Banking giant agrees to buy billions worth of home loans originated at lower interest rates
New York Community Bancorp (NYCB), the parent company of Flagstar Bank, has struck a deal to offload approximately $5 billion in mortgage warehouse loans to JPMorgan Chase.
The sale, aimed at "improving its capital, liquidity and loan-to-deposit metrics," is expected to significantly boost NYCB's key financial ratios.
This move comes three months after MPA reported that NYCB was in talks with investors to secure capital for financing a residential mortgage portfolio as mounting pressures squeezed the regional lender. The portfolio is backed by mortgages originated at lower interest rates.
According to NYCB's projections, the sale will add a substantial 65 basis points to the company's CET1 capital ratio, bringing it to a pro-forma 10.8% as of March 31, 2024, after accounting for the preferred conversion.
"Consistent with my guidance during our recent earnings call, we are moving forward quickly to implement our strategic plan, which focuses on improving our capital, liquidity and loan-to-deposit metrics,” NYCB chief executive Joseph Otting said in a news release.
The proceeds from the sale will be reinvested into cash and securities. The transaction is also set to favorably impact NYCB's loan-to-deposit ratio, with the pro-forma loan-to-deposit ratio expected to decline to a healthier 104% – down from 110% at the end of the first quarter of 2024.
While offloading a substantial portion of its mortgage warehouse loans, NYCB said it remains committed to its mortgage business.
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“The mortgage team at Flagstar built a first-class warehouse business, which is reflected in our ability to execute on an accretive transaction with JP Morgan,” Otting said. “The mortgage business remains an important business for the company, and we will continue to provide our mortgage customers and partners with the same great service that they have come to expect from Flagstar."
The sale is expected to close in the third quarter of 2024, pending due diligence, final agreement terms, and standard closing conditions.
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