In its latest effort to shore up cash, embattled Flagstar Bank has struck a deal to sell its residential mortgage servicing business to nonbank mortgage originator Mr. Cooper Group.
The bank, a subsidiary of New York Community Bancorp, sold the business, including its mortgage servicing rights and third-party origination platform, for $1.4 billion to be paid in cash on hand and drawdowns of existing mortgage servicing lines, according to statements Thursday from both firms. The deal is expected to close in the fourth quarter.
"While the mortgage servicing business has made significant contributions to [New York Community], we also recognize the inherent financial and operational risk in a volatile interest rate environment, along with increased regulatory oversight for such businesses,” Joseph Otting, New York Community’s chairman, president and CEO, said in a statement.
The deal comes following attempts to rescue New York Community after it reported a $252 million loss in the fourth quarter last year after a period of major changes including its $2.6 billion acquisition of Flagstar that was completed in December 2022. That miss was mostly fueled by increased provisions and allowances for commercial loan losses, and it was an unexpected twist after the company had stepped in to play the role of rescuer earlier last year when the lending market was disrupted by regional bank closures.
In March, a group of investors led by Liberty Strategic Capital, headed by former Treasury Secretary Steven Mnuchin, struck a deal to invest more than $1 billion into the bank holding company known as a lender for multifamily housing in New York City. Part of that investment included naming Mnuchin and Otting to the company’s board of directors and appointing Otting as CEO.
Following the investment and those leadership changes, New York Community is shifting its strategy. Part of that move included selling its primary bank’s mortgage business, Otting said.
"We are focused on transforming [New York Community] into a leading, relationship-focused regional bank,” he said. “Consistent with that strategy, we will continue to provide residential mortgage products to ... retail and private wealth customers.”
Executives at Dallas-based Mr. Cooper told investors the acquisition is a win-win for both firms during a call Thursday to discuss the lender’s second-quarter earnings. The deal will bring the lender an additional 1.3 million customers as well as an estimated $356 billion in unpaid principal balance.
“We helped Flagstar solve for their balance sheet goals by selling their [mortgage servicing] asset at a fair price,” Jay Bray, CEO and chairman of the firm, said on the call. “We also helped Flagstar simplify its operations by taking on their existing sub-servicing business, as well as providing servicing for some of their own loans.”