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Flagstar to Sell $40.7B in Servicing Rights to REIT

The holding company for ""Flagstar Bank"":"":https://www.flagstar.com/ announced late Wednesday the bank unloading a large portion of its mortgage servicing rights (MSRs) to a real estate investment trust (REIT) in a $500 million deal.


Flagstar Bancorp, Inc., announced a deal with Matrix Financial Services Corporation, a subsidiary of ""Two Harbors"":http://www.twoharborsinvestment.com/, an REIT. According to Flagstar's announcement, the agreement covers the sale of $40.7 billion in unpaid principal balance on residential MSRs, an amount making up about 55 percent of Flagstar's mortgage loans ""serviced-for-others"" portfolio.

The pool of loans covered in the deal is made up of loans originated mostly after 2010 and serviced for Fannie Mae and Ginnie Mae, the announcement says.

Per the companies' agreement, Flagstar will act as the sub-servicer on all of the loans underlying the MSRs, taking income from sub-servicing and retaining a portion of the ancillary fees. That portion of the agreement will remain in effect as long as the loans remain outstanding.

The acquisition is expected to close by the end of 2013.

For Flagstar, the deal represents an opportunity to reduce the firm's MSR concentration and strengthen its balance sheet, says Lee Smith, COO.

""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 these loans, and we believe there is a growing market for such services,"" Smith went on to say.

Speaking on behalf of his company, Two Harbors president and CEO Thomas Siering said the transaction ""represents substantial ongoing progress related to our MSR investment initiative.""


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