Flagstar Returns To Profitability After Shedding Billions In Multifamily, CRE Loans

Flagstar Bank reported its first profitable quarter since it came perilously close to collapse. 

The bank, formerly New York Community Bancorp, totaled $21M of net income in the fourth quarter after losing $45M the quarter before, according to an earnings report posted Friday. Still, the lender faces $3B in troubled loans.

“We feel we're very much on track to make Flagstar one of the best-performing regional banks in the country,” Chief Financial Officer Lee Smith told investors during a conference call Friday morning. 

For the year, Flagstar was $177M in the red, compared to its $1B loss in 2024. Executives previously said they didn’t expect the institution to become profitable again until 2026.

The results surprised Wall Street, as the bank reported $557M in revenue, 4% better than the consensus estimate of $534M. Earnings per share came in at 5 cents, above the projected 3 cents. Flagstar’s stock was down 1% at around noon, despite beating analysts' estimates.

NYCB nearly imploded in March 2024, a year after it purchased Flagstar Bank and a portion of Signature Bank’s assets, including $13B in loans. The deal ballooned the bank's size and increased regulatory scrutiny. Shortly after the acquisition, the bank disclosed that commercial real estate delinquencies were rising, causing investors to frantically sell off their shares. 

The bank would have collapsed almost a year to the day after Signature failed were it not for a $1B equity infusion from a group of investment firms led by former Treasury Secretary Steven Mnuchin.

Under the new leadership, NYCB rebranded to Flagstar Financial and began purging its problem loans. At the end of 2023, the bank held $50.6B in CRE loans. That amount dropped to $38.3B by the end of 2025, according to an investor presentation.

In the fourth quarter alone, Flagstar lowered its CRE exposure by $2.3B, $1.5B of which was attributed to multifamily.

The institution has historically been a major multifamily lender in New York City. However, a package of rent reforms called the Housing Stability and Tenant Protection Act of 2019 dramatically shifted the rent-stabilized investment landscape with restrictions on raising rents and removing apartments from stabilization. 

Many landlords' business models — for which Signature Bank and NYCB were among the most active lenders — were upended overnight, and assets with rent-stabilized units plummeted in value. In 2024, 57% of the city’s rent-stabilized buildings were in the red after paying debt service and other expenses, according to a study by nonprofit affordable housing providers National Equity Fund and Enterprise Community Providers.

Under its new leadership, Flagstar has reviewed 97% of its New York City rent-regulated loan book since the beginning of 2024. The book balance stands at $14.6B, with more than $9B tied to buildings where at least half of the units are regulated, according to the company’s presentation. The portfolio’s nonaccrual loans total $2B.

For the portfolio, the bank has recorded $1.7B in payoffs and $375M in charge-offs since the beginning of 2024. Its allowance for credit losses is 5.6%.

Flagstar has been particularly burdened by a $564M loan tied to more than 5,000 rent-stabilized units previously owned by Pinnacle Group. The assets were sold earlier this month at a closely watched and heavily scrutinized bankruptcy auction.

The bank backed the sale as it attempted to recover losses, ultimately swallowing a nearly $113M write-off. The loan isn't included in the fourth quarter’s delinquency numbers, as the transaction hasn’t yet closed. 

But the bank isn't in the clear yet. New York City Mayor Zohran Mamdani has promised to freeze rents on stabilized properties, which would severely complicate landlords’ ability to repay debts.

During the call, Flagstar CEO Joseph Otting said the bank has more of a window to work out loans because former Mayor Eric Adams stacked the Rent Guidelines Board before leaving office, stymieing Mamdani’s ability to freeze rents this year.

“We've started to spend a lot of time looking out, forward thinking, as if those rents were flat for two or three years and expenses went up a couple percent,” Otting said.

Executives added that the bank has been examining its exposure to landlords facing fines, violations and liens, including those on the city’s Worst Landlord Watchlist. Mamdani’s administration cited the state of Pinnacle’s complaint-ridden portfolio — and subsequent sale to a landlord with ongoing violations — as a reason to halt the bankruptcy process.

“We all feel that we want people to live in safe and sound environments and are supportive of continued correction of any violations amongst our portfolio,” Otting said. “We're now watching that very closely, and we do expect borrowers, when they have violations, to cure those.”

Executives on the call said the New York gubernatorial election this year could further impact its borrowers, especially if it results in changes to 2019 rent laws. Otting cited the approximately 50,000 “ghost units” in the city, which landlords keep intentionally vacant because it isn’t economically feasible to bring them to habitable conditions. 

“Now that we've had a number of years to look back on [HSTPA], I think there are certain parts of that that I think there could be common ground on how we fix the issue,” Otting said. “Is there an economic model that could revise that rule, the way it was written, to make those [apartments] available to come back on the market and reimburse the owners?”

Across Flagstar’s loan book, net charge-offs for the year totaled $351M, down from $892M in 2024. Efforts to stabilize the balance sheet have allowed Flagstar’s provision for credit losses to decrease to $3M, down $142M year-over-year — or 98%.

The bank isn’t out of the CRE game yet. Otting said Flagstar plans to increase originations in the sector as it offloads problematic New York City loans. 

“This isn't a big dollar amount. We're talking about a couple billion in originations in a year, just as we've seen the acceleration in the paydown,” Otting said. “As we look across our franchise in Michigan, California, Florida, those market sourcing opportunities and the commercial real estate will help to offset some of that outflow.”

CORRECTION, JAN. 30, 3:25 P.M. ET: A previous version of this story referred to Flagstar Bank as Flagstar Financial. In October, Flagstar Financial merged with its holding company Flagstar Bank. The story has been updated.