Flagstar Profit Warning Leads to Price Target Cuts

September 25, 2007 No Comments »

Flagstar Bancorp shed light on its mortgage lending business in their mid-quarter Conference Call this morning, saying its profit margins would dip considerably as housing woes continue to weigh in.

According to Chief Executive Mark T. Hammond, the company’s profit for the sale of $24 to $27 billion in home loans should be markedly less than originally expected.

The mortgage lender also said its loan-loss provision will rise by $12 million to $14 million in the third quarter, mainly due to a higher rate of delinquency in its commercial real-estate portfolio.

Flagstar cited difficulties in selling its non-agency mortgage loans, noting that it had “curtailed” the origination of such loans until the secondary market normalizes.

It would appear that the lender only originates conforming loans, which is a growing trend thanks to the complete collapse of the secondary mortgage market.

CEO Mark Hammond did note that the challenges facing the company are short term in nature.

Lehman Brothers analyst Bruce Harting cut his price target from $15 to $14, while FBR analyst Paul J. Miller cut his price target from $13 to $11 a share.

The Michigan savings and loan dropped 85 cents, or 7.30% to $10.80 in midday trading, hovering close to its 52-week low of $9.59.

Flagstar Bancorp, Inc., is the largest publicly held savings bank headquartered in the Midwest, with 155 branches in Michigan, Indiana, and Georgia and 72 home loan centers in 18 states.

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