Flagstar Bank, a subsidiary of New York Community Bancorp, is selling its residential mortgage servicing business to Mr. Cooper for $1.4 billion. This transaction includes mortgage servicing rights, sub-servicing contracts, and an origination platform, aiming to bolster Flagstar’s capital ratios and accelerate its evolution into a diversified regional bank. Mr. Cooper plans to finance the acquisition through existing resources and expects to integrate 1.3 million new customers, boosting its unpaid principal balance significantly.

Flagstar Bank Announces Strategic Sale to Mr. Cooper

Transaction Details and Strategic Benefits

Flagstar Bank, under New York Community Bancorp, has agreed to sell its residential mortgage servicing business to Mr. Cooper, a prominent non-bank mortgage originator and servicer, for approximately $1.4 billion. This comprehensive deal encompasses mortgage servicing rights (MSRs), sub-servicing contracts, advances, and a third-party origination platform.

Capital Impact and Strategic Rationale

Joseph Otting, NYCB's chairman, president, and CEO, highlighted that the sale would enhance Flagstar’s Common Equity Tier 1 (CET1) capital ratio by approximately 60 basis points. This divestiture aligns with Flagstar’s strategy to shift towards becoming a fully diversified regional bank, reducing exposure to financial and operational risks associated with mortgage servicing in a volatile interest rate environment and stringent regulatory oversight.

Acquisition Funding and Customer Impact

Mr. Cooper intends to finance the acquisition using available cash and drawing from existing mortgage servicing lines. Upon completion, Mr. Cooper anticipates integrating 1.3 million customers and approximately $356 billion in unpaid principal balance (UPB). The transaction is expected to bolster Mr. Cooper’s market position significantly.

Financial Performance and Future Outlook

In conjunction with the acquisition announcement, Mr. Cooper reported a robust net income of $204 million for the second quarter of 2024, following $181 million in Q1 2024. The company’s total revenue for Q2 2024 reached $583 million, reflecting its financial strength and capacity to support the integration of Flagstar’s customer base.

Closing Remarks and Timeline

Jay Bray, chairman and CEO of Mr. Cooper, expressed confidence in the seamless integration of Flagstar’s customers and team members into the Mr. Cooper family. The transaction, subject to customary closing conditions, is anticipated to conclude by Q4 2024, pending regulatory approvals and other standard procedures.

The Bottom Line

The acquisition of Flagstar’s mortgage servicing unit by Mr. Cooper marks a significant strategic move in the mortgage servicing industry, positioning both entities for future growth and operational synergy.

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