New York Community Bancorp Faces Potential Buyer Interest for Mortgage-Servicing Rights
New York Community Bancorp, a financial institution with a portfolio of office properties and multifamily loans, is facing a challenging situation. With its stock price plummeting in recent weeks and the need to strengthen its balance sheet, the bank may have found a solution to its problems. Analysts at KBW suggest that New York Community Bancorp could consider selling its mortgage-servicing rights to raise capital and cover potential loan losses.
The news has already had a positive impact on the bank’s stock price, which saw a 10% increase after dropping 23% in the previous session. This indicates that investors are responding positively to the potential sale of mortgage-servicing rights as a means to raise capital.
KBW analysts Christopher McGratty, Bose George, and Alexander Bond believe that New York Community Bancorp could tap into its $78 billion in unpaid balances of mortgage-servicing rights to raise capital through a potential sale. The portfolio, which has a carrying value of $1.1 billion, could help the bank meet regulatory balance sheet requirements for banks with $100 billion or more of assets.
The sale of mortgage-servicing rights could provide a significant boost to the bank’s common equity tier one (CET1) ratio, which is a key measure used by regulators to assess a bank’s liquidity and strength. KBW analysts estimate that the sale could increase the CET1 ratio by 10 to 15 basis points.
KBW has identified potential buyers for the mortgage-servicing rights, including financial companies such as Annaly Capital Management and Two Harbors Investment Corp. These companies specialize in mortgage servicing rights and are more likely to be interested in acquiring them. Additionally, JPMorgan Chase & Co., which has acquired mortgage-servicing rights in the past, could also be a potential buyer.
One advantage for New York Community Bancorp in selling its mortgage-servicing rights is the ability to retain its escrow deposits if it continues as a mortgage subservicer. KBW believes that as long as the company keeps the subservicing on any mortgage servicing rights sold, it should be able to maintain the deposits, especially since most buyers are non-banks. However, if the bank decides to sell the entire servicing operation, holding onto the escrow deposits may become more challenging.
New York Community Bancorp operates one of the largest mortgage subservicers in the U.S., with a portfolio of over one million loans and unpaid balances of around $300 billion. This extensive portfolio makes the potential sale of mortgage-servicing rights a substantial opportunity for the bank to raise capital and strengthen its balance sheet.
The bank has already faced challenges this year, including the need to cut its dividend and the disclosure of “material weaknesses” in its accounting protocols. These issues, coupled with the delay in its financial filings, have caused New York Community Bancorp’s stock to fall by 73% so far this year.
While the potential sale of mortgage-servicing rights offers hope for the bank, it remains to be seen how it will navigate these challenges. However, the interest from potential buyers indicates that there may be light at the end of the tunnel for New York Community Bancorp. Investors will be closely watching how the bank proceeds and whether it can successfully raise capital through this avenue.
