We primarily originate or purchase residential mortgage loans throughout the
country and sell them into securitization pools, primarily to Federal National
Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation
("Freddie Mac") and the Government National Mortgage Association ("Ginnie
Mae") (collectively, the "Agencies") or as whole loans. In addition,
we originate or purchase residential first mortgage loans, consumer loans, commercial
loans and warehouse loans included in held-for-investment loan portfolios. Our
revenues include net interest income, income from banking services we provide
customers, and noninterest income from sales of residential first mortgage loans
to the Agencies, the servicing of loans for others and the sale of servicing
rights related to mortgage loans serviced for others. The combination of our
home lending, broker and correspondent channels gives us broad access to customers
across diverse geographies to originate, fulfill, sell and service our residential
mortgage loan products.
Our business also includes the activities conducted through our Community Banking
segment. This segment provides deposits and fee based services to consumer,
business, and mortgage lending customers through its Branch Banking, Business,
and Commercial Banking, Government Banking, Warehouse Lending and Held-for-Investment
Portfolio groups. We maintain a portfolio of commercial and industrial and commercial
real estate loans with our commercial customers and we originate or purchase
residential mortgage loans through referrals from our branches, consumer direct
call center and our website, flagstar.com. We leverage the customer relationships
we have gained throughout our branch network to cross-sell products to existing
customers and increase our customer base.
Our principal lending activities consist of the origination of residential
first mortgage, second mortgage, HELOC and commercial loans generally located
within our primary market and service areas.
Deposits include retail, commercial, government and company controlled deposits.
Through our branches and commercial relationships, we gather deposits and offer
a line of consumer and commercial financial products to individuals and businesses.
We continue to focus our efforts towards the growth of our core deposits, which
includes checking, savings and money market deposit accounts. We believe core
deposits represent a more stable funding source. Government deposits are gathered
from local municipalities primarily across the state of Michigan and are comprised
mainly of property taxes that are collected.
The Federal Home Loan Bank provides funding on a fully collateralized basis
to us. We are currently authorized through a resolution of our board of directors
to apply for advances from the Federal Home Loan Bank using approved loan types
as collateral, such as residential first mortgage loans, home equity lines of
credit, commercial real estate loans.
We have arrangements with the Federal Reserve Bank of Chicago to borrow as
appropriate from its discount window. The discount window is a borrowing facility
that is intended to be used only for short-term liquidity needs arising from
special or unusual circumstances. The amount we are allowed to borrow is based
on the lendable value of the collateral that we agree to provide. To collateralize
the line, we pledge commercial and industrial loans that are eligible based
on Federal Reserve Bank of Chicago guidelines.
The banking industry is highly regulated. Statutory and regulatory controls
are designed primarily for the protection of depositors and the financial system,
and not for the purpose of protecting our shareholders. The following discussion
is not intended to be a complete list of all the activities regulated by the
banking laws or of the impact of such laws and regulations on us and the Bank.
Changes in applicable laws or regulations, and in their interpretation and application
by regulatory agencies, cannot be predicted and may have a material effect on
our business and results.
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