New York Community quickly downsizes its newly bought mortgage unit

New York Community Bancorp is slashing part of its newly acquired mortgage business in an effort to cut costs during what's expected to be another challenging year for mortgage lending.

The Long Island-based company, which completed its twice-delayed acquisition of Flagstar Bancorp eight weeks ago, announced Tuesday that it is closing 69% of Flagstar's retail home lending offices and shifting to a branch footprint-only model. It has also continued an ongoing reduction in the number of mortgage origination-related workers to 800, down from a high of about 2,100 in 2021.

New York Community expects to incur $12 million to $13 million in one-time restructuring costs — mostly in the form of severance pay, but also as a result of early terminations of lease and vendor agreements, executives said during the company's fourth-quarter earnings call.

Adobe Stock

Last year, before the deal closed, Flagstar cut mortgage costs as loan originations slowed in a rising rate environment. Those moves included trimming the Troy, Michigan, company's mortgage workforce by 7% at the end of the third quarter.

While Flagstar made attempts to rightsize the business, those efforts turned out to not be enough, given the gloomy outlook for the mortgage industry, New York Community CEO Thomas Cangemi said on the call. Annual origination volume is expected to fall 25% in 2023 after dropping 46% last year, he said.

"They've been cutting and cutting and cutting [but] at the end of the day, we … wanted to make sure that this business is not losing any money," Cangemi said. "We're not going to be losing money in the current environment.

"The goal here was not to bleed," he added.

New York Community's restructuring announcement follows reports by HousingWire and the Detroit Free Press that the $90.1 billion-asset company was laying off hundreds of mortgage workers in a retreat from direct-to-consumer mortgages.

On Tuesday, a New York Community spokesperson did not immediately respond to questions seeking additional details about the cuts. Flagstar's website lists 94 home loan centers, including in states such as Massachusetts, Connecticut, North Carolina, Illinois, Colorado and Washington that have no Flagstar or New York Community branches.

Together, New York Community and Flagstar operate 395 branches in nine states — New York, New Jersey, Michigan, Florida, Wisconsin, Ohio, Indiana, California and Arizona.

New York Community is one of several banks making changes to its mortgage business as higher rates have slowed borrower demand. Wells Fargo, one of the most active mortgage lenders in the nation, laid off hundreds of mortgage workers last year and exited correspondent lending.

Citigroup trimmed its mortgage staff last fall as the market cooled, and BayFirst Financial Corp., a community bank in St. Petersburg, Florida, said last fall that it would discontinue its nationwide network of residential mortgage production offices, citing a "precipitous decline in mortgage volumes and the uncertain outlook for mortgage lending over the coming quarters."

Earlier this month, North American Savings Bank in Kansas City, Missouri, said it would close its consumer direct mortgage business and lay off an unspecified number of employees. 

New York Community's Cangemi said that making "these types of significant restructuring efforts" was a "difficult decision," but he argued that there will be a silver lining when mortgage activity rebounds.

"With this magnitude of the business and our presence, we have an opportunity to really drive revenue at the appropriate time if there's a resurgence … in the mortgage business," he said.

The $2.6 billion acquisition of Flagstar is the largest deal in New York Community's history. It was announced in April 2021 and was originally expected to close during the fourth quarter of that year, but it wound up being extended twice as the two companies awaited regulatory approval and sought a charter conversion.

Now that the merger is complete, New York Community Bancorp will remain the parent company, while the banking subsidiary will be known as Flagstar. Executives have said the Flagstar name better reflects the company's expanded geography.

In early 2024, all nine bank brands that currently operate under the New York Community umbrella are to be rebranded as Flagstar.

Excluding mortgage restructuring expenses, the company is still aiming to achieve $125 million in cost savings as a result of the acquisition. About half of that total is expected to show up this year, Cangemi said.

Commercial banking

How New York Community is remaking itself after buying Flagstar

December 23, 2022 1:41 PM

A major goal of the acquisition was to transform New York Community, which historically has operated as a thrift, into a traditional commercial bank with fuller banking relationships, a lower-cost deposit base and a more diversified loan portfolio.

During the fourth quarter, non-interest-bearing deposits rose to 21% of total deposits, up from 9% in the prior quarter, largely because of the addition of Flagstar. On the loan side, New York Community's long-standing multifamily lending portfolio shrank to 55.3% of total loans, down from 76% in the third quarter, as a result of the Flagstar deal.

Commercial and industrial loans grew to 17.8% of the company's loan portfolio, up from 10% the previous quarter.