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Flagstar Turns in Mixed Performance

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Mortgage Daily

                                                 July 27, 2011

Home-loan production and mortgage assets fell at Flagstar Bancorp Inc., while rate-lock commitments, warehouse assets and mortgage sales employees increased. The company unloaded some of its residential servicing assets, commercial mortgages and bank branches.

First-mortgage originations totaled $4.6 billion in the second quarter, falling from $4.9 billion in the prior three-month period, earnings data indicated. Production, which primarily includes agency-eligible loans, was $5.5 billion in the second quarter of last year.

The Troy, Mich.-based lender said that it sold $4.4 billion in mortgages during the latest quarter, falling from $5.8 billion in the prior period.

Rate-lock commitments, an indicator of upcoming originations, came in at $6.4 billion, increasing from $5.5 billion in the first quarter. But the improvement in rate locks was met with a lower residential forecast for total 2011 production, which is now projected to range between $20 billion and $24 billion versus the $21 billion to $25 billion projected three months ago.

The third-party mortgage servicing portfolio closed out the second quarter at $57.1 billion, lower than $59.6 billion at the end of the first quarter. The decline reflected the sale of $47 million in first-mortgage servicing rights. A year earlier, Flagstar serviced $50.4 billion for investors.

Residential first-mortgage assets edged down to $3.7 billion as of June 30 from $3.8 billion three months earlier. The total was $4.6 billion a year earlier. Nearly a third of Flagstar’s portfolio is secured by California properties.

Second-mortgage assets were marginally lower than at the end of the first quarter at less than $0.2 billion, while home-equity lines of credit declined to $0.2 billion from $0.3 billion.

Warehouse lending assets climbed to $0.5 billion from $0.3 billion but were down from $0.7 billion on June 30, 2010.

The sale of $68 million in commercial real estate loans generated a gain of $0.6 million and left CRE holdings at $1.1 billion, easing from $1.2 billion three months earlier and off from $1.4 billion mid-year 2010.

In addition to government repurchase charges, $22 million in secondary marketing reserve provisions were set aside in the second quarter, leaving the secondary marketing reserve at $79 million.

A reclassification of interest received on delinquent Federal Housing Administration loans wound up increasing interest income and asset resolution expense by $13 million during the quarter.

Flagstar said it had a $70 million second-quarter loss before taxes, worse than the prior period’s $27 million loss. But the bank cut its losses from $170 million in the second-quarter 2010.

Loan officers and account executives employed by Flagstar totaled 316 as of the end of June, more than the 306 mortgage sales employees on staff at the end of March. Headcount was 296 at the same point last year.

Excluding the loan officers and account executives, 2,990 people were employed as of June 30, less than 3,030 as of March 31.

At the end of the second quarter, 30 loan origination centers were in operation, up from 29 at the end of the first quarter.

The company said that it reached an agreement to sell 27 Georgia branches with $240 million in deposits to PNC Bank, N.A. The sale is expected to close in December.

The number of bank branches has been unchanged over the past year at 162.

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