Flagstar shares reverse gains on higher putback reserve
(Reuters) - Flagstar Bancorp (FBC.N) said it would set aside more money to cover mortgage putback requests in the third quarter and that mortgage titans Fannie Mae and Freddie Mac were reviewing loans it made in the last three years.
Flagstar shares fell 3 percent to 90 cents in afternoon trading on Wednesday. They had risen 12 percent earlier in the day after the lender reported its first profit in four years.
"For the third quarter of 2012, we would anticipate that our provision expense would be 10 to 20 percent above that of the second quarter," Chief Financial Officer Paul Borja said on a post-earnings conference call.
The bank set aside $46 million in the second quarter to cover repurchase requests.
Government-backed entities (GSEs) Fannie Mae and Freddie Mac have started to increase their requests to U.S. banks to buy back soured home loans made during the housing boom.
The loans had been bundled into mortgage-backed securities and bought by outside investors, who now allege they do not meet guarantees made by the banks when they were sold.
The bank also said the GSEs were reviewing files on loans made during 2009 to 2012. So far, the vast majority of mortgage putbacks have been related to loans made during 2005 to 2008.
Flagstar received $60 million in repurchase demand from the 2009-2012 vintage of loans in the second quarter, more than three times what it received from that vintage a year ago.
FIRST PROFIT IN FOUR YEARS
Flagstar reported a second-quarter net income applicable to common shareholders of $86 million, or 15 cents per share, compared with a loss of $74.9 million, or 14 cents per share, a year earlier.
Its bad loan provisions halved to $58.4 million.
Flagstar, which received $266.7 million in bailout funds, originates residential mortgage loans throughout the United States. It has been badly hit by the fall in U.S. home values and the ensuing housing crisis.
Flagstar shopped its shares at a discount and sold branches over the last two years to speed its return to profitability. It last posted a profit in 2008. (Reporting by Jochelle Mendonca in Bangalore; Editing by Supriya Kurane, Maju Samuel)
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