New York Community Bancorp's stock price slid 6% Wednesday as investors digested news of its pullback from the mortgage warehouse sector, where it is the second largest bank lender to nonbank mortgage companies.
It was unclear whether the Long Island-based bank is fully exiting the sector — or merely selling its $5 billion loan portfolio to JPMorgan Chase, the only other bank whose warehouse division is bigger. Both NYCB and JPMorgan declined to comment on the record.
But Inside Mortgage Finance reported on Wednesday that NYCB is indeed leaving mortgage warehouse lending. NYCB shareholders didn't seem thrilled, worrying that the bank's getting rid of a solid business that it bought as part of its 2022 acquisition of Flagstar Bancorp in Troy, Michigan.
A broader retreat could add
Even so, mortgage industry sources emphasized that NYCB's retreat may well be isolated and due to its very specific troubles this year — namely, its loans to New York apartment complexes — not mortgage companies.
"There has not been pullbacks or shutdowns," said consultant David Lykken, who noted that he's seen numerous "ebbs and flows" in his 50-year mortgage career. "This is the first indication of a warehouse lender exiting — possibly exiting — the business, and even that isn't clear based on the announcement that came out."
Lykken said there is "growing concern" that other banks may pull back, adding that it's possible but unlikely. With high interest rates dampening activity, mortgage companies are far from tapping out their available credit lines at banks, he said.
"We have so much excess warehouse capacity at this stage," said Lykken, the founder of the consultancy Transformational Mortgage Solutions. "It's hard to imagine that this is gonna put us into a liquidity crisis from a warehouse standpoint."
Kevin Parra, the chairman and CEO at Plaza Home Mortgage, said that's one reason he's not concerned about a broader pullback. Mortgage companies have also learned a key lesson from the 2007-09 financial crisis — that
"It's really good to be diversified when it comes to your lenders," Parra said, noting many learned that the hard way by shutting down during the mortgage crisis.
And banks continue to do "really well" in the mortgage warehouse space, Parra said, noting strong performance at Texas Capital Bancshares, Western Alliance Bancorporation and First Horizon Corp. to name a few.
"It's not like there's actually less warehouse capacity out there. It's just going from one bank to another bank," Parra said of NYCB's warehouse lending sale.
Financial regulators have recently flagged vulnerabilities in the nonbank mortgage sector due to its funding structure. In
The announcement by NYCB was far from clear about the company's future plans in the mortgage warehouse business. It said it was selling about $5 billion in warehouse loans to JPMorgan — roughly the size of the mortgage warehouse loan portfolio that it reported at the end of March. But the company said nothing about untapped loan commitments from clients and whether those are also heading to the nation's largest bank.
NYCB CEO Joseph Otting, who joined the company last month as part of a turnaround effort led by former Treasury Secretary Steven Mnuchin, said in a news release the sale will improve the bank's capital and liquidity positions.
"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, without clarifying whether the business will live on at NYCB.
Otting did say the "mortgage business remains an important business" for NYCB and that the bank "will continue to provide our mortgage customers and partners the same great service that they have come to expect from Flagstar."
What that means is not entirely clear, though Inside Mortgage Finance reported NYCB will continue its business of lending for mortgage servicing rights.
A series of banks have pulled back from the warehouse market over the years, and a complete exit by NYCB would remove another major player. Comerica, a regional bank in Dallas, was
JPMorgan is the largest lender in the sector with some 20.8% market share, according to Inside Mortgage Finance Data. NYCB's Flagstar unit is next with 12.3%.
The deal is an "easy pick-up of loans" for JPMorgan, Jefferies analyst Ken Usdin wrote in a note to clients.
It's another instance of the $4.1 trillion-asset bank absorbing business from a struggling lender, though the $5 billion portfolio it's gaining is far smaller than its acquisition of much of First Republic Bank after the San Francisco-based bank failed last year.
For NYCB, the sale of its $5 billion warehouse portfolio would significantly improve its financial standing. The sale is expected to close next quarter, pending due diligence reviews and other closing conditions.
The bank has significantly more loans today than it does deposits, and getting rid of the warehouse loans would improve its loan-to-deposit ratio from 110% at the end of March to 104%.
It will also significantly increase the company's cash position, giving it more flexibility than committing its funds toward loans. The company's cash and securities would rise to 24% of its total assets, up from 20% at the end of March.
And the company would increase its capital base, giving it a larger cushion to protect against losses in its loan portfolio. A large chunk of the portfolio consists of loans to rent-stabilized New York multifamily buildings, which have come under stress amid higher costs and tougher rent increase policies.
The deal would increase its common equity tier 1 capital ratio to 10.8% under the sale, up by 62 basis points.
"We are moving forward quickly to implement our strategic plan, which focuses on improving our capital, liquidity and loan-to-deposit metrics," Otting said Wednesday.
Chris Marinac, an analyst at Janney Montgomery Scott, gave the company credit for making tough choices as it continues reworking its business model. A full turnaround is going to "take several quarters," Marinac said, likening the situation to the start of a chess game.
"You have to make some initial moves on the board before you can go after the bigger pieces," Marinac said.
