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Flagstar Reports Fourth Quarter Loss, May Suspend Dividend

Flagstar Bancorp reported a fourth quarter net loss of $30.1 million, or 50 cents per share, compared to net earnings of $6.9 million, or 11 cents per share during the same period a year ago.

For all of 2007, the Michigan-based bank and mortgage lender lost $39.2 million, or 64 cents a share, compared to earnings of $75.2 million, or $1.17 per share in 2006.

The losses were attributed to weaker gains on sales of mortgage servicing rights (“MSRs”), rising credit costs, and an impairment in the value of its securities available for sale portfolio and its trading portfolio.

Fourth quarter loan production was $6.7 billion, up from $5.4 billion during the fourth quarter of 2006, pushing full year production to $26.7 billion, an increase of 32.2 percent from $20.2 billion in 2006.

Flagstar increased its allowance for loan losses to $104.0 million, or 1.28 percent of loans held for investment, up from $45.8 million, or 0.51 percent of loans held for investment, as of December 31, 2006.

Net charge-offs of loans increased to $12.2 million during the fourth quarter, up from $5.2 million during the same period a year ago, while non-performing loans increased to $197.1 million, up markedly from $57.1 million as of December 31, 2006.

As of the end of the year, subprime loans made up approximately one percent of total assets at the bank.

Single-family residential first mortgage loans held for investment had an average Fico score of 719 and an average original loan-to-value ratio of 73.4%.

During the conference call, the bank said it will only originate home loans that can be sold to the GSEs or the FHA, and warned that it may suspend its dividend in an effort to conserve cash until the mortgage mess eases.

Despite that, the bank said yesterday it was re-launching its jumbo loan program that was temporarily halted after Aurora shut down shop.

In related news, Moody’s Investors Service downgraded the long-term deposit rating for Flagstar Bank to the lowest investment grade of “Baa3” from “Baa2” because of ongoing deterioration in the residential and commercial mortgage markets.

Moody’s said it held a negative outlook on the bank, noting that further delinquencies and defaults are likely to increase credit costs for Flagstar and strain earnings.

Shares of Flagstar were down $1.07, or 12.88 percent, to $7.24 in early afternoon trading on Wall Street.

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