Flagstar Bancorp, Inc. (Flagstar) is a Michigan-based savings and loan holding company. The Company conducts its business through its subsidiary, Flagstar Bank, FSB (the Bank), a federally chartered stock savings bank. During the year ended December 31, 2008, the Company operated 175 banking centers (of which 42 are located in retail stores, such as Wal-Mart) located in Michigan, Indiana and Georgia. It also operates 104 home loan centers located in 27 states. During 2008, the Company opened 12 banking centers, including six in Georgia, five in Michigan and one in Indiana. During 2008, Flagstar closed one of its in-store branches located in Indiana and consolidated the operations with one of its nearby banking centers.

The Company operates in two segments: banking and home lending. The banking operation offers a line of consumer and commercial financial products and services to individuals and to small and middle market businesses through a network of banking centers in Michigan, Indiana and Georgia. The home lending operation originates, acquires, sells and services mortgage loans on one- to four-family residences.

Banking Operation

The banking operation collects deposits and offers a range of banking services to consumer, municipal and commercial customers. It collects deposits at 175 banking centers and through the Internet. It also sells certificates of deposit through independent brokerage firms. In addition to deposits, the Company borrows funds by obtaining advances from the Federal Home Loan Bank (FHLB). It offers a range of deposit products ranging in maturity from demand-type accounts to certificates with maturities of up to ten years.

During the year ended December 31, 2008, the commercial real estate loan portfolio totaled $1.8 billion, or 19.6% of its investment loan portfolio, and non-real estate commercial loan portfolio was $24.7 million, or 0.3% of investment loan portfolio. Flagstar offers warehouse lines of credit to other mortgage lenders. Its banking operation also offers a range of other value-added, fee-based banking services. In addition, it also offers consumer loans to individuals that include second mortgage loans or home equity lines of credit.

Home Lending Operation

The home lending operation originates, acquires, sells and services one- to four-family residential mortgage loans. At December 31, 2008, approximately 61.5% of its interest-earning assets consisted of mortgage loans on single-family residences. The Company utilizes three production channels to originate or acquire mortgage loans, which includes retail, broker and correspondent.

In a retail transaction, the Company originates the loan through a network of 104 home loan centers, as well as from 175 banking centers located in Michigan, Indiana and Georgia and the national call center located in Troy, Michigan. During 2008, the Company closed $2.6 billion of loans utilizing this origination channel, which equaled 9.5% of total originations. In a broker transaction, an unaffiliated mortgage brokerage company completes the loan paperwork, but the loans are underwritten on a loan-level basis to its underwriting standards and supplies the funding for the loan at closing (also known as table funding) and thereby become the lender of record. In a correspondent transaction, an unaffiliated mortgage company completes the loan paperwork and also supplies the funding for the loan at closing.

Mortgage loans acquired or originated by the home lending operation are underwritten on a loan-by-loan basis rather than on a pool basis. All mortgage loans acquired or originated by the home lending operation are collateralized by a mortgage on a one- to four-family residential property. The home lending operation also makes short-term loans for the construction of one- to four-family residential housing throughout the United States, with a concentration in the southern Michigan market area. During 2008, the Company originated a total of $80 million in construction loans.

The Company sells a majority of the mortgage loans it produces into the secondary market on a whole loan basis or by securitizing the loans into mortgage-backed securities. It has also securitized a smaller portion of the mortgage loans through a process known as private-label securitizations. The home lending operation also services mortgage loans for others. During 2008, it serviced portfolios of mortgage loans that averaged $46.2 billion, respectively.