NYCB selling $5B of loans as it overhauls balance sheet

JPMorgan Chase picking up mortgage warehouse loans

NYCB Selling $5B of Loans As It Overhauls Balance Sheet
From left: New York Community Bank CEO Joseph Otting and JPMorgan Chase CEO Jamie Dimon (Getty, New York Community Bank)

Coming off a chaotic first quarter, New York Community Bank is working quickly to revamp its balance sheet.

The regional bank agreed to sell $5 billion of mortgage warehouse loans to JPMorgan Chase, Bloomberg reported. Terms of the transaction were not disclosed, but the regional bank previously told investors that it was nearing such a deal at par, excluding a transaction fee.

The deal is a positive sign for multifamily owners in the New York metro area, who benefit from having a well capitalized NYCB as a financing option.

Warehouse lending involves giving a line of credit to a loan originator. The funds are then used by a borrower to pay for a mortgage when the borrower is purchasing property.

Proceeds from the loan sale will be held in cash and securities, NYCB said in a statement on Tuesday. The sale is expected to close in the next quarter.

The deal comes as the bank is “moving forward quickly to implement our strategic plan, which focuses on improving our capital, liquidity and loan-to-deposit metrics,” NYCB chief executive officer Joseph Otting said in a statement. He added that NYCB’s mortgage business remained an important part of the company.

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NYCB is overhauling its balance sheet after it was forced to cut its dividend in January. The bank’s exposure to New York commercial real estate — particularly rent-regulated multifamily buildings — has proven to be a threat to the regional lender’s bottom line. 

In addition to the dividend cut, the first quarter also brought a surprising loss and a plummeting stock price, which is down 62 percent year-to-date, though it received a bump when news of the loan sale broke. For the first quarter, NYCB disclosed “internal controls issues” tied to “internal loan review, resulting from ineffective oversight.”

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In March, NYCB shored up its books with a $1 billion infusion, which came courtesy of a group of investors led by former Treasury Secretary Steven Mnuchin. The injection helped the regional bank avoid a fate that befell several notable counterparts in the past year: collapse.

This month, NYCB reported that defaulted loans added up to $800 million in the first quarter, nearly a 400 percent increase year-over-year. Multifamily accounted for $339 million of those non-performing loans.

The bank set aside $225 million in case of future loan losses, bringing its total loss reserves to $1.2 billion.

Holden Walter-Warner