million at December 31, 2005.

     The following table provides a reconciliation of the secondary market reserve within the periods shown (in thousands):

Secondary Market Reserve

	For the three months ended June 30,						For the six months ended June 30,
	2006			2005			2006			2005
Balance, beginning of period	$	18,000		$	15,162		$	17,550		$	19,002
Provision
Charged to gain on sale for current loan sales		1,420			1,281			2,426			2,462
Charged to other fees and charges for changes in estimates		3,805			1,171			6,880			992
Total		5,225			2,452			9,306			3,454
Charge-offs, net		(2,625	)		(2,014	)		(6,256	)		(6,856	)
Balance, end of period	$	20,600		$	15,600		$	20,600		$	15,600

     Reserve levels are a function of expected losses based on actual pending and expected claims and repurchase requests, historical experience and loan volume. While the ultimate amount of repurchases and claims is uncertain, management believes that reserves are adequate. We will continue to evaluate the adequacy of our reserves and may continue to allocate a portion of our gain on sale proceeds to these reserves with respect to loans sold into the secondary market during the same period.

Liquidity and Capital

     Liquidity. Liquidity refers to the ability or the financial flexibility to manage future cash flows in order to meet the needs of depositors and borrowers and fund operations on a timely and cost-effective basis. Our primary sources of funds are customer deposits, loan repayments and sales, advances from the FHLB, security repurchase agreements, cash generated from operations and customer escrow accounts. Additionally, we have issued trust preferred securities in seven separate offerings to the capital markets. We believe that these sources of funds will continue to be adequate to meet our liquidity needs for the foreseeable future.

     Retail deposits increased $0.1 billion, or 1.2%, in the 2006 period from the comparable 2005 period and totaled $4.9 billion at June 30, 2006. We believe that the increase reflects our continued expansion of our branching network as well as continued focus on growth in existing markets.

     Mortgage loans sold during the six months ended June 30, 2006, totaled $7.9 billion, a decrease of $3.4 billion from the $11.3 billion sold during the same period in 2005. This decrease in mortgage loan sales was attributable to the $5.1 billion decrease in mortgage loan originations during the six months ended June 30, 2006. We attribute this decline to a rising interest rate environment, resulting decline in demand for fixed-rate mortgage loans and a shift in consumer demand to loans with credit risks higher than our risk profile, which we did not originate. We sold 87.1% and 79.1% of our mortgage loan originations during the six-month periods ended June 30, 2006 and 2005, respectively.

     We use FHLB advances and security repurchase agreements to fund our daily operational liquidity needs and to assist in funding loan originations. We will continue to use these sources of funds as needed to supplement funds from deposits, loan sales and escrow accounts. We had $4.3 billion of FHLB advances outstanding at June 30, 2006. Such advances are repaid with the proceeds from the sale of mortgage loans or from alternative sources of financing. We currently have an authorized line of credit equal to $6.8 billion at June 30, 2006. This line is collateralized by non-delinquent mortgage loans.

30

     At June 30, 2006, our security repurchase agreements totaled $1.1 billion. There were no security repurchase agreements outstanding at June 30, 2005. We began using security repurchase agreements as an alternative-financing source in the fourth quarter of 2005 to obtain a competitive alternative to FHLB advances.

     At June 30, 2006, we had outstanding rate-lock commitments to lend $2.0 billion in mortgage loans, along with outstanding commitments to make other types of loans totaling $5.3 million. As such commitments may expire without being drawn upon, they do not necessarily represent future cash commitments. Also, at June 30, 2006, we had outstanding commitments to sell $2.0 billion of mortgage loans. We expect that our lending commitments will be funded within 90 days. Total commercial and consumer unused lines of credit totaled $2.0 billion at June 30, 2006 and include $1.0 billion of unused warehouse lines of credit to various mortgage companies, of which we had advanced $190.5 million at June 30, 2006.

     Regulatory Capital Adequacy. At June 30, 2006, the Bank exceeded all applicable bank regulatory minimum capital requirements and was considered “well capitalized”. The Company is not subject to any such requirements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     In our home lending operations, we are exposed to market risk in the form of interest rate risk from the time the interest rate on a mortgage loan application is committed to by us through the time we sell or commit to sell the mortgage loan. On a daily basis, we analyze various economic and market factors and, based upon these analyses, project the amount of mortgage loans we expect to sell for delivery at a future date. The actual amount of loans sold will be a percentage of the amount of mortgage loans on which we have issued binding commitments (and thereby locked in the interest rate) but have not yet closed (“pipeline loans”) to actual closings. If interest rates change in an unanticipated fashion, the actual percentage of pipeline loans that close may differ from the projected percentage. The resultant mismatching of commitments to fund mortgage loans and commitments to sell mortgage loans may have an adverse effect on the results of operations in any such period. For instance, a sudden increase in interest rates can cause a higher percentage of pipeline loans to close than projected. To the degree that this is not anticipated, we will not have made commitments to sell these additional pipeline loans and may incur losses upon their sale as the market rate of interest will be higher than the mortgage interest rate committed to by us on such additional pipeline loans. To the extent that the hedging strategies utilized by us are not successful, our profitability may be adversely affected.

     In addition to the home lending operations, Flagstar’s banking operations can be exposed to market risk due to differences in the timing of the maturity or repricing of assets versus liabilities. This risk is evaluated and managed on a Company-wide basis using a net portfolio value (NPV) analysis framework. The NPV analysis attempts to estimate the net sensitivity of the fair value of the assets and liabilities to changes in the levels of interest rates.

     Management believes there has been no material change in either interest rate risk or market risk since December 31, 2005.

Item 4. Controls and Procedures

     (a) Disclosure Controls and Procedures. A review and evaluation was performed by our principal executive and financial officers regarding the effectiveness of our disclosure controls and procedures as of June 30, 2006, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended. Based on that review and evaluation, the principal executive and financial officers have concluded that our current disclosure controls and procedures, as designed and implemented, are not operating effectively as a result of the material weakness in our internal control over financial reporting reported in Item 9A-Controls and Procedures to our Annual Report on Form 10-K for the year ended December 31, 2005.

     (b) Changes in Internal Controls. During the quarter ended June 30, 2006, there has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934, as amended, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as set forth below. For the year ended December 31, 2005, we reported a material weakness in our internal control over financial reporting due to issues relating to state taxes. The changes implemented during the second quarter with respect to remediation of the material weakness include the following:

• Hired an experienced Chief Tax Officer;

• Hired additional personnel in the tax department;

• Continued to utilize an independent accounting firm to assist in the preparation of tax returns and to assist with determination of the effective tax rate;

31

• Filed substantially all delinquent returns; and

• Developed procedures intended to ensure appropriate recording of tax expense.

     While the changes in our internal controls described above are intended to remediate the material weakness identified in connection with our assessment of internal controls as of December 31, 2005, there can be no assurance that such remediation will be completed by December 31, 2006. Further, our testing and evaluation of the operating effectiveness and sustainability of several of the changes in internal controls have not been completed at this time. As a result, we may identify additional changes that are required to remediate or improve our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     None.

Item 1A. Risk Factors

     There have been no material changes to the risk factors previously disclosed in response to Item 1A to Part I of our 2005 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Sale of Unregistered Securities

     The Company made no unregistered sales of its common stock during the quarter ended June 30, 2006.

     Issuer Purchases of Equity Securities

     The following table shows shares of our common stock that we purchased in the second quarter of 2006.

					Total Number of
					Shares		Maximum Approximate
					Purchased		Dollar Value (in
			Average		as Part of		millions) of Shares
			Price		Publicly		that May Yet
	Shares		Paid		Announced		Be Purchased
	Purchased		Per		Plans or		Under the Plans
Period	(a)		Share		Programs		or Programs (b)
April 2006		—	$	—		—	$	25.0
May 2006		418		16.20		—	$	25.0
June 2006		—		—		—	$	25.0
Total		418	$	16.20		—

(a) All of the shares purchased by the Company during the second quarter of 2006 were in connection with the tax withholding of restricted stock granted under the 2000 Stock Incentive Plan. These purchases are not included against the maximum number of shares that may yet be purchased under the Board of Directors authorization.

32

(b) On October 29, 2002, the Board of Directors of the Company adopted a Stock Repurchase Program pursuant to which the Company is empowered to repurchase up to $25 million worth of outstanding common stock. No shares have been repurchased under this plan. If the Company repurchases shares, they will be held as treasury stock and may be available for later reissue in connection with future stock dividends, dividend reinvestment plans, employee benefit plans, and other general corporate purposes.

Item 3. Defaults upon Senior Securities

     None.

Item 4. Submission of Matters to a Vote of Security Holders

     The 2006 Annual Meeting of Shareholders of the Company was held on May 26, 2006. The agenda items for such meeting are shown below together with the vote of the Company’s Common Stock with respect to such agenda items.

     1. The election of six directors to serve until the 2008 Annual Meeting of Stockholders.

	Votes For		Votes Withheld
Thomas J. Hammond		55,338,462		2,058,867
Kirstin A. Hammond		55,177,574		2,219,755
Charles Bazzy		55,502,818		1,894,511
Michael Lucci, Sr.		54,938,150		2,459,179
Robert W. DeWitt		55,337,410		2,059,919
Frank D’Angelo		55,049,527		2,347,802

     The terms of Mark T. Hammond, Robert O. Rondeau, Jr., James D. Coleman, Richard S. Elsea, B. Brian Tauber and Jay J. Hansen continued after such meeting.

     2. The ratification of the appointment of Virchow, Krause & Company, LLP as the Company’s independent auditor for the year ending December 31, 2006.

	Votes For	Votes Against	Abstain	Non-Vote
	57,149,425	-0-	83,519	164,385
3. Amendment to and restatement of the Company’s Second Restated Articles of Incorporation to eliminate supermajority voting requirements.
	Votes For	Votes Against	Abstain	Non-Vote
	56,360,890	1,036,439	-0-	-0-
4. Amendment to and restatement of the Company’s Second Restated Articles of Incorporation to provide that the term of directors appointed to fill a vacancy will expire at the next annual meeting.
	Votes For	Votes Against	Abstain	Non-Vote
	56,817,433	579,896	-0-	-0-
5. Adoption of the 2006 Equity Incentive Plan.
	Votes For	Votes Against	Abstain	Non-Vote
	33,696,463	-0-	1,891,702	21,809,164

Item 5. Other Information

     None.

33

Item 6. Exhibits

3.1	Amended and Restated Articles of Incorporation of Flagstar Bancorp, Inc.
3.2	Second Amended and Restated Bylaws of Flagstar Bancorp, Inc.
10.1	Flagstar Bancorp, Inc. 2006 Equity Incentive Plan (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated March 26, 2006, and incorporated herein by reference)
11	Computation of Net Earnings per Share
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Section 906 Certification, as furnished by the Chief Executive Officer
32.2	Section 906 Certification, as furnished by the Chief Financial Officer

34

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 BANCORP, INC.
Date: August 4, 2006	/s/ Mark T. Hammond
	Mark T. Hammond
	President and
	Chief Executive Officer
	(Duly Authorized Officer)
	/s/ Paul D. Borja
	Paul D. Borja
	Executive Vice President,
	Chief Financial Officer and Treasurer
	(Principal Financial Officer)

35

EXHIBIT INDEX

Ex. No.		Description
	3.1	Amended and Restated Articles of Incorporation of Flagstar Bancorp, Inc.
	3.2	Second Amended and Restated Bylaws of Flagstar Bancorp, Inc.
	10.1	Flagstar Bancorp, Inc. 2006 Equity Incentive Plan (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated March 26, 2006, and incorporated herein by reference)
	11	Statement regarding Computation of Net Earnings per Share
	31.1	Section 302 Certification of Chief Executive Officer
	31.2	Section 302 Certification of Chief Financial Officer
	32.1	Section 906 Certification, as furnished by the Chief Executive Officer
	32.2	Section 906 Certification, as furnished by the Chief Financial Officer

EX-3.1

                                                                     EXHIBIT 3.1

                 AMENDED AND RESTATED ARTICLES OF INCORPORATION

                                       OF

                             FLAGSTAR BANCORP, INC.

     Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned
corporation executes the following articles:

     Flagstar Bancorp, Inc., a corporation organized and existing under the laws
of the State of Michigan (the "Corporation"), hereby certifies as follows:

     1. The name of the Corporation is Flagstar Bancorp, Inc. The Corporation
was originally incorporated under the name "FSSB Holding Corporation", and the
date of filing of its original Articles of Incorporation was October 28, 1993.
The Corporation filed its Restated Articles of Incorporation on February 11,
1997 and its Second Restated Articles of Incorporated on March 8, 2005.

     2. These Amended and Restated Articles of Incorporation were unanimously
adopted by the Board of Directors of the Corporation in accordance with Section
642 of the Michigan Business Corporation Act. These Amended and Restated
Articles of Incorporation were duly adopted by a vote of the shareholders of the
Corporation in accordance with Sections 611(3) and 642 of the Michigan Business
Corporation Act. The necessary number of shares as required by the Michigan
Business Corporation Act were voted in favor of these Amended and Restated
Articles of Incorporation.

     3. These Amended and Restated Articles of Incorporation restate and
integrate and also further amend the provisions of the Second Restated Articles
of Incorporation of the Corporation as heretofore amended or supplemented, and
there is no material discrepancy between those provisions and the provisions of
these Amended and Restated Articles of Incorporation.

     4. The Second Restated Articles of Incorporation of the Corporation are
hereby restated to read as follows:

                                    ARTICLE I

                                      NAME

     The name of the corporation is Flagstar Bancorp, Inc. (herein the
"Corporation").



                                   ARTICLE II

                                     PURPOSE

     The purpose for which the Corporation is formed is to engage in any
activity within the purposes for which corporations may be formed under the
Michigan Business Corporation Act.

                                   ARTICLE III

                                  CAPITAL STOCK

     The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 175,000,000, of which 150,000,000 are to
be shares of common stock, $.01 par value per share, and of which 25,000,000 are
to be shares of serial preferred stock, $.01 par value per share. The shares may
be issued by the Corporation from time to time as approved by the board of
directors of the Corporation without the approval of the shareholders except as
otherwise provided in this Article III or the rules of a national securities
exchange if applicable. The consideration for the issuance of the shares shall
be paid to or received by the Corporation in full before their issuance and
shall not be less than the par value per share. The consideration for the
issuance of the shares shall be cash, services rendered, personal property
(tangible or intangible), real property, leases of real property or any
combination of the foregoing. In the absence of actual fraud in the transaction,
the judgment of the board of directors as to the value of such consideration
shall be conclusive. Upon payment of such consideration such shares shall be
deemed to be fully paid and nonassessable. In the case of a stock dividend, the
part of the surplus of the Corporation which is transferred to stated capital
upon the issuance of shares as a stock dividend shall be deemed to be the
consideration for their issuance.

     A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:

     A. Common Stock. Except as otherwise required by law or provided in these
Articles of Incorporation or in the resolutions of the board of directors
creating any class of preferred stock, the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by such holder, except as
otherwise expressly set forth in these Articles of Incorporation.

     Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and sinking fund or retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock, and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when and as
declared by the board of directors.

     In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding


                                       2



shares of any class having preference over the common stock in any such event,
the full preferential amounts to which they are respectively entitled, the
holders of the common stock and of any class or series of stock entitled to
participate therewith, in whole or in part, as to distribution of assets shall
be entitled, after payment or provision for payment of all debts and liabilities
of the Corporation, to receive the remaining assets of the Corporation available
for distribution, in cash or in kind.

     Each share of common stock shall have the same relative powers, preferences
and rights as, and shall be identical in all respects with, all the other shares
of common stock of the Corporation, except as otherwise expressly set forth in
these Articles of Incorporation.

     B. Serial Preferred Stock. Except as otherwise provided in these Articles
of Incorporation, the board of directors of the Corporation is authorized, by
resolution or resolutions from time to time adopted, to provide for the issuance
of shares of preferred stock in one or more series and to fix and state the
powers, designations preferences and relative, participating, optional or other
special rights of the shares of each such series, and the qualifications,
limitations or restrictions thereof, including, but not limited to,
determination of any of the following:

     (1)  the distinctive serial designation for each series and the number of
          shares constituting such series;

     (2)  the dividend rates or the amount of dividends to be paid on the shares
          of such series, if any, whether dividends shall be cumulative and, if
          so, from which date or dates, the payment date or dates for dividends,
          and the participating or other special rights, if any, with respect to
          dividends;

     (3)  the voting rights, full or limited, if any, of the shares of such
          series;

     (4)  whether the shares of such series shall be redeemable and, if so, the
          price or prices at which, and the terms and conditions upon which such
          shares may be redeemed;

     (5)  the amount or amounts payable upon the shares of such series in the
          event of voluntary or involuntary liquidation, dissolution or winding
          up of the Corporation;

     (6)  whether the shares of such series shall be entitled to the benefits of
          a sinking or retirement fund to be applied to the purchase or
          redemption of such shares, and, if so entitled, the amount of such
          fund and the manner of its application, including the price or prices
          at which such shares may be redeemed or purchased through the
          application of such fund;

     (7)  whether the shares of such series shall be convertible into, or
          exchangeable for, shares of any other class or classes or any other
          series of the same or any other class or classes of stock of the
          Corporation and, if so convertible or exchangeable, the conversion
          price or prices, or the rate or rates of exchange, and the adjustments
          thereof, if any, at which such conversion or exchange may be made, and
          any other terms and conditions of such conversion or exchange;


                                       3



     (8)  the subscription or purchase price and form of consideration for which
          the shares of such series shall be issued;

     (9)  whether the shares of such series which are redeemed or converted
          shall have the status of authorized but unissued shares of serial
          preferred stock and whether such shares may be reissued as shares of
          the same or any other series of serial preferred stock; and

     (10) any other designations, preferences, limitations or rights that are
          now or hereafter permitted by applicable law and are not inconsistent
          with the provisions of these Articles of Incorporation.

     Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series,
except as otherwise expressly set forth in these Articles of Incorporation.

                                   ARTICLE IV

                                PREEMPTIVE RIGHTS

     No shareholder of the Corporation shall have, as a matter of right, the
preemptive right to purchase or subscribe for shares of any class, now or
hereafter authorized, or to purchase or subscribe for other securities or
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such shares.

                                    ARTICLE V

                              REPURCHASE OF SHARES

     The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the shareholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.

                                   ARTICLE VI

                              VOTING FOR DIRECTORS

     There shall be no cumulative voting by shareholders of any class or series
in the election of directors of the Corporation.

                                   ARTICLE VII


                                       4



                      NOTICE FOR NOMINATIONS AND PROPOSALS

     A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of shareholders may be
made by the board of directors of the Corporation or by any shareholder of the
Corporation entitled to vote generally in the election of directors. In order
for a shareholder of the Corporation to make any such nominations and/or
proposals, he shall give notice thereof in writing, delivered or mailed by first
class United States mail, postage prepaid, to the secretary of the Corporation
not fewer than 30 days nor more than 60 days prior to the date of any such
meeting; provided, however, that if notice or public disclosure of the meeting
is effected fewer than 40 days before the date of the meeting, such written
notice shall be delivered or mailed, as prescribed, to the secretary of the
Corporation not later than the close of business on the 10th day following the
day on which notice of the meeting was mailed to shareholders. Each such notice
given by a shareholder with respect to nominations for the election of directors
shall set forth (1) the name, age, business address and, if known, residence
address of each nominee proposed in such notice; (2) the principal occupation or
employment of each such nominee; (3) the number of shares of stock of the
Corporation which are beneficially owned by each such nominee; (4) such other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, including, without limitation,
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director, if elected; and (5) as to the shareholder giving
such notice, (a) his name and address as they appear on the Corporation's books
and (b) the class and number of shares of the Corporation which are beneficially
owned by such shareholder. In addition, the shareholder making such nomination
shall promptly provide any other information reasonably requested by the
Corporation.

     B. Each such notice given by a shareholder to the Secretary with respect to
business proposals to be brought before a meeting shall set forth in writing as
to each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder; and (iv) any
material interest of the shareholder in such business. Notwithstanding anything
in these Articles of Incorporation to the contrary, no new business shall be
conducted at the meeting except in accordance with the procedures set forth in
this Article VII.

     C. The chairman of the annual or special meeting of shareholders may, if
the facts warrant, determine and declare to such meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if he
should so determine, he shall so declare to the meeting and the defective
nomination or proposal shall be disregarded and laid over for action at the next
succeeding special or annual meeting of the shareholders taking place 30 days or
more thereafter. This provision shall not require the holding of any adjourned
or special meeting of shareholders for the purpose of considering such defective
nomination or proposal.


                                       5



                                  ARTICLE VIII

                    ACTION BY WRITTEN CONSENT OF SHAREHOLDERS

     Notwithstanding any other provision of these Articles of Incorporation or
the bylaws of the Corporation, no action required to be taken or that may be
taken at any annual or special meeting of shareholders of the Corporation may be
taken without a meeting, and the power of shareholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.

                                   ARTICLE IX

                                    DIRECTORS

     A. Number; Vacancies. The number of directors of the Corporation shall be
such number, not less than seven nor more than fifteen (exclusive of directors,
if any, to be elected by holders of preferred stock of the Corporation, voting
separately as a class), as shall be set forth from time to time in the bylaws.
Vacancies in the board of directors of the Corporation, however caused, and
newly created directorships shall be filled by the affirmative vote of a
majority of the directors then in office, whether or not a quorum, and any
director so chosen shall hold office for a term expiring at the next annual
meeting of shareholders and when the director's successor is elected.

     B. Classified Board. The board of directors of the Corporation shall be
divided into two classes, which shall be designated Class I and Class II. Such
classes shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. Subject to the provisions
of this Article IX, should the number of directors not be equally divisible by
two, the excess director shall be assigned to Class I. At each annual meeting of
shareholders, the successors to the class of directors whose terms expire at
such meeting shall be elected to hold office for a term expiring at the second
succeeding annual meeting. Notwithstanding the foregoing, the director whose
term shall expire at any annual meeting shall continue to serve until such time
as his successor shall have been duly elected and shall have qualified unless
his position on the board of directors shall have been abolished by action taken
to reduce the size of the board of directors prior to said meeting.

     Should the number of directors of the Corporation be reduced the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as specified in the
immediately preceding paragraph.

     Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the board of directors shall consist of said
directors so elected in addition to the


                                       6



number of directors fixed as provided in this Article IX. Notwithstanding the
foregoing, and except as otherwise may be required by law or by the terms and
provisions of the preferred stock of the Corporation, whenever the holders of
any one or more series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect one or more directors of the
Corporation, the terms of the director or directors elected by such holders
shall expire at the next succeeding annual meeting of shareholders.

                                    ARTICLE X

                              REMOVAL OF DIRECTORS

     Notwithstanding any other provision of these Articles of Incorporation or
the bylaws of the Corporation, any director or the entire board of directors of
the Corporation may be removed at any time by the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the shareholders called for
that purpose. If less than the entire board of directors is to be removed, no
one of the directors may be removed if the votes cast against his or her removal
would be sufficient to elect him or her if then cumulatively voted at any
election of the entire board of directors, or, if there are classes of
directors, at an election of the class of directors of which he or she is a
part. Notwithstanding the foregoing, whenever the holders of any one or more
series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
preceding provisions of this Article X shall not apply with respect to the
director or directors elected by such holders of preferred stock.

                                   ARTICLE XI

                                 INDEMNIFICATION

     The Corporation shall, to the fullest extent now or hereafter permitted by
the Michigan Business Corporation Act and other applicable law, indemnify any
director, officer, employee or agent of the Corporation who was or is a party to
or threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, including any action by or in the
right of the Corporation, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or of a subsidiary of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation
partnership, joint venture, trust or other enterprise, whether for profit or
not, against expenses (including attorneys' fees and disbursements), judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding. At the
discretion of the board of directors, any indemnification hereunder may include
payment by the Corporation of expenses incurred in defending an action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding if all of the following conditions apply: (a) the person furnishes
the Corporation a written affirmation of his good faith belief that he has met
the applicable standard of conduct set forth in Sections 561 and 562 of the
Michigan Business Corporation Act, (b) the person furnishes the Corporation a
written undertaking to repay the advance if it is ultimately determined that he
did not meet the


                                       7



applicable standard of conduct, and (c) the board of directors makes a
determination that the facts then known to the board would not preclude
indemnification under the Michigan Business Corporation Act. The indemnification
provided for herein shall continue as to a person who has ceased to be a
director, officer, employee or agent of the Corporation. Any indemnification of
a person who was entitled to indemnification after such person ceased to be a
director, officer, employee or agent of the Corporation shall inure to the
benefit of the heirs, personal representatives and administrators of such
person. The indemnification provided by this Article XI shall not be deemed
exclusive of any other rights to which any person may be entitled under any
contract, bylaw, vote of shareholders or disinterested directors or otherwise,
both as to action in an official capacity and as to action in another capacity
while holding office, except to the extent that such indemnification may be
contrary to law. The Corporation may purchase and maintain insurance to protect
itself and any present or former director, officer, employee or agent or any
person who is or was serving at the request of the Corporation as a director,
officer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against liability asserted against him and
incurred by him in any such capacity, whether or not the Corporation would have
the power to indemnify such person against liability under the Michigan Business
Corporation Act.

                                   ARTICLE XII

                       LIMITATION OF DIRECTORS' LIABILITY

     A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of loyalty
to the Corporation or its shareholders, (ii) for acts or omissions that are not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) for a violation of Section 551(1) of the Michigan Business
Corporation Act, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Michigan Business Corporation Act or other
Michigan law is amended or enacted after the date of filing of these Articles of
Incorporation to further eliminate or limit the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Michigan Business Corporation Act
or other Michigan law, as so amended. Any repeal or modification of this Section
XII by the shareholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.

                                  ARTICLE XIII

                COMPROMISE, ARRANGEMENT OR PLAN OF REORGANIZATION

     When a compromise or arrangement or a plan of reorganization of the
Corporation is proposed between the Corporation and its creditors or any class
of them or between the Corporation and its shareholders or any class of them, a
court of equity jurisdiction within the State of Michigan, on application of
this Corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the Corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court


                                       8



directs. If a majority in number representing 3/4 in value of the creditors or
class of creditors, or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, agree to a
compromise or arrangement or reorganization of the Corporation as a consequence
of the compromise or arrangement, the compromise or arrangement and the
reorganization, if sanctioned by the court to which the application has been
made, shall be binding on all the creditors or class of creditors, or on all the
shareholders or class of shareholders and also on the Corporation.

                                   ARTICLE XIV

                       APPLICABILITY OF CHAPTER 7A OF THE
                        MICHIGAN BUSINESS CORPORATION ACT

     The Corporation shall be governed by Chapter 7A of the Michigan Business
Corporation Act, MCL 450.1775 et seq. If the Michigan Business Corporation Act
is amended following the date of filing of the Restated Articles of
Incorporation of the Corporation to repeal Chapter 7A, the Corporation shall be
governed following the date of such repeal by the provisions of Chapter 7A as in
effect on the date of filing of the Restated Articles of Incorporation.

                                   ARTICLE XV

                       APPLICABILITY OF CHAPTER 7B OF THE
                        MICHIGAN BUSINESS CORPORATION ACT

     The Corporation shall be governed by the provisions of Chapter 7B of the
Michigan Business Corporation Act, MCL 450.1790 et seq. If the Michigan Business
Corporation Act is amended following the date of filing of the Restated Articles
of Incorporation of the Corporation to repeal Chapter 7B, the Corporation shall
be governed following the date of such repeal by the provisions of Chapter 7B as
in effect on the date of filing of the Restated Articles of Incorporation. The
Corporation shall have the authority, to the extent and under the conditions
provided in Section 799(1) and (2) of the Michigan Business Corporation Act to
redeem "control shares" acquired in a "control share acquisition", as such terms
are defined in Chapter 7B.

                                   ARTICLE XVI

                               AMENDMENT OF BYLAWS

     In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly authorized to adopt,
repeal, alter, amend and rescind the bylaws of the Corporation by a vote of
two-thirds of the board of directors. The bylaws also may be adopted, repealed,
altered, amended or rescinded by the shareholders of the Corporation by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
shareholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is included in the notice
of such meeting).


                                       9



                                  ARTICLE XVII

                     AMENDMENT OF ARTICLES OF INCORPORATION

     The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by law, and all rights conferred on shareholders herein are
granted subject to this reservation.

     IN WITNESS WHEREOF, the Corporation has caused these Restated Articles of
Incorporation to be signed by its President and attested by its Secretary, this
26th day of May, 2006.

                                        FLAGSTAR BANCORP, INC.

                                        /s/ Mark T. Hammond
                                        ----------------------------------------
                                        Mark T. Hammond
                                        President

ATTEST:

/s/ Mary Kay Ruedisueli
- -------------------------------------
Mary Kay Ruedisueli
Secretary


                                       10

EX-3.2

                                                                     EXHIBIT 3.2

                       SECOND AMENDED AND RESTATED BYLAWS

                                       OF

                             FLAGSTAR BANCORP, INC.

                                    ARTICLE I

                           PRINCIPAL EXECUTIVE OFFICE

     The principal executive office of Flagstar Bancorp, Inc. (the
"Corporation") shall be at 5151 Corporate Drive, Troy, Michigan 48098-2639. The
Corporation may also have offices at such other places within or without the
State of Michigan as the board of directors shall from time to time determine.

                                   ARTICLE II

                                  SHAREHOLDERS

     SECTION 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the principal executive office of the Corporation
or at such other place within or without the State of Michigan as the board of
directors may determine and as designated in the notice of such meeting.

     SECTION 2. Annual Meeting. A meeting of the shareholders of the Corporation
for the election of directors and for the transaction of any other business of
the Corporation shall be held annually on the first Monday in March, if not a
legal holiday, and if a legal holiday, then on the next following which is not a
legal holiday, at noon. If the annual meeting is not held on the day designated
therefor, the meeting shall be held on such other date and at such time as the
board of directors shall determine.

     SECTION 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes may be called at any time by the chief executive officer of
the Corporation or by the chairman of the board, the president or the secretary
of the Corporation at the direction of the board of directors.

     SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with these Bylaws or as otherwise prescribed by the
board of directors. The chairman or the chief executive officer of the
Corporation shall preside at such meetings.

     SECTION 5. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and the purpose or purposes for which the meeting is called
shall be mailed by the secretary or the officer performing his duties, not less
than ten (10) days nor more than 60 days before the meeting to each shareholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, addressed to
the shareholder at his address as it appears on the stock transfer books or
records of the Corporation as of the record date prescribed in Section 6, with
postage thereon prepaid. If a shareholder be



present at a meeting, or in writing waive notice thereof before or after the
meeting, notice of the meeting to such shareholder shall be unnecessary. When
any shareholders' meeting, either annual or special, is adjourned for 30 days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than 30 days or of the business to be
transacted at such adjourned meeting, other than an announcement at the meeting
at which such adjournment is taken.

     SECTION 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of shareholders. Such date in any case shall be
not more than 60 days, and in case of a meeting of shareholders, not less than
ten (10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.

     SECTION 7. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete record of the shareholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number of shares held by each. The record shall be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any shareholder of the Corporation during the whole time of the meeting. The
record of shareholders shall be prima facie evidence as to who are the
shareholders entitled to examine such record or transfer books or to vote at any
meeting of shareholders.

     SECTION 8. Quorum. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.

     SECTION 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after three (3) years from the date of its execution unless otherwise provided
in the proxy.

     SECTION 10. Voting. At each election of directors every shareholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held. Unless otherwise provided by the Corporation's Articles of
Incorporation, by statute, or by these Bylaws, a majority of those votes cast by
shareholders at a lawful meeting shall be sufficient to pass on a transaction or
matter, except in the election of directors, which election shall be determined
by a plurality of the votes of the shares present in person or by proxy at the
meeting and entitled to vote on the election of directors.


                                       2



     SECTION 11. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
shareholders of the Corporation any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.

     SECTION 12. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer thereof into his
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed.

     A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.

     Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.

     SECTION 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board may make such appointment at the
meeting. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment in advance of the
meeting or at the meeting by the chairman of the board or the president.

     Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all shareholders.

     SECTION 14. Nominating Committee. The board of directors or a committee
appointed by the board of directors shall act as a nominating committee for
selecting the management nominees for election as directors. Except in the case
of a nominee substituted as a


                                       3



result of the death or other incapacity of a management nominee, the nominating
committee shall deliver written nominations to the secretary at least 20 days
prior to the date of the annual meeting. Provided such committee makes such
nominations, no nominations for directors except those made by the nominating
committee shall be voted upon at the annual meeting unless other nominations by
shareholders are made in writing and delivered to the secretary of the
Corporation in accordance with the provisions of the Corporation's Articles of
Incorporation.

     SECTION 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Articles of
Incorporation. This provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers, directors and
committees, but in connection with such reports no new business shall be acted
upon at such annual meeting unless stated and filed as provided in the
Corporation's Articles of Incorporation.

                                   ARTICLE III

                               BOARD OF DIRECTORS

     SECTION 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The chairman shall
preside at all meetings of the board of directors.

     SECTION 2. Number, Term and Election. The board of directors shall consist
of twelve (12) members and shall be divided into two classes as nearly equal in
number as possible. The members of each class shall be elected for a term of two
(2) years and until their successors are elected or qualified. The board of
directors shall be classified in accordance with the provisions of the
Corporation's Articles of Incorporation.

     SECTION 3. Regular Meetings. A regular meeting of the board of directors
shall be held at such time and place as shall be determined by resolution of the
board of directors without other notice than such resolution.

     SECTION 4. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the chairman, the chief executive officer or
one-third of the directors. The person calling the special meetings of the board
of directors may fix any place as the place for holding any special meeting of
the board of directors called by such persons.

     Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.

     SECTION 5. Notice. Written notice of any special meeting shall be given to
each director at least 24 hours previous thereto. Any director may waive notice
of any meeting by a writing filed with the secretary. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.

     SECTION 6. Quorum. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the


                                       4



board of directors, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time.
Notice of any adjourned meeting shall be given in the same manner as prescribed
by Section 5 of this Article III.

     SECTION 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these Bylaws, the
Corporation's Articles of Incorporation, or the Michigan Business Corporation
Act.

     SECTION 8. Action Without a Meeting. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.

     SECTION 9. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Corporation
addressed to the chairman of the board or the president. Unless otherwise
specified therein such resignation shall take effect upon receipt thereof by the
chairman of the board or the president.

     SECTION 10. Vacancies. Any vacancy occurring in the board of directors
shall be filled in accordance with the provisions of the Corporation's Articles
of Incorporation. Any directorship to be filled by reason of an increase in the
number of directors may be filled by the affirmative vote of a majority of the
directors then in office or by election at an annual meeting or at a special
meeting of the shareholders held for that purpose. The term of such director
shall be in accordance with the provisions of the Corporation's Articles of
Incorporation.

     SECTION 11. Compensation. Directors, as such, may receive such compensation
for service on the board of directors as the board may determine. Members of
either standing or special committees may be allowed such compensation as the
board of directors may determine.

     SECTION 12. Removal of Directors. Any director or the entire board of
directors may be removed only in accordance with the provisions of the
Corporation's Articles of Incorporation.

                                   ARTICLE IV

                      COMMITTEES OF THE BOARD OF DIRECTORS

     The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, as they may determine to be necessary
or appropriate for the conduct of the business of the Corporation, and may
prescribe the duties, constitution and procedures thereof. Each committee shall
consist of one or more directors of the Corporation appointed by a majority of
the whole board. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.

     The board shall have power at any time to change the members of, to fill
vacancies in, and to discharge any committee of the board. Any member of any
such committee may resign at any time by giving notice to the Corporation;
provided, however, that notice to the board, the chairman of the board, the
chief executive officer, the chairman of such committee, or the secretary shall
be deemed to constitute notice to the Corporation. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise


                                       5



specified therein, acceptance of such resignation shall not be necessary to make
it effective. Any member of any such committee may be removed at any time,
either with or without cause, by the affirmative vote of a majority of the
authorized number of directors at any meeting of the board called for that
purpose.

                                    ARTICLE V

                                    OFFICERS

     SECTION 1. Positions. The officers of the Corporation shall be a president,
one or more vice presidents, a secretary and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also designate the
chairman of the board as an officer. The board of directors may designate one or
more vice presidents as senior executive vice president, executive vice
president, first vice president, senior vice president or assistant vice
president. The board of directors may also elect or authorize the appointment of
such other officers as the business of the Corporation may require. The officers
shall have such authority and perform such duties as the board of directors may
from time to time authorize or determine. In the absence of action by the board
of directors, the officers shall have such powers and duties as generally
pertain to their respective offices.

     SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the shareholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as possible. Each officer shall hold office until his successor
shall have been duly elected and qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The board of directors may authorize the Corporation to enter
into an employment contract with any officer in accordance with state law; but
no such contract shall impair the right of the board of directors to remove any
officer at any time in accordance with Section 3 of this Article V.

     SECTION 3. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.

     SECTION 4. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.

                                   ARTICLE VI

                      CONTRACTS, LOANS, CHECKS AND DEPOSITS

     SECTION 1. Contracts. To the extent permitted by applicable law, and except
as otherwise prescribed by the Corporation's Articles of Incorporation or these
Bylaws with respect to certificates for shares, the board of directors or the
executive committee may authorize any officer, employee, or agent of the
Corporation to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation. Such authority may be general or
confined to specific instances.


                                       6



     SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.

     SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by one or more officers, employees or agents of
the Corporation in such manner, including in facsimile form, as shall from time
to time be determined by resolution of the board of directors.

     SECTION 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in any of
its duly authorized depositories as the board of directors may select.

                                   ARTICLE VII

                   CERTIFICATES FOR SHARES AND THEIR TRANSFER

     SECTION 1. Certificates for Shares. The shares of the Corporation shall be
represented by certificates signed by the chairman of the board, a vice-chairman
of the board, the president or a vice president and by any other officer of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof. Any or all of the signatures upon a certificate may be facsimiles if
the certificate is countersigned by a transfer agent, or registered by a
registrar, other than the Corporation itself or an employee of the Corporation.
If any officer who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before the certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issue.

     SECTION 2. Form of Share Certificates. All certificates representing shares
issued by the Corporation shall set forth upon the face or back that the
Corporation will furnish to any shareholder upon request and without charge a
full statement of the designations, preferences, limitations, and relative
rights of the shares of each class authorized to be issued, the variations in
the relative rights, preferences and limitations between the shares of each such
series so far as the same have been fixed and determined, and the authority of
the board of directors to designate and prescribe the relative rights,
preferences and limitations of subsequent series.

     Each certificate representing shares shall state upon its face: That the
Corporation is organized under the laws of the State of Michigan; the name of
the person to whom issued; and the number and class of shares, and the
designation of the series, if any, which such certificate represents. Other
matters in regard to the form of the certificates shall be determined by the
board of directors.

     SECTION 3. Payment for Shares. No certificate shall be issued for any share
until such share is fully paid.

     SECTION 4. Form of Payment for Shares. The consideration for the issuance
of shares shall be paid in accordance with the provisions of the Corporation's
Articles of Incorporation.

     SECTION 5. Transfer of Shares. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such


                                       7



authority, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Corporation. Such transfer shall be made only on
surrender for cancellation of the certificate for such shares. The person in
whose name shares of capital stock stand on the books of the Corporation shall
be deemed by the Corporation to be the owner thereof for all purposes.

     SECTION 6. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.

                                  ARTICLE VIII

                                   FISCAL YEAR

     The fiscal year of the Corporation shall end on the last day of December of
each year or on such other date as shall be fixed from time to time by
resolution of the board of directors.

                                   ARTICLE IX

                                    DIVIDENDS

     Subject to the provisions of the Corporation's Articles of Incorporation
and applicable law, the board of directors may declare dividends upon the stock
of the Corporation at any regular or special meeting. Dividends may be paid in
cash, in property or in the Corporation's own stock.

                                    ARTICLE X

                                CORPORATION SEAL

     The corporate seal of the Corporation shall be in such form as the board of
directors shall prescribe.

                                   ARTICLE XI

                                   AMENDMENTS

     In accordance with the Corporation's Articles of Incorporation, these
Bylaws may be repealed, altered, amended or rescinded by the shareholders of the
Corporation by the affirmative vote of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
shareholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these Bylaws.


                                       8

EX-11

                                   EXHIBIT 11

                             Flagstar Bancorp, Inc.
                      Computation of Net Earnings per Share

     Net  earnings  per share - basic and net  earnings  per share - diluted are
computed by dividing each such earnings per share by the weighted average number
of common  stock and common  stock  equivalents  outstanding  during the period,
respectively (in thousands, except per share data).




                                                         FOR THE SIX MONTHS ENDED
                                                                  JUNE 30,
                                                           2006              2005
                                                       -----------       -----------
                                                                   
Net Earnings                                           $    47,550       $    47,578
Average common shares outstanding                           63,438            61,770
Net earnings per share - basic                         $      0.75       $      0.77
Average common share equivalents outstanding                64,333            64,083
Net earnings per share - diluted                       $      0.74       $      0.74

EX-31.1

                                  EXHIBIT 31.1

                            SECTION 302 CERTIFICATION

I, Mark T. Hammond, certify that:

(1)  I have reviewed this quarterly report on Form 10-Q of Flagstar Bancorp,
     Inc. (the "registrant");

(2)  Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

(3)  Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

(4)  The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
     financial reporting (as defined in Exchange Act Rules 13a-15(f) and
     15d-15(f)) for the registrant and have:

     (a)  designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the period in
          which this report is being prepared;

     (b)  designed such internal control over financial reporting, or caused
          such internal control over financial reporting to be designed under
          our supervision, to provide reasonable assurance regarding the
          reliability of financial reporting and the preparation of the
          financial statements for external purposes in accordance with
          generally accepted accounting principles;

     (c)  evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's fourth fiscal quarter in
          the case of an annual report) that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

(5)  The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent function):

     (a)  all significant deficiencies and material weaknesses in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.

Date: August 4, 2006                       /s/ Mark T. Hammond
                                           President and Chief Executive Officer
                                           Title

EX-31.2

                                  EXHIBIT 31.2

                            SECTION 302 CERTIFICATION

I, Paul D. Borja, certify that:

(1)  I have reviewed this quarterly report on Form 10-Q of Flagstar Bancorp,
     Inc. (the "registrant");

(2)  Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

(3)  Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

(4)  The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
     financial reporting (as defined in Exchange Act Rules 13a-15(f) and
     15d-15(f)) for the registrant and have:

     (a)  designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the period in
          which this report is being prepared;

     (b)  designed such internal control over financial reporting, or caused
          such internal control over financial reporting to be designed under
          our supervision, to provide reasonable assurance regarding the
          reliability of financial reporting and the preparation of the
          financial statements for external purposes in accordance with
          generally accepted accounting principles;

     (c)  evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's fourth fiscal quarter in
          the case of an annual report) that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

(5)  The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent function):

     (a)  all significant deficiencies and material weaknesses in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.

Date: August 4, 2006                   /s/ Paul D. Borja
                                       Executive Vice President, Chief Financial
                                       Officer and Treasurer
                                       Title

EX-32.1

                                  EXHIBIT 32.1

                            SECTION 906 CERTIFICATION

In connection with the quarterly report of Flagstar Bancorp, Inc. (the
"Company") on Form 10-Q for the quarter ended June 30, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Mark T.
Hammond, President and Chief Executive Officer of the Company certify pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company.

Dated: August 4, 2006                   by: /s/ Mark T. Hammond
                                        Mark T. Hammond
                                        President and Chief Executive Officer

A signed original of this written statement required by Section 906 has been
provided to Flagstar Bancorp, Inc. and will be retained by Flagstar Bancorp,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.

EX-32.2

                                  EXHIBIT 32.2

                            SECTION 906 CERTIFICATION

In connection with the quarterly report of Flagstar Bancorp, Inc. (the
"Company") on Form 10-Q for the quarter ended June 30, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Paul D.
Borja, Executive Vice President and Chief Financial Officer of the Company,
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company.

Dated: August 4, 2006                 by: /s/ Paul D. Borja
                                      Paul D. Borja
                                      Executive Vice President,
                                      Chief Financial Officer and Treasurer

A signed original of this written statement required by Section 906 has been
provided to Flagstar Bancorp, Inc. and will be retained by Flagstar Bancorp,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.