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Quarterly residential mortgage production by lender. Subprime, Alt-A, home equity and conforming originations. Volume by quarter since 2003.

Mortgage Business Explodes at Flagstar

Q3 residential originations up 16% from Q2

Oct. 25, 2012

By Mortgage Daily staff

Home-loan production has more than doubled over the past year at Flagstar Bancorp Inc. and is poised to remain strong. While the company was able to reduced its mortgage assets, the mortgage servicing portfolio expanded.

Mortgage originations during the three months ended Sept. 30 totaled $14.514 billion, according to third-quarter earnings data.

Business improved from the second quarter, when originations amounted to $12.547 billion. Production has soared from a year earlier, when $6.926 billion was funded.

A likely contributor to the growth at Flagstar was Wells Fargo & Co.'s exit from the wholesale channel announced in July.

The healthy level of production likely continued into the current quarter, with mortgage locks climbing to $18.1 billion in the third quarter from $17.5 billion three months earlier.

Refinances accounted for $11.246 billion of the most-recent activity.

During the first nine months of this year, $38.230 billion has been originated.

Flagstar serviced $82.415 billion in mortgages that it didn't own as of the end of last month, growing the third-party servicing portfolio from $76.192 billion as of June 30. At the same point in 2011, there were $56.773 billion in home loans serviced for third parties.

The investment portfolio included $3.086 billion in residential first mortgages, contracting from $3.102 billion three months earlier and $3.828 billion a year earlier.

Second-mortgage assets fell to $0.122 billion from $0.127 billion and were down from $0.147 billion at the same point last year. An additional $0.192 billion in home-equity lines of credit was owned, falling from the prior quarter's $0.198 billion and $0.233 billion as of Sept. 30, 2011.

Warehouse lending assets grew, however, to $1.308 billion from $1.261 billion and were $0.996 billion a year prior.

Commercial real estate loans on the balance sheet were reduced to $1.005 billion from the second quarter's $1.075 billion and the year-earlier's $1.269 billion.

After $6 million in charges to gain on sale, $124 million in charges to reserves and $90 million in charge offs, the representation and warranty reserve increased to $202 million. Flagstar received 1,316 new repurchase demands in the latest period, including 216 from Freddie Mac and 1,100 from Fannie Mae. The repurchase pipeline was reduced to $425.6 billion from $469.8 billion in the second quarter.

"The increase in representation and warranty reserve from prior quarter reflects two major components," the report said. "First, recent changes in behavior by and enhanced transparency from the GSEs, primarily related to loans originated prior to 2009 (i.e., pre-2009 vintages), caused an increase in forecasted demands. Second, during the third quarter 2012 the company made a number of enhancements to the repurchase operations, including installing new leadership, adding full-time employees and increasing processing capacity."

Prior to federal income taxes, company-wide income fell to $61 million from $88 million but swung from a $9 million loss in the third-quarter 2011.

"Although we are pleased with our second straight quarter of profitable results, including the record revenue and increased market share achieved by our mortgage banking franchise, we recognize that significant work remains to address Flagstar's legacy issues," Flagstar Bancorp Chief Executive Officer Joseph P. Campanelli stated in the report. "Accordingly, we have added significant reserves and taken actions to strengthen the balance sheet against various legacy exposures, including loan repurchases from the GSEs and claims arising out of our 2005 and 2006 securitizations. In addition, we have reduced our overall risk profile by disposing of riskier legacy assets and prepaying long-term FHLB advances during the quarter."

The Troy, Mich.-based company employed 336 loan officers and account executives as of Sept. 30, the same as at the end of the second quarter. One year prior the total stood at 306 people.

Including employees from all businesses, headcount climbed to 3,576 from 3,520 and was just 3,299 as of Sept. 30, 2011.

There were 31 loan origination centers in operation as of the third quarter, one more than the previous period and two more than the same period in the previous year.

Bank-branch count was unchanged from the second quarter at 111.

The report indicated that Michael J. Tierney was named president and CEO of the Flagstar Bank and president of Flagstar Bancorp.

Flagstar profile

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