New York Community joins bank exodus from home mortgages

New York Community Bancorp in Westbury, N.Y., an active and prominent multifamily and commercial real estate lender, is quitting the single-family mortgage business.

The $49 billion-asset company has agreed to sell its mortgage banking business in addition to assets covered by loss-share agreements with the Federal Deposit Insurance Corp. to two different companies. After the exit, it will refer customer requests for home mortgages to a third party, as it did before the 2009 acquisition of AmTrust Bank. "From our customers' perspective, nothing will change," a spokeswoman said. (The third party is yet to be determined.)

These moves will allow New York Community to “focus on our core business model,” including growth through acquisitions, President and CEO Joseph Ficalora said in a press release on Tuesday. The transactions will also generate liquidity to be redirected to higher-earning assets, improve returns through better efficiency and reposition the company’s balance sheet, he added. The company did not disclose the price for either transaction.

Banks have increasingly ceded market share to nonbanks as residential mortgage production costs skyrocket and servicing regulations become more onerous. Earlier this year, Citigroup announced plans to exit the servicing business and sell the servicing rights on $97 billion in outstanding mortgage debt to New Residential Investment Corp., a real estate investment trust that will subservice the loans through a nonbank affiliate, Nationstar Mortgage Holdings.

New York Community has struggled to avoid crossing $50 billion of assets, the threshold at which institutions are generally considered systemically important and face more regulatory scrutiny.

It has been selling loans in recent years so it can stay below that mark until it can find an acquisition that would give it sufficient scale. Its deal to buy the $14.2 billion-asset Astoria Financial fell through late last year after New York Community’s management couldn’t give Astoria a timeline on when the deal would close.

Freedom Mortgage Corp., a residential mortgage company, will buy the mortgage banking business, which New York Community acquired as part of its 2009 FDIC-assisted deal for AmTrust Bank. Freedom would get the origination and servicing platforms in addition to a mortgage servicing rights portfolio with a current unpaid principal balance of roughly $21 billion, New York Community said. The deal includes about $500 million in selected residential mortgage assets, Freedom said in a press release.

Freedom also expects to retain certain employees from New York Community’s Cleveland mortgage operations. After selling the mortgage business, New York Community would have 28 branches, $2 billion in deposits and more than 400 employees in Ohio.

Additionally, New York Community has received approval from the FDIC to sell the assets covered by loss-share agreements to an affiliate of Cerberus Capital Management, a private investment firm. The carrying value of these assets was roughly $1.9 billion as of March 31.

The transactions are expected to close in the third quarter and should result in a gain of roughly $90 million pretax for New York Community.

Bank of America Merrill Lynch is acting as the financial adviser, while Sullivan & Cromwell and Dechert are serving as legal counsel to New York Community. Freedom was advised by Classic Strategies Group; Zukerman Gore Brandeis & Crossman served as legal counsel.