After a tough year of legal settlements over legacy mortgage issues and a recent layoff announcement, Flagstar Bancorp (FBC) finally received a dose of good news Wednesday, with its 2013 fourth-quarter earnings moving from a steep loss to a profit of $160.5 million, or $2.77 a share.
That compares to a loss of $94.2 million, or $1.75 a share, a year earlier.
But much can happen within a year, and that’s certainly the case for Flagstar. In the past several months, the lender outsourced its default servicing and announced layoffs, while entering into massive mortgage settlements with insurers and government-sponsored enterprises.
The clincher came last week when Flagstar said it plans to slash 600 jobs as part of a massive restructuring initiative.
"While a decision to restructure the organization is never taken lightly, the cost savings from the workforce reductions, together with those already realized from our vendor management and procurement initiatives, the outsourcing of default servicing and other variable cost decreases, put us on track to achieve the high-end of our previously provided guidance for 2014 of $145 million to $190 million in annualized non-interest expense savings," said Lee Smith, the bank's chief operating officer.
The company recorded a tax benefit of $410.4 million on the reversal of a federal deferred tax asset valuation allowance and posted a loss on extinguishment debt of $177.6 milion from its prepayment of $2.9 billion long-term fixed rate Federal Home Loan Bank advances.
It also acknowledged an incremental non-interest expense of $61 million from the estimated fair value liability tied to one of the lending-related legal agreements reached with the Department of Justice.
Wednesday evening the firm disclosed a benefit of about $24.9 million from its previously announced settlements with Fannie Mae and Freddie Mac.
But like most lenders, it faces challenges if the goal is to restructure and grow its mortgage originations business. That is an uncertain area of the market right now, and it’s clear the firm is still experiencing slowness in originations.
Total mortgage originations fell to $6.4 billion in 4Q, down from $7.7 billion in the previous quarter and from $15.4 billion in 4Q 2012, the latest earnings statement shows.