New York Community Bancorp is the holding company for one of the largest thrift banks in the United States. It operates 242 branches and serves the New York metropolitan area and small parts of Florida, Arizona, and Ohio. It also has a commercial banking business.

Bank brands of New York Community Bancorp include Queens County Savings Bank, Roslyn Savings Bank, Garden State Community Bank, and First Savings Bank of NJ.

New York Community Bancorp CFO Thomas Cangemi speaks to IBTimes about the thrift bank industry and private-label mortgages.

IBT: Can you give our readers some background on New York Community Bancorp and the scope of its business?

Thomas Cangemi:  We’re a $42-billion company [in assets]; and one of the top 16 banks by market capitalization -- approximately $7.7 billion. [We have] $30 billion in deposits – we’re ranked probably number 22 by deposits. [Moreover, we are] probably [in the] top 20 by assets in the U.S.     

IBT: So what do you see in terms of loan demand in the U.S.?

Thomas Cangemi: The demand we’re seeing now is predominantly on refinancing – and only the pristine borrowers are getting credit.  

They [usually] have to qualify for Fannie and Freddie parameters in order to get financing in this environment, because the country went through a fairly significant shock on credit, and the underwriting standards have been tightened quite a bit.

IBT: I’ve heard the market is not originating private-label loans, and you need the government to be in this market. Is that because of regulation or is it something that the private sector has chosen to do?

Thomas Cangemi: There are a number of reasons. The major answer is that there is not really a securitization market yet for private-label mortgages. 

So jumbo prime* mortgages – people with the best credit, with significant equity in their homes – they’re paying a premium to get financing and not that many banks are doing it because [the jumbo mortgages sit on the bank’s balance sheet] for 15, 30 years, and that’s a long-term commitment for banks. 

Historically, banks would package and securitize [jumbo mortgages] in the secondary market. There is not really a strong secondary market currently.  What needs to happen in the next few quarters  – say, [in the] first half of 2011 – is for the securitization market to open up. Wall Street has to start packaging good quality credit that are properly underwritten, know what the rules are, and lend to people who can pay their mortgages.

There are plenty of people who can pay their bills. There’s plenty of people who want to borrow money. But the spread between conforming – which is agency (Freddie and Fannie) paper – and private-label paper, which is the jumbo market, is too wide.

IBT: What explains this lack of securitization by Wall Street? 

Thomas Cangemi: Government intervention, the ratings agencies are still not ready to jump on the private-label market, and there is a lot of re-regulation on what banks need to put on their balance sheet as part of a recourse provision for the securitization market.

I think [Wall Street] is moving closer to doing private-label securitization, so we need a standard that banks can follow. Once that’s written and understood, the banks can price in their economics. I don’t think it’s years away, [but] quarters away.

Once that happens, I think it’ll be a strong catalyst for the U.S. economy.

IBT:  If I understand you correctly, there is a demand for jumbo loans.

Thomas Cangemi: Tons of demand. But right now, the spread is too wide, and there are very few banks that will take a 30-year mortgage [that can’t be securitized] on their balance sheet. Think about it – would you commit to a 30-year loan at 5 percent? It’s a long-term interest rate issue that banks don’t like to play. Historically, they would package [mortgages] up and carve it up in various tranches. 

Banks would, [however], take on their balance sheet adjustable rate mortgages, which are more interest rate-risk friendly. 

IBT:  Are there any other products that you see a great demand for?

Thomas Cangemi: Multi-family [residential] loans that are rent-controlled and/or rent-stabilized in the New York market. That’s our niche business and we’re seeing significant demand for that product right now. Rates are relatively low, people are refinancing, and there are opportunities to buy assets at reasonable prices.

People are back in the market because they’re buying these buildings on a cash-flow basis and we’re willing to fund them.  We’re seeing a pent-up demand on lending and we believe that in our core market, the cash-flow buildings have not suffered a [severe] deterioration in value, unlike some other parts of the United States. 

That also goes to commercial real estate as well. Even commercial real estate has held up reasonably well in New York City. 

IBT: Are over-zealous regulators preventing banks from lending? What do you think about that allegation?

Thomas Cangemi: I would have to disagree with that. The problem with that stereotypical accusation is that [conditions] depend on what market you’re serving. 

If you’re serving the Florida or Las Vegas market, they went through much more of a shock in their systems. Banks [there] don’t have the capacity to lend; they are under "regulatory scrutiny" given their capitalization or they may be considered troubled banks, so they’ve been given significant handcuffs on future lending until they clean up their balance sheets. 

But throughout the United States, banks want to lend. As long as the yield-curve is steep – which it relatively is currently – there is good money [to be made] in lending. 

Again, it’s regionally-impacted – certain regions are more troubled than others and they’re doing less lending. The Mid-Atlantic and Northeast are doing extremely well. 

IBT:  So it’s not the regulators’ fault?

Thomas Cangemi: I would never blame the regulators. Things went awry in the United States because of aggressive lending, which in my opinion was done by Wall Street, not the community banks.

However, some community banks lent to construction, and given the substantial drop in pricing, they got caught. 

But the regulators have a job to do, and they have to regulate these banks, and a lot of banks are considered troubled for many [valid] reasons. 

IBT:  Your bank is in a position to acquire other community banks. What do you think of them in general as targets for acquisition?

Thomas Cangemi: We expect to see the most transactions in the history of banking in the upcoming years. 

The troubled banks that survived the "FDIC process" will either will be sold to the FDIC or sold as distressed property. There will be plenty of bank deals to do.

There will be distressed deals, strong bank deals, MOE [mergers of equals] deals. The landscape of banking will change and you will see substantial consolidation – more so on the small banks side.

IBT: And why are these banks attractive to acquire?

Thomas Cangemi:  Given that regulation will be much more stringent, you need to extract more cost-savings to run a balance sheet – economies of scale play a very meaningful role.

Also, [when you acquire a bank, you will gain that] customer base to fund your franchise on more of a retail perspective than a wholesale perspective **.

The customer deposit is truly an asset to the acquirer and gathering more customer deposits versus wholesale deposits makes you a more attractive franchise.

IBT:  Is there some grand strategy that New York Community Bancorp is pursuing?

Thomas Cangemi: We will seek to maximize value for shareholders through accretive acquisitions, being a dominant player in the multi-family space, growing that business in the five boroughs [of New York City], and offering a broad array of products in our mortgage banking operations as a new line of business for us throughout the country.

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*Jumbo mortgages are mortgages that exceed the limit imposed by Fannie and Freddie. Prime jumbo mortgages are just jumbo mortgage loans to highly-quality borrowers.

**For sources of funding, banks rely on retail customer deposits and wholesale funding (which includes federal funds, foreign deposits, internet deposits, and brokered deposits).  Wholesale funding, as we have recently witnessed in the financial crisis, are not as reliable as retail customer deposits.