Flagstar To Outsource Its Default Servicing Business

Full-service bank Flagstar Bancorp Inc. has decided to outsource its non-core default servicing business, which represents less than 4% of its overall servicing book, to a ‘recognized’ servicer.

In a release, Flagstar did not name the servicer to which it would be outsourcing the delinquent loans, nor did it indicate whether the outsourcer was domestic or offshore. Up to 300 employees would be affected, the company said.

The company said it was making the move in order to focus on its national mortgage business and community banking in Michigan, as well as diversify its earnings. The transition is expected to occur by the end of the third quarter.

Flagstar said it would try to re-deploy as many of the affected employees as possible to other parts of the company.

The company said it expects to realize significant cost savings as a result of the move.

‘Improving company-wide efficiency and carefully managing expenses is consistent with our plan to build long-term shareholder value,’ said Sandro DiNello, president and CEO of Flagstar. ‘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.’

The move comes at a time when banks are increasingly outsourcing their servicing operations in an effort to hold down operating costs. With an expanding regulatory framework driving greater complexity in back-office operations, some of which require investment in additional staff, many are looking to outsource the onerous work involved in default servicing to domestic, near-shore and offshore BPO firms.

Headquartered in Troy, Mich., Flagstar Bank has 111 branches in communities across Michigan.


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