New York Community Bancorp, the parent of Flagstar Bank, said it’s still committed to the home loan business despite selling approximately $5 billion in warehouse mortgages to JPMorgan Chase Bank to improve its capital and liquidity position.
Following the transaction, Flagstar will exit the mortgage warehouse lending space. However, it will continue financing mortgage servicing rights (MSR). Inside Mortgage Finance (IMF) first reported on the topic and a Flagstar spokesperson confirmed.
On Tuesday, NYCB said it entered into a commitment letter with JPMorgan. The transaction is subject to due diligence, negotiation of definitive terms and other closing conditions. The sale is expected to close in the third quarter of 2024.
“The mortgage business remains an important business for the company and we will continue to provide our mortgage customers and partners the same great service that they have come to expect from Flagstar,” Joseph Otting, NYCB president and CEO, said in a statement.
JPMorgan was the leader in the mortgage warehouse space in the fourth quarter of 2023, with $20 billion in volume and a 20.8% market share, according to IMF estimates.
The bank was followed by Flagstar, with $11.8 billion in volume and a 12.3% market share, the IMF data shows. The top- five is rounded out by Merchants Bank ($6.7 billion; 7%), EverBank ($5.8 billion; 6%) and First Horizon ($5.5 billion; 5.7%).
Loans at mortgage warehouse lending, a source of liquidity to independent mortgage bankers (IMB), have good yields, short terms and are highly secured and collateralized.
But they are not immune to systemic industry shocks, including last year’s bank crisis. Following the tumult, warehouse lenders – such as Dallas-based Comerica Bank – have decided to exit the business.
NYCB, which acquired Flagstar Bank in December 2022, ended up rescuing Signature Bank in March 2023. However, it affected its capital and liquidity structures amid a challenging market condition.
In January 2024, the bank suffered a confidence crisis after reporting a net loss in the last quarter of 2023 due to a provision for loan losses of $552 million, mainly impacted by its exposure to commercial real estate loans.
Fitch and Moody’s downgraded NYCB’s debt ratings on March 1, as the company disclosed internal control deficiencies and a $2.4 billion goodwill impairment. On March 6, the company received $1 billion in equity investment, led by former U.S. Department of Treasury Secretary Steven Mnuchin’s private equity firm, Liberty Strategic Capital.
“Consistent with my guidance during our recent earnings call, we are moving forward quickly to implement our strategic plan, which focuses on improving our capital, liquidity and loan-to-deposit metrics,” Otting said in a statement.
NYCB expects the transaction with JPMorgan to add 65 basis points to its CET1 capital ratio to 10.8% as of March 31. As the proceeds will be reinvested in cash and securities, its share of total assets will improve to 24% from 20% at March 31. Loan-to-deposit ratio is expected to decline to 104% from 110% at the end of the first quarter.
