Flagstar Bancorp, Inc. (FBC) , the holding company for Flagstar Bank FSB, said late last week that it lost $62.1 million, or $0.79/share, during the third quarter, as credit costs continued to eat away at the bottom line. The Q3 loss widened a $32.1 million loss, or $.22/share, from the same period in 2007. Driving the quarterly loss was an $89.6 million loss provision, up from $43.8 million one quarter earlier; most of the provision expense went into allowance for future loan losses as well, bumping loss reserves up $70 million, Flagstar said. The bank also took a a $17.1 million loss tied to the failure of Lehman Brothers, saying the failed investment bank could not follow through on a purchase of $65 million in servicing rights. Loan production at the large wholesale mortgage operation fell sharply to $6.7 billion, off 18.3 percent compared to $8.2 billion in originations one quarter earlier; nonetheless, Q3 originations were essentially flat with year-ago numbers. “Although we continue to have positive margins in our core operations — net interest margin, gain on loan sales and income from our servicing portfolio, those margins were more than offset by several significant credit and asset disposition charges. These charges, in total, represent $162.7 million in pre tax cost,” said Mark Hammond, vice chairman and CEO. Flagstar also continued to grow its servicing portfolio during the quarter, nearly doubling year-ago totals. The bank’s mortgage servicing rights portfolio totaled $51.8 billion and had a weighted average service fee of 33.6 basis points, which compared to $45.8 billion 34.2 basis points one quarter earlier. One year ago the servicing portfolio stood at $26.7 billion, with an average weighted servicing fee of 36.4 basis points — are we the only ones here noticing a troubling trend of squeezing down on servicing fees? Non-performing assets jumped 18.6 percent quarter over quarter, rising to $548.3 million at the end of Q3, the bank said — and $304.8 million of that total was residential first liens, underscoring potentially some emerging problems in commercial real estate as well. Shares in Flagstar opened slightly lower Monday morning, and were at $1.88, down a little over one percent, when this story was published. Write to Paul Jackson at [email protected]. Disclosure: The author held no positions in any of the stocks mentioned when this story was published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.