Last year was extraordinary for the mortgage banking sector. The COVID-19 pandemic caused the Federal Reserve to lower its benchmark interest rates to the floor in order to support the economy. In addition, the Fed began large-scale purchases of mortgage-backed securities in order to push down longer-term mortgage rates.
While much of the mortgage business is conducted by non-bank lenders, a few banks have a large presence in it. One of them is Flagstar Bancorp (NYSE: FBC). In its latest earnings report, it gave an update on the mortgage banking business, which is the main driver of Flagstar’s bottom line. I think the analyst community may be underestimating the opportunity here.