Mr. Cooper Group has struck a deal to acquire a third-party origination (TPO) platform and $356 billion in mortgage servicing rights (MSRs), advances and subservicing contracts from Flagstar Bank, owned by New York Community Bancorp (NYCB).
As part of the deal, the Dallas-based servicer and lender will pay $1.4 billion in cash, funded via available cash and drawdowns of existing MSR lines. The transaction, which will add 1.3 million customers to Mr. Cooper and improve NYCB’s capital level, is expected to close in the fourth quarter of 2024.
Mr. Cooper has opportunistically acquired business to grow its servicing portfolio, which reached $1.206 trillion in the second quarter of 2024, according to Securities and Exchange Commission (SEC) filings. The company acquired Home Point Capital and Roosevelt Management Co. in 2023.
“We have the operational capacity to onboard Flagstar’s customers with a smooth and positive experience, which will be our top priority,” Mr. Cooper chairman and CEO Jay Bray said in a statement. “We have long respected Flagstar as a mortgage servicer, and we feel very closely aligned with their cultural values.”
NYCB, which concluded a merger with Flagstar in December 2022 and acquired some of Signature Bank‘s assets, liabilities, and deposits from the Federal Deposit Insurance Corp. (FDIC) in March 2023, has faced a confidence crisis related to its commercial real estate portfolio.
The bank recently received a $1 billion equity investment from a group led by former U.S. Department of Treasury Secretary Steven Mnuchin’s private equity firm, Liberty Strategic Capital. To improve its capital and liquidity position, it also sold $5 billion in warehouse mortgages to JPMorgan Chase Bank, resulting in its exit from the mortgage warehouse lending space.
Flagstar employees were informed of the sale by its President of Mortgage Lee Smith late Wednesday afternoon in a call. Sources told HousingWire that 1,100 employees across three divisions will be offered the opportunity to join Mr. Cooper.
The pending transaction appears to be the largest mortgage M&A deal of the 2022-2024 cycle, and represents something of an exit for Flagstar, which has been a player in the TPO space since 1987.
Flagstar’s TPO business is largely correspondent, though it does also work with mortgage brokers.
NYCB expects the transaction to add 60 basis points to its CET1 capital ratio. The bank will continue to provide residential mortgage products to retail and private wealth customers though it will transition to a regional bank model.
“While the mortgage servicing business has made significant contributions to the bank, we also recognize the inherent financial and operational risk in a volatile interest rate environment, along with increased regulatory oversight for such businesses,” NYCB’s chairman, president, and CEO Joseph M. Otting said in a statement.
Jefferies LLC is the financial advisor to NYCB in the transaction.
