Will Flagstar Survive ZoMa and Rebound? We Like the Leverage

October 29, 2025 | A number of readers of The Institutional Risk Analyst have asked us about Flagstar Bank, National Association (FLG), the NYC bank f/k/a New York Community Bank. FLG beat earnings estimates in Q3 2025 and continues to make progress toward resolving some of its most problematic credit exposures. It is no small irony that the inflation that is crushing New York consumers and landlords alike may also help the bank shed multifamily exposures.

There is a growing crowd of greater fools forming who just must acquire New York City commercial real estate. As of the end of the third quarter of 2025, lenders had initiated foreclosures on more than 60 commercial properties in New York City. This does not represent nearly all commercial real estate defaults, however, which can include missed payments and renegotiated or modified loans. Since lenders are avoiding taking over residential multifamily properties in New York via foreclosure, the actual number of multifamily defaults is likely much higher.

Flagstar's stock price cratered in Q1 2024 after revelations about weak internal controls and credit exposures to rent regulated multifamily commercial properties. Moody's downgraded the bank's credit rating to "junk status" in February 2024, citing high risks and a large quarterly loss. In the beginning of Q4 2025, the bank merged with its former parent company, Flagstar Financial, and the unitary national bank is now the survivor.

The big question is what is going to happen to FLG and other New York area banks in the event that the far-left New York State representative Zohran Mamdani (ZoMa) is elected mayor next week. Regional banks including privately held Apple Bank, Valley National Bancorp (VLY), Flushing Financial Corporation (FFIC) as well as money centers such as JPMorgan (JPM) and Citigroup (C) have exposure to both rent-stabilized properties and buildings that are at least partially regulated.

We wrote about the prospects for lenders in the event of a win by ZoMa earlier this year (“Zohran Mamdani's NYC Bank Dead Pool”). The investors and lenders in New York multifamily assets are clearly not advantaged by a ZoMa win.  That said, we think that ZoMa’s campaign has a lot in common with his clueless democrat/socialist antecedent, Bill de Blasio, which was more about winning office than doing anything of substance, good or bad. 

Is the impending ZoMa administration in NY City Hall any worse than the devastation caused by the 2019 Housing Stability & Tenant Protection Act of 2019? How does the prospect of a ZoMa regime impact lenders and developers?  We think that the panicked crowd of New York landlords have greatly exaggerated the impact of ZoMa vs the 2019 legislation. ZoMa is a slick salesman but has even less substance that the disastrous Mayor Bill de Blasio. 

The big issue confronting ZoMa and all NYC officials is inflation. “According to Zillow, the average rent for all bedrooms and all property types in New York is $3,595, compared to the national average of $2,000,” Newsweek reports. “While rents have increased in recent years, wages in the city have not kept up.”  And clearly rents have not kept up with operating costs for multifamily buildings. As we have noted on more than one occasion, there is no way to make New York City affordable for anyone but the ultrarich. 

Can Lee Smith Save Flagstar?

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