Flagstar Bank has begun transitioning its muni business to a full-service public finance, muni and nonprofits lending platform from a muni tax-exempt leasing capability.
"We saw an opportunity to expand our client coverage and our product coverage and … moving [the business] to capital markets, so that we can better integrate this broader capability," said Alex Wallace, a 30-year-plus veteran of the muni industry who leads Flagstar's public finance group.
The shift started in late 2025. It includes "reorganizing the existing portfolio within Flagstar's Capital Markets unit, expanding public sector client coverage and enhancing municipal and nonprofit sector product capabilities and credit functions," according to a press release.
"This transition represents a significant evolution in our municipal and nonprofit sector business strategy," said Rich Raffetto, co-president, co-chief operating officer and chief banking officer at Flagstar in a statement. "By combining our traditional banking strengths with expanded tax-exempt capital markets and debt finance capabilities, we're positioning ourselves to serve municipal and nonprofit clients with comprehensive solutions tailored to their unique financing needs."
The first phase, which has been completed, focused on integrating the strategies across the bank with Flagstar's different product and relationship management verticals, such as government banking, education and nonprofit, and healthcare, Wallace said.
In the second phase, set to start later this year and be completed by early 2027, will launch muni broker-dealer capabilities and expand client coverage across banking, sales, trading and underwriting. The bank's application has been submitted to FINRA, Wallace said.
Additionally, Flagstar will offer a wide-ranging product suite, such as tax-exempt and taxable loans, lines of credit, tax anticipation notes, bond anticipation notes, student housing and public-private partnership infrastructure project financing, among others, the release stated.
The business will integrate both muni credit products as well as underwriting, so "we can do bank loans in the private market and we can do securities in the public market, and ultimately that benefits our clients because we can give them best execution," Wallace said.
Flagstar — one of the largest regional banks, operating around 340 locations across nine states — recently hired four senior executives to help this transition. The hires include Wallace and Steve Nelli, who worked together 30 years ago to transform First Union Bank's municipal leasing business to a broader municipal credits business, Wallace said.
Nelli has nearly 40 years of muni finance experience and will lead municipal credit products. He reports to Mike Mason, head of credit products for commercial and private banking.
Patrick McCarthy, with over 30 years of state and local government banking experience, leads Flagstar's government banking division. He reports to Doug Pagliaro, senior director of institutional banking.
Kenneth Haber, with more than three decades of muni and nonprofit banking, leads Flagstar's newly created education and nonprofits banking industry vertical. He reports to Rita Dailey, executive vice president and head of commercial deposits, payments, and institutional banking.
"The completion of phase one demonstrates our commitment to diversifying our loan portfolio and strengthening our position as a leading regional bank," Flagstar's Raffetto said in a statement. "With enhanced public finance capabilities and a talented team in place, we're ready to deliver comprehensive and coordinated municipal and nonprofit lending and banking solutions."
Flagstar serves as a financial agent to the U.S. Treasury and supports federal and state government payment modernization initiatives, the release noted.
