JPMorgan Chase Bank has agreed to buy about $5 billion in mortgage warehouse loans from NYCB. Flagstar will continue retail and wholesale mortgage lending and servicing operations.

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Flagstar Bank is exiting the mortgage warehouse lending business as part of a move to bolster the capital position of its parent company, New York Community Bancorp (NYCB), which acquired Flagstar in a merger that closed in 2022.

JPMorgan Chase Bank has agreed to buy about $5 billion in mortgage warehouse loans from NYCB, which will improve NYCB’s capital, liquidity and loan-to-deposit metrics, the company announced after hours Monday.

Joseph Otting

“The mortgage team at Flagstar built a first-class warehouse business, which is reflected in our ability to execute on an accretive transaction with JP Morgan,” NYCB President and CEO Joseph Otting said, in a statement. “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.”

Warehouse lenders are typically banks or other depository institutions that provide lines of credit to independent mortgage banks that don’t have any customer deposits to lend against.

In its most recent quarterly report to investors, NYCB said it had $5.2 billion in outstanding warehouse loans to other mortgage lenders on the books as of March 31 and relationships in place to lend an additional $11.6 billion. Most of the underlying mortgages were originated to standards set by Fannie Mae and Freddie Mac, the bank said.

NYCB and Flagstar’s systems were integrated in February, with all of the merged company’s consumer-facing businesses now operating under the Flagstar brand.

Parent company NYCB will continue to be a major player in both originating and servicing mortgages through a network of 419 Flagstar branches and through a wholesale network of 3,000 third-party originators operated by Flagstar Mortgage.

According to NYCB, Flagstar Mortgage is the seventh largest bank originator of residential mortgages and the fifth largest sub-servicer, collecting payments on 1.4 million mortgages with $367 billion in unpaid principal balances.

Shares in NYCB, which in the last year have traded for as little as $1.70 and as much as $14.22, fell 6 percent Tuesday to close at $3.67.

Last year’s failures of Silicon Valley Bank, Signature Bank and First Republic Bank put regional banks under heightened scrutiny by rating agencies, and concerns about the impact of elevated interest rates and commercial real estate loans on regional banks remain.

In reporting a $327 million first-quarter net loss May 1, Otting said NYCB is on track to become profitable again in 2025 and achieve “peer-level profitability” in 2026.

“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 Monday.

The sale of NYCB’s mortgage warehouse loans to JPMorgan Chase is expected to close in the third quarter of 2024.

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