Flagstar’s mortgage business softer than expected: CEO

Mortgage

Flagstar Bancorp’s acquisition of 52 Midwest branches of Wells Fargo helped increase its core customer base, but its mortgage results were lower than anticipated in the fourth quarter, according to the Troy, Mich.-based bank.

Flagstar reported a net gain on mortgage loan sales of $34 million in the fourth quarter, which is a considerable decline of 57% from the same period a year ago and 21% from the previous quarter. The company attributes these drops to seasonal factors and industry overcapacity.

Despite lagging loan sales, the bank did experience better results on the servicing side.

Flagstar earnings

“Our mortgage business was softer than we expected,” said Flagstar President and CEO Alessandro DiNello in a press release. “Fallout-adjusted locks declined 36% to $5.3 billion, partially offset by a higher gain-on-sale margin, which rose nine basis points to 0.6%. We remain focused on reinforcing mortgage profitability, and believe we can use our market position and scale to succeed in a mortgage market with fewer players.”

Mortgage loan originations totaled $6.3 billion in the fourth quarter, down from $9.7 billion last year and $9.2 billion in the third quarter. Purchase loan originations totaled $4.3 billion, while $2 billion in originations came from refinances.

Loans serviced in the fourth quarter saw better results on both an annual and quarterly basis.

“Our banking and mortgage servicing businesses had another good quarter. Deposit costs were relatively unchanged, despite the increase in short-term rates at the end of the third quarter. The adjusted net interest margin expanded 6 basis points to 2.99%,” said DiNello. “Total serviced accounts increased a remarkable 34% to nearly 827,000, further growing an important source of fee income and liquidity.”

For comparison, loans serviced in 3Q18 totaled 619,000.

Flagstar’s results mirror an industry trend of originations falling short of expectations as loan activity remains low. JPMorgan Chase and Wells Fargo also reported softer results in the fourth quarter.

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