After announcing late Monday that it intends to acquire Stearns Lending’s delegated correspondent lending business, Flagstar Bancorp is positioned to grow its already sizable footprint in the mortgage business, FBR & Co. analysts said in a note to clients.
According to the FBR analysts, Paul Miller and Tim Hayes, Flagstar’s deal with Stearns Lending will make Flagstar the fourth largest correspondent mortgage loan originator in the country, a statement also noted in Flagstar’s announcement of the deal.
Beyond that, the FBR analysts write that they believe the Stearns acquisition could be the first in a series of acquisitions for Flagstar as it looks to grow its business.
“We view this transaction to be a positive for the company and believe that it will be the first of several tuck-in acquisitions to come as the company looks to deploy excess capital and expand its mortgage banking business,” Miller and Hayes write.
The analysts note that Flagstar did not provide any formal guidance to investors about the deal, but Miller and Hayes state that they believe the deal will be accretive to Flagstar’s earnings and will strengthen the bank’s third-party origination platform.
Miller and Hayes also write that Flagstar should see an advantage from a “cost of funds perspective” moving forward, and provide options for expansion.
“Additionally, this acquisition could open up doors into other markets, such as selling mortgage servicing rights lines and warehouse lines to these newly acquired customers,” the analysts write.
Overall, the FBR analysts say they are positive on the deal for Flagstar, and they reiterate their “outperform” rating for the bank’s stock.
“We believe that this transaction won't necessarily change the landscape for Flagstar, but that it will be a net positive for earnings and likely will not be that expensive nor pose much integration risk,” FBR’s analysts note.
“Flagstar has been a net seller of MSRs over the past few quarters, but we expect the company may continue to expand its MSR portfolio following a seemingly more favorable interest rate and regulatory environment,” the analysts conclude.
