Flagstar Begins Charging Pair Off Fees

The times they are a changin’. Flagstar sent out a memo today documenting their expectations for pair offs. In other words, if you lock a loan and it closes elsewhere, expect to receive a bill from Flagstar. Some Flagstar clients are reporting $400 invoices per pair off. Loan fallout is yet another pressure banks are experiencing in these interesting times.

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To: All Flagstar Bank Wholesale Lending Customers
From: Wholesale Lending
Subject: Best Efforts Delivery
Date: 3/4/09
Memo #: 09044

IMPORTANCE OF MANAGING LOCK FALLOUT

During these uncertain times, as many of our competitors continue to exit the wholesale lending
arena, we pride ourselves on being a relationship lender that is constantly reinforcing our
commitment to the wholesale lending business channel.
Unfortunately, over the last few months the wholesale channel has experienced an unacceptable
level of lock fallout. To help our customers improve their overall performance, we’ve taken numerous
steps to help them reduce lock fallout. Our efforts, which have included offering pricing incentives,
supplying online tools to help customers monitor their own performance, and stressing the
importance of customers honoring their pledge of “best efforts”, have helped reduce our overall lock
fallout.

DEFINING BEST EFFORTS DELIVERY (BROKERS AND CORRESPONDENTS)

In this market many customers have lost sight of what the term “best-efforts delivery” means when
securing a rate lock. Our broker and correspondent agreements (Section 2.3b) state that even for
“best efforts” locks, the “delivery of Mortgage Loans closed by Seller that are locked-in with Flagstar
is mandatory.” This means that if a loan closes that is locked best efforts, it must close with Flagstar.
While a certain level of borrower-driven fallout is expected, heightened levels of fallout are not only
unhealthy for Flagstar, but for our industry as a whole.

BEST EFFORT PAIR OFF FEES

As part of our broker and correspondent agreements, Flagstar reserves the right to charge a pair off
fee on any loans locked best efforts that ultimately close with another investor.
We have been closely monitoring all of our customers (brokers and correspondents) with
unacceptable levels of lock fallout and will begin charging pair-off fees on any loan that we find
closed with another lender after it was locked best efforts with Flagstar.
Loans that were locked with Flagstar but for any number of reasons have become undeliverable to
Flagstar (denied in underwriting, unexpected AUS results, UW condition that could not be met, etc.)
will be exempt from a pair-off fee.

CONCLUSION

We hope that you respect and understand this decision regarding lock fallout. Just as you decide to
pursue a wholesale partnership based on the benefits of conducting business with us, we must
manage our alliances so the benefits outweigh any associated costs of doing business. We feel this
new direction will be in the best interest of our ongoing partnership. Thank you in advance for your
business and continued support.