He points to where it all begins…
Efforts to guard against market volatility seem prescient at Michigan-based Flagstar Bank, where deliberate moves have been undertaken in bracing against a mercurial economy.
According to Lee M. Smith (pictured), the company’s president of mortgage, it all begins with the corporate culture.
“We’re a very team-oriented business,” he said in an interview. “We’re transparent and communicative. That’s the foundation of our culture. What makes us who we is our people and our culture, and I think we have a unique business model as it relates to mortgage.”
He gives an example cantered around the company’s origination business, noting Flagstar originates in all six channels – bulk; delegated correspondent; non-delegated correspondent; broker; distributed retail; and direct lending -- while competitors focus on a mere handful. The company is assured a healthy balance sheet as a result, Lee explained.
“We’re a one-stop shop whatever the mortgage needs are, whether to find a borrower, broker or lender given that comprehensive flywheel,” he said.
To accomplish that, the bank has used team lift-outs and strategic acquisitions, including purchasing the Bear Stearns correspondent book; its acquisition of Opes Advisors, which strengthened Flagstar’s retail lending capabilities; its purchase of a warehouse lending portfolio from Santander Bank; lift-out of the direct-to-consumer team from Capital One, enabling business to grow exponentially – growing the from $500 million in 2018 to $7 billion this year.
Another tool in the bank’s arsenal comes in the form of residential mortgage-backed securities (RMBS), making the bank the third-largest provider across the industry. “All of that is backed up by what I believe is the best mortgage origination team in the industry,” Smith said.
Such methodical growth has yielded some impressive stats for the bank:
- Flagstar’s subservicing (servicing for others) has grown from zero to over one million loans in Q3;
- Flagstar is the sixth largest subservicer and sixteeneth largest servicer;
- Flagstar is the sixth largest bank mortgage originator;
- Flagstar is the third largest warehouse lender;
- Flagstar operates in six mortgage channels: broker, delegated correspondent, non-delegated; correspondent, bulk, retail, and direct-to-consumer;
- Flagstar ranked second in the country as an issuer of residential in Q3.
British-born Smith moved to the US in 2002 to work for the restructuring group of Ernst & Young, according to a company-provided biography. He has been at Flagstar for eight and a half years. “We’ve tried to create a model that is interest rate agnostic and still be successful,” he said.
Amid a climate of fast-changing markets, the agnostic approach could prove key in taking volatility out of earnings. A test of that model could be imminent after the new year begins.
