Flagstar to Sell Off $40.7 Billion in MSRs

Flagstar Bancorp Inc. has announced that the bank has entered into a definitive agreement to sell a substantial portion of its mortgage servicing rights (MSRs) portfolio to Matrix Financial Services Corporation, a wholly-owned subsidiary of Two Harbors Investment Corporation. The agreement provides for the sale of $40.7 billion in aggregate unpaid principal balance of residential MSRs, which represented 55 percent of Flagstar's mortgage loans serviced-for-others portfolio as of September 30, 2013. Covered under the agreement are certain mortgage loans serviced for both Fannie Mae and Ginnie Mae, originated primarily after 2010.  The acquisition is expected to close before the end of the year, and is subject to customary closing conditions. A central component of this transaction is that Flagstar will act as the sub-servicer on all of the mortgage loans underlying the MSRs being sold under the agreement. As a result, Flagstar will receive sub-servicing income and retain a portion of the ancillary fees to be paid as the sub-servicer of the loans. Unless terminated earlier in accordance with its terms, the sub-servicing agreement will remain in effect so long as mortgage loans underlying the MSRs remain outstanding. "Today's transaction is an important step in our continued effort to augment our mortgage origination business, thus better positioning Flagstar to deliver improved financial performance and increased shareholder value," said Alessandro (Sandro) DiNello, Flagstar's president and chief executive officer.  "We periodically evaluate the sale of MSRs as a way to reduce the concentration of the asset and strengthen the quality of our capital, and we are pleased to be able to achieve a significant transaction in MSRs while also retaining the underlying sub-servicing associated with the asset itself." "This transaction significantly reduces our MSR concentration and demonstrates continued progress in management's efforts to strengthen the balance sheet," said Lee Smith, Flagstar's Chief Operating Officer. "Equally important, we are able to utilize Flagstar's servicing platform to generate on-going servicing revenue and diversify the Company's operations. We believe our re-branded servicing platform presents an attractive opportunity for organizations that are looking to purchase MSRs and have Flagstar sub-service those loans, and we believe there is a growing market for such services."