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Flagstar Bancorp

(FBC) - Get Flagstar Bancorp, Inc. Report

warned late Tuesday that weak loan production would keep second-quarter earnings below Wall Street estimates.

The Troy, Mich., mortgage lender forecast second-quarter earnings of 65 cents a share. That's in line with the company's earlier forecast, but down sharply from the year-ago $1.34 a share and 4 cents shy of the Thomson First Call analyst consensus estimate.

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Flagstar blamed slowing residential mortgage loan production for the shortfall. The company said loan production fell to $9 billion in the latest quarter from $17.5 billion a year earlier. The second quarter's production also marks a 5% decline from first-quarter levels.

The company also posted June 30 rate-lock commitments, which broadly measure future loan demand, of $2.6 billion, down from $5.6 billion at the end of the first quarter.

The setback comes as financial companies across the nation grapple with the effect of a changing interest rate policy from the Federal Reserve. The board's policymaking arm last week boosted short-term rate targets for the first time in four years.

"Although the production volume is down significantly from last year's record highs, overall production levels are strong compared to historical averages. The decreased loan production achieved in the second quarter was in-line with expectations during this part of the interest rate cycle," CEO Mark Hammond said. "We have appropriately adjusted the expenses associated with our mortgage banking operation and our retail banking operation continues to perform up to our expectations."

On Tuesday, Flagstar rose 6 cents to $19.94.