Flagstar Bancorp cuts 20% of its mortgage staff

Bank's mortgage revenue fell to $74M in the Q1 2022, compared to $110M in the previous quarter

Michigan-based Flagstar Bancorp, Inc., parent company of Flagstar Bank, has reduced its mortgage staff by 20% since the calendar turned to 2022, laying off 420 employees amid a significant drop in origination volumes and margins.

Overall, the bank’s net income in the first quarter of 2022 dropped 60.4% from the prior quarter, to $53 million. Mortgage revenue decreased $36 million in the same period, to $74 million from January to March.

“Gain on sale revenue was under significant pressure throughout the quarter as the velocity of the increase in mortgage rates rose at the fastest rate this century,” Alessandro DiNello, president and chief executive officer of Flagstar Bancorp, said in a statement.

Flagstar Bancorp reported on Wednesday that mortgage loans closed reached $8.2 billion in the first quarter of 2022, down 23% quarter-over-quarter and 40% year-over-year.  

Purchases loans closed were $4 billion from January to March, remaining unchanged compared to the first quarter of 2021, but decreasing from $5 billion in the fourth quarter 2021.

Meanwhile, refinances fell significantly, from $9.8 billion in Q1 2021 to $5.7 billion in Q4 2021 and just $4.2 billion in Q1 2022.

Gain-on-sale margin decreased to 0.58% in Q1 2022 from 1.84% in the first quarter of 2021. In the fourth quarter of 2021, margins were at 1.02%.

“While our channel margins held up fairly well, we experienced lower EBO revenue and competitive factors,” said DiNello. “We responded by cutting costs, including reducing our mortgage staff by 20 percent at the end of Q1.”

The company’s workforce reduction included 358 direct layoffs and 62 unfilled positions that were eliminated, executives said during a conference call with analysts. The bank had 2,100 employees on its mortgage staff before the cuts.   

Regarding the servicing portfolio, the net return on servicing rights increased to $29 million for the first quarter of 2022, compared to $19 million for the fourth quarter of 2021, the bank reported.  

“While mortgage revenue declined more than expected due to an unprecedented increase in mortgage rates, our net interest margin and MSR returns have already improved significantly even though the benefits only started to come through very late in the quarter,” DiNello said.

In April, New York Community Bank, one of New York City’s largest multifamily lenders, announced the acquisition of Flagstar Bancorp, in an all-stock merger valued at $2.6 billion.

On Wednesday, the banks announced they mutually extended their merger agreement to October 31, 2022, to provide that the combined company will operate under a national bank charter. Under the new agreement, the merger needs approval of the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC).

NYCB had essentially exited the residential mortgage banking business in 2017 after selling its origination and servicing platforms. Despite the deal, the initial agreement says that Flagstar’s brand will be maintained in the Midwest. Flagstar’s mortgage division will also preserve the brand. Other states will retain their current branding.

According to the first quarter earnings reported, Flagstar has 2.7% market share in the correspondent channel and more than 1,100 partners. The bank has a 0.7% market share in the broker channel, with 1,600 brokers relationships. Flagstar also has 82 retail locations in 28 states, with direct lending representing 59% of retail volume.

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