Flagstar Bancorp - Agency, FHA-VA

Update - 2009-04-06: Flagstar reported its 2008 4th quarter and annual earnings in a 10-K Filing on March 13, 2009 reporting a $254.7 million net loss for the year. That same day, we're told an estimated 700-900 Retail employees were let go and an unknown number of loan centers and net branches were shut down. We were told this amounts to 70% of that business channel.

Discussion on our forums picked up in the aftermath, and it has been said all Retail offices outside the bank's footprint were or are being closed. One poster reported "they closed around 60+ retail branches, leaving them with about only 40 left..." Another poster shared their experience:

"My retail branch was yet another to be added to the list of shut down.s I was contacted by my receptionist that 2 Flagstar reps were here to see me. When I arrived the rep said: "We are here to close the office, remove all Flagstar files, and terminate your employment effective immediately". When asked what was the reason..the response was: "We are an AT WILL employer and need give no reason for termination or office closure". Virtually every question I had, I was given the same pat answer. 90 minutes later, they were GONE along with all files. They had hired a moving company to come in and remove all the files.

No answers, no explanation...nothing. When asked about my loans in process, the rep pulled out a business card, scribbled a number on the back and said..."Have them call this number".

Sound abrupt or unbelievable? This is basically EXACTLY what happened. EXACTLY."

We heard there were conference calls to the Retail and Wholesale divisions on March 18-19. Further cuts and restructuring were reportedly the topic of discussion. National Mortgage News reported today that "Flagstar Bank of Troy, Mich., will reconfigure its wholesale mortgage sales operations, going from 12 sales regions down to eight."

A former employee told us all of the above changes are coming down at the behest of Matlin Patterson, which now owns 70% of holding company Flagstar Bancorp (NYSE:FBC). Our calls for more information to Mark Daly, Senior VP of Wholesale Lending were not returned.

Update - 2009-02-27: In an email to Brokers and Correspondents today, Flagstar has announced they will no longer accept "4th Party Originations" through their wholesale channel. What that means, specifically, is "super-brokers" (correspondents) who themselves fund and sell TPO (third-party) paper will no longer be able to sell those loans to Flagstar. The change goes into effect on March 31, 2009, by which time all such loans in the pipeline must be funded and delivered to be eligible for purchase.

This is not a cessation of their wholesale business. Flagstar will continue to accept loans originated directly by their approved Brokers and Correspondents. As stated in the memo, the purpose of this change is "to increase [the] oversight and control of loans being delivered to Flagstar." We spoke with Mark Daly, Senior V.P. Wholesale Lending Division, who confirmed that,

"Flagstar will continue to support its wholesale Correspondents and Brokers. This only applies to Correspondents who were themselves doing TPO."

Daly told us that 4th-party originations of this nature account for about one percent of Flagstar's overall wholesale production. Restrictions on TPO set forth by MI companies and the upcoming HVCC implementation were cited by Daly as the primary reasons for the change.

Flagstar has also completed its transactions to raise additional capital through private investors and funds from the Fed's TARP program. The additional $100 million in equity capital will also come from MP Thrift Investments L.P. ("MatlinPatterson"), the first $25 million of which has been completed as announced in a company press release dated 2009-02-17.

Update - 2009-01-30: It was a rough quarter to end 2008 for Flagstar according to their 8-K filing with the SEC today. From the press release:

"Flagstar reported a 2008 fourth quarter net loss of $200.3 million, or $(2.40) per share (diluted) as compared to a third quarter 2008 net loss of $62.1 million, or $(0.79) per share (diluted) and a fourth quarter 2007 net loss of $30.1 million, or $(0.50) per share (diluted). For the year ended December 31, 2008, Flagstar's net loss was $257.3 million, or $(3.57) per share (diluted), as compared to a 2007 net loss of $39.2 million, or $(0.64) per share (diluted)."

While the "bad numbers" went up, originations for the three months ended December 31, 2008 were down more than 19% from the previous quarter at $5.4 billion. But not all the numbers were discouraging. Reiterating previously announced arrangments, Flagstar indicated it expected to close on a deal today to raise $523 million in capital from several sources:

"$266.6 million from the U.S. Treasury's TARP Capital Purchase Program, $250 million from MP Thrift Investments L.P. ("MatlinPatterson"), an entity formed by MP (Thrift) Global Partners III LLC, an affiliate of MatlinPatterson Global Advisers LLC, and $5.32 million from management."

When the deal is signed and done, MatlinPatterson will have a 70% stake in Flagstar. The bank also announced it has entered into an agreement with MatlinPatterson to raise an additional $100 million in equity in the first quarter of 2009.

Update - 2009-01-02: Flagstar announced this week that it received preliminary approval to participate in the Treasury's Capital Purchase Program, enabling it to receive up to $266 million for the sale of stock to the Fed. Eligibility for the TARP funds is contingent upon Flagstar getting at least $250 million from the MatlinPatterson investment, for which NYSE has granted an exception preempting a vote by shareholders.

Update - 2008-12-18: Late yesterday Flagstar announced it would receive $250 million from an agreement with MP Thrift Investments L.P. ("MatlinPatterson"), an entity formed by MP (Thrift) Global Partners III LLC, an affiliate of MatlinPatterson Global Advisers LLC. Maitlin Patterson would acquire 70% ownership of Flagstar Bancorp, Inc. with an additional $2 million each coming from Chairman Thomas Hammond and Vice-Chair, President & CEO Mark Hammond. The deal is contingent upon obtaining TARP funding:

"Consummation of the transactions contemplated by the investment agreement is subject to, among others, the following conditions: (i) approval by the NYSE (ii) receipt by Flagstar of at least $250 million in proceeds from the sale to the U.S. Treasury of shares of preferred stock and warrants pursuant to the TARP Capital Purchase Program; and (iii) receipt of all required regulatory approvals."

Original Post - 2008-12-17: The stormclouds started gathering when Flagstar Bancorp reported a $61.2 million loss for the 2008 third quarter despite having nearly $6.7 billion in originations. Yesterday, Flagstar announced it had received notice from the New York Stock Exchange for failure to meet a continued listing standard:

"The NYSE noted specifically that the company was "below criteria" for the NYSE's price criteria for common stock because the average closing price of the company's common stock was less than $1.00 per share over a consecutive 30-trading-day period ending on December 9, 2008."

The notice came as no surprise as share prices took a precipitous drop following their Q3 Earnings Call on October 31st, subsequently falling and staying below the $1.00 mark after November 10th, 2008. To quote analyst Jason Ren with Morningstar "we are becoming concerned about Flagstar's business and finances."

Flagstar Bancorp, owned by holding company Flagstar FSB, has been a cornerstone of the mortgage lending industry, occupying notably high-ranking slots among the top retail, wholesale and correspondent lending channels alongside the likes of Countrywide, Wells Fargo and others. They also offer "captive" warehouse lines-of-credit for mortgage bankers delivering loans through their own wholesale and correspondent channels. In past months, we've mentioned a number of companies who have seen these relationships terminated for performance, pull-through or other reasons - it didn't immediately stand out in light of the overall industry's contraction. But the "numbers don't lie" adage came into play when we saw this snapshot from their 3Q Presentation. With an alarming amount of non-performing loans located in the distressed states of California, Michigan and Florida, it was perhaps only a matter of time before the reports soured. The company is now seeking additional capital to shore up its balance sheet, and prospects look dim.

Flagstar had waived any participation in TARP funding, but took an abrupt 180 degree on that stance with their third quarter results. There is no guarantee the bank will receive any funds, however, and that poses a question as to what the next step may be as Flagstar looks to raise additional capital.

Excerpted from a premium (membership required) article from Morningstar:

"Flagstar Bancorp has a nationwide mortgage lending presence through its retail branches, mortgage brokers, correspondent lenders, and origination centers. This concentration on home loans resulted in terrific returns earlier this decade, despite high deposit costs...

The alternative to a TARP-funded existence looks bleak. People may perceive a failure to obtain TARP funding as a vote of no confidence from Flagstar's regulators. This perception could become a reality and cause a quick withdrawal of deposits. Given this possibility, a government imposed "shotgun marriage" akin to PNC's takeover of National City would not be surprising, if regulators disapproved of Flagstar's financial health.

Overall, we think there is a high degree of uncertainty regarding whether or not Flagstar will continue on as an independent entity."

Only time - and the FDIC - will tell. An AP brief from 2008-12-16 offers this promise:

"U.S. Treasury Secretary Henry Paulson said Tuesday that he does not expect any more major financial institutions to fail during the current credit crisis."

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