Banking & Finance

Bank sells servicing rights on $40.7B in mortgages

December 27, 2013
| By Pete Daly |
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Troy-based Flagstar Bank operates more than 100 branches across West Michigan and the state. Photo via wikimedia.org

A bank holding company with a large regional presence has agreed to sell more than half of its mortgage servicing rights portfolio to the subsidiary of a New York investment corporation.

Troy-based Flagstar Bancorp (NYSE: FBC) has agreed to sell $40.7 billion in aggregate unpaid principal balance of residential MSRs to Matrix Financial Services Corporation, a wholly owned subsidiary of Two Harbors Investment Corp.

The transfer equals 55 percent of Flagstar’s mortgage loans serviced-for-others portfolio, as of Sept. 30.

Covered under the agreement are certain mortgage loans serviced for both Fannie Mae and Ginnie Mae, originated primarily after 2010.

As part of the deal, Flagstar will act as the sub-servicer on all of the mortgage loans underlying the MSRs being sold, with Flagstar receiving sub-servicing income and a portion of the ancillary fees.

The sub-servicing agreement will remain in effect so long as mortgage loans underlying the MSRs remain outstanding, unless terminated earlier in accordance with its terms.

Flagstar primarily originates one-to-four family residential first mortgage loans and is one of the largest originators of residential first mortgages.

Sub-service market

"Today's transaction is an important step in our continued effort to augment our mortgage origination business, thus better positioning Flagstar to deliver improved financial performance and increased shareholder value," said Alessandro DiNello, Flagstar president/CEO. "We periodically evaluate the sale of MSRs as a way to reduce the concentration of the asset and strengthen the quality of our capital, and we are pleased to be able to achieve a significant transaction in MSRs, while also retaining the underlying sub-servicing associated with the asset itself."

"This transaction significantly reduces our MSR concentration and demonstrates continued progress in management's efforts to strengthen the balance sheet," said Lee Smith, Flagstar COO. "Equally important, we are able to utilize Flagstar's servicing platform to generate ongoing servicing revenue and diversify the company's operations. We believe our re-branded servicing platform presents an attractive opportunity for organizations that are looking to purchase MSRs and have Flagstar sub-service those loans, and we believe there is a growing market for such services."

Flagstar

Flagstar had $11.8 billion in total assets on Sept. 30 and is the largest bank headquartered in Michigan.

Flagstar operates 111 banking centers, all in Michigan, plus 45 home lending centers in 19 states.

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