Major lender sheds bad mortgages to protect profit

by Diana Aqra19 Jul 2013

A major lender has said it will outsource the servicing of its defaulted loan portfolio to cut costs.


In effort to improve performance and maintain itself in the mortgage business, Flagstar Bank will be outsourcing the servicing of its defaulted loan portfolio. The lender said its "non-core" default servicing business accounted for less than 4% of its overall portfolio.


The company said it will realize “significant cost savings” due to the outsourcing. The strategy is in line with its efforts to focus on mortgage origination and performing loan servicing, according president and CEO Sandro DiNello.


"By focusing our mortgage servicing business on core, performing mortgages, we seek to enhance Flagstar's profitability and be even better positioned to serve our clients and capitalize on value-enhancing opportunities. Further, this action will better position our servicing department for long-term growth," DiNello said.


The company has said it will “redeploy as many employees as possible”, but said the move would impact some 300 employees currently in the default servicing department. The transition is to occur by the end of the third quarter. 


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