Flagstar Bank Sees Loss on Lower Servicing Sales
Flagstar Bancorp, which has often profited handsomely from the sale of mortgage servicing rights, couldn't rely on that asset to reverse negative mortgage trends in 2007.
Flagstar Bancorp lost $39.2 million, or $0.64 per share, in 2007, with the bulk of the loss ($30.1 million) coming in the fourth quarter.
For the full year, Flagstar's net gain on MSR sales was $5.9 million, down from $92.4 million in 2006.
In addition to a decrease in gain on the sale of MSRs, Flagstar said that higher credit costs and impairment to the value of securities in its "available for sale and trading" portfolios all took a toll on the company.
Mark Hammond, president and CEO of Flagstar, said the company is focused on managing through a period when real estate values may continue to decline and the economy may weaken further.
"At the same time, we believe there are a number of positive trends and underlying fundamentals that are currently occurring or are on the horizon. These include our increasing market share for mortgage originations, increased residential loan production, improving gain-on-sale spreads, the potential for higher Fannie Mae, Freddie Mac and FHA loan limits, and increased credit spreads and lower funding costs, which should result in an improving net interest margin."
The company originated $25.7 billion of residential loans last year, up from $19 billion in 2006.
The company's gain-on-loan sale margin turned positive in the fourth quarter, after falling into the red in the third quarter.
At the end of 2007, Flagstar serviced $32.5 billion of mortgages. The portfolio had a weighted average service fee of 36 basis points. The servicing portfolio was more than twice the size of the company's MSR portfolio at the end of 2006.
The capitalized value of Flagstar's MSR portfolio at year-end was $414 million, or 1.27% of the outstanding balance of loans serviced for others.
Flagstar increased its allowance for loan losses to $104 million, or 1.28% of loans held for investment, at the end of 2007, up from $45.8 million, or 0.51% of loans held for investment, at the end of 2006.
Single-family loans in Flagstar's held-for-investment portfolio had an average FICO score of 719 at the end of last year. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/