The bank is a major lender to New York multifamily building owners. But what drove the cuts was its December acquisition of Flagstar, one of the largest residential mortgage servicers in the country.
Nationally, originations fell 46 percent last year and are expected to slip another 25 percent in 2023, CEO Thomas Cangemi said during a fourth-quarter earnings call Tuesday.
“Therefore, shortly after the [Flagstar] transaction closed we made the strategic decision to swiftly restructure the business,” Cangemi said, adding that his bank will also shutter 69 percent of its home lending offices.
The downsizing comes as scores of residential brokerages, mortgage firms and iBuyers have announced layoffs amid meager demand for home loans.
New York Community Bank’s multifamily lending in the quarter took a hit, too.
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Looming interest hikes prompt multifamily lending spree
The bank made $1.3 billion in multifamily loans in the last three months of the year, a 23 percent decline from the third quarter and a 55 percent drop from the fourth quarter of 2021.
Multifamily mortgages ended the year comprising a little more than half of the bank’s lending portfolio, down from three-fourths at the end of 2021. The backslide came even as the Flagstar acquisition bolstered its overall commercial lending to 33 percent of total loans from 25 percent a year before.
In the near term, New York Community Bank said, it doesn’t expect to increase its multifamily lending.
“We’re not seeing a lot of refinance activity; we’re not seeing a lot of purchase activity,” said Cangemi. Uncertainty around when the Fed will back off rate hikes has chilled deal volume nationally.
The bank does, however, see an opportunity to benefit from rising rates once its borrowers’ commercial mortgages come due. It expects its borrowers will need to refinance about $1 billion in loans over the next two years.
Cangemi said year-over-year rent growth in Manhattan should keep multifamily fundamentals healthy and assured that the firm’s “bread and butter, non-luxury, rent-regulated niche remains very strong.”
The latter message contrasts sharply with the picture of distress being painted by owners of rent-stabilized buildings, who say their expenses have outpaced rents and that some of their properties may be impossible to refinance when their loans come due, especially with rates having increased.
New York Community Bank said it remains slightly “liability sensitive.” That is, as rates continue to rise the bank will likely need to pay higher interest on deposits — liabilities — before it reaps higher interest from loans or assets.
If a bank is liability sensitive, net interest income typically drops when interest rates rise. The Hicksville-based bank said it expects at least two more rate hikes this year — one at this week’s Federal Reserve meeting and another in late March.
Its awkwardly timed acquisition of Flagstar did lift the bank’s mix of non-interest-bearing deposits, benefitting its balance sheet. The adjustment helped boost the firm’s net interest income to $379 million, an 18 percent jump over the same quarter last year.
The firm reported flat earnings overall, with diluted earnings per share of 30 cents, the same as a year ago.