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Mortgage Revenues Sink at Flagstar

Revenues at Flagstar Bancorp Inc.’s home-lending business sank. But the financial institution has grown its mortgage asset and servicing portfolios over the past year.

In the three months ended Sept. 30, income before income taxes worked out to $60 million, the bank-holding company revealed in its third-quarter earnings report.

Income at Troy, Michigan-based Flagstar was no different than in the same three months last year. Earnings were off just $2 million compared to the preceding period.

Mortgage revenues were $56 million,
plunging from roughly $81 million in the third-quarter 2017. Revenues were also down from approximately $72 million in the second quarter.

The report indicated that Flagstar’s mortgage business continued to be challenged by industry overcapacity and secondary margin compression — with
the net gain-on-sale margin falling 20 basis points to 0.51 percent. Partially offsetting the challenges, however, were improved returns on mortgage-servicing rights.

Single-family lending volume increased to $9.335 billion from $9.181 billion originated during the second quarter. But business slowed from the $9.666 billion in production during the third-quarter 2017. So far this year, Flagstar has originated $26.467 billion in residential loans.

Third-quarter 2018 volume consisted of $9.199 billion in first mortgages, $0.080 billion in second mortgages and home-equity lines of credit, and
$0.056 billion in “other” loans. By loan type, $4.4 billion were conventional transactions, $2.6 billion were government mortgages and $2.2 billion were jumbo loans. Refinance share was 26.1 percent, thinning from 28.9 percent in the second quarter. By channel, retail originations accounted for $1.2 billion, wholesale lending made up $1.0 billion, and correspondent acquisitions were $7.0 billion

Fallout-adjusted rate-lock commitments during the third quarter fell to $8.3 billion from $9.0 billion the previous period — suggesting that current quarter closings have slowed.

Relationships were reported with more than 1,100 correspondent clients and 800 mortgage brokers.

Flagstar serviced 123,595 loans that had a collective unpaid principal balance of $29.868 billion as of Sept 30, including $21.835 billion in third-party servicing. The portfolio has grown from 118,350 loans for $28.718 billion on the same date last year. Flagstar additionally subserviced 494,950 loans for $106.297 billion.

The capitalized value of mortgage servicing rights was 1.43 percent. Flagstar’s service fee was 0.345 percent.

On the balance sheet were $3.789 billion in residential assets, including $3.085 billion in first mortgages and $0.704 billion in home-equity assets. The portfolio has expanded from $3.161 billion as of Sept. 30, 2017.

Another $2.160 billion in commercial real estate loans were owned, growing from $1.760 billion a year previous. Warehouse lending assets have increased to $1.550 billion from $1.159 billion at Flagstar, which claims to be the fourth largest warehouse lender in the country.

When last month was over, there were 3,496 people on the payroll. Headcount was cut from 3,682 the prior period but virtually unchanged from a year prior.

The quarter concluded with 81 retail home lending offices, seven fewer than at the end of the first half. Meanwhile, retail bank branch count was 108, one more than as of mid-year.

The report indicated that Flagstar is acquiring 52 branches in Indiana, Michigan, Ohio and Wisconsin from Wells Fargo & Co.
In the report, Flagstar President and Chief Executive Officer Alessandro DiNello noted that the branch acquisitions are expected to close in December.

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