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Meet the likely buyers of independent mortgage banks in 2023

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By the end of 2022, mortgage lenders will have initiated about $2.2 trillion in loans, about half of the $4.4 trillion in 2021, according to the industry. forecasterBut Brian Hale, who has helped multiple buyers looking for takeover targets for independent mortgage banks, sees more. brutal landscape ahead. He predicts that over the next 12 months, mortgage originations across the country could fall from $1.3 trillion to $1.7 trillion.

That’s an ugly scenario. Due to such a dramatic recession, Industry integration increase dramatically. As part of the restructuring, there will be winners (buyers) and losers — those whose names have disappeared from the company’s registry due to a sale, merger or failure, an observer told HousingWire.

Based on numerous interviews with mergers and acquisitions experts, we’ve dived into the IMB Buyer Profiles for 2023.

Who Wants To Be In The Mortgage Business?

Brett Luden, Managing Director Sterling Point AdvisorVirginia-based merger and acquisition advisory firm one third Of the 1,000 largest IMBs, they will disappear by the end of 2023 through mergers, acquisitions, or bankruptcies.

Most Home Builders … Leave That Surplus [potential business] But a smart homebuilder sees it and thinks, “There’s an opportunity there.”

Brian Hale, CEO, Mortgage Advisory Partners

Hale, Founder and CEO of California-based Mortgage Advisory Partnersaid the level of consolidation in the IMB industry “doesn’t shock me”. It could be a low number, he added.

Still, it’s clear that consolidation is already underway in the mortgage banking industry.Within the past week, he’s one of the largest retail mortgage lenders in the U.S., based in Charlotte. mobile home loan, announced the acquisition This adds $2 billion in annual loans, 250 mortgage professionals and 31 branches to its network.

Hale has added another large IMB based in California guild mortgage, also “appears to be in substantial acquisition mode.” Additionally, Hale said he is currently working with three clients looking to purchase IMB. Two of them, he said, are home builders and one is a “proptech/fintech” company.

Of course, Hale couldn’t name those clients, but did reveal the types of acquisition targets they’re looking to find as buyers.

“Profiles we created [for our clients] Need a company with multiple state licenses and all three tickets? fannie mae, freddie mac When Ginny May — So the buyer becomes a fully functioning mortgage company with a warehouse-agency relationship,” said Hale.

For the homebuilders he represents, Hale mortgage– Lending business is a smart way to take advantage “easily solvable problems,” Among other factors in such acquisitions.

“For every 100 buyers who walk into our community showroom, [a homebuilder] Between 8% and 15% of these buyers sell homes within the community,” said Hale. “The rest are still looking for homes.

“If you deliver 5,000 homes a year, that means there were 50,000 people looking to walk home across the platform, likely pre-qualified by the loan officer. and you have a relationship with them. Most homebuilders leave their surplus [potential business] But smarter home builders see it and think, ‘There’s an opportunity there.’ ”

Hale added that this is “why home builders want to get into the mortgage business.”

Plug-and-play and intermediate routes

David Hrobon, principal of Colorado-based mortgage advisory firm, said: stratmore group, Recent reports expects about 50 merger or acquisition deals to be announced or closed by the end of the year. This is 50% more deals than in 2018. Lender consolidation For the last 30 years.

Its main driving force is [loan-production] Volume from sellers is more valuable to buyers than sellers because of the synergies they bring.

Garth Graham, Senior Partner, Stratmor Group

“Lenders who go all out to refinance when business booms are reaping huge profits.” stratmore group“But the tide will always eventually turn, when many of those lenders are struggling to survive.

“We’ve seen a lot of that this year and will certainly continue in 2023.”

Large IMBs are likely to be acquired by large IMBs buying smaller IMBs, Graham said.

“The main driving force behind [loan-production] Volume from sellers is more valuable to buyers than sellers because of the synergies that buyers bring,” said Graham.

Thomas Yoon, President and CEO of a California-based non-QM lender strengthen capitalowned by the chairman of the company, Mike Thompson, said of the top 200 IMBs, M&A deals could be a viable option. However, for middle-tier lenders not in that group, Yoon expects so-called “plug-and-play” deals to be attractive as they are far more cost-effective.

“So it’s like we don’t want your debt. “They said, ‘We’re going to ruin the company. We’re just buying talent.’ [i.e., loan officers] in a pod.

Another way for some IMBs to survive, according to Ludden, may be to turn to brokerage.

These people have a lot of wealth, and if they choose to invest in a different direction, they may choose to make a profit and free up their capital to invest in their latest venture.

Brett Luden, Managing Director, Sterling Point Advisors

“We are looking correspondent “Lenders looking to go back to pure brokerage can forego a significant amount of cost,” he said. are changing to.”

“Recently, several lenders have told us they have no way to continue,” Ludden added. “Some let us know they are closing the door, others are trying desperately. cost cutting, is probably more than what I consider to be a feasible cost savings. ”

He said that some lenders origination focus to survive.

“Small East Coast lenders, for example, have obtained California licenses in the last few months and are now almost exclusively focused. on doing high value reverse mortgage transactions in California,” Ludden said.

2023 Buyer Profile

Ludden also expects IMBs owned by wealthy individuals and families to “be the biggest buyers.” Some of his IMBs that fit that description include: freedom mortgage, academy mortgage, gateway mortgage, new america fundraising, mobile home loan, CMG Financial, Vistal Point Mortgage, strengthen capital more.

However, Ruden emphasized that just because a wealthy individual owns it privately doesn’t necessarily mean it’s in buying (or selling) mode. He emphasized that each lender is unique and has different challenges, opportunities and balance sheets.

However, IMBs that are independently owned by a single wealthy investor or family tend to be more flexible when it comes to return on investment or “ROI demands” and often have Have a “cash pool” available. A deal,” Ludden said.

“I don’t think so [some of] It is possible that these companies are looking for an exit, but this contradicts the paper,” Ludden added. “These people have a lot of wealth and if they choose to invest in a different direction they may choose to make a profit and free up their capital to invest in their latest venture. .”

This business is very complicated in many ways. It’s also simple in a way. It helps a lot if you can actually make more money than you spend.

Brian Hale, CEO, Mortgage Advisory Partners

Hale added that foreign companies could even be looking for gateways to the world, such as European and Asian banks. US real estate market Consider acquiring an IMB franchise. But regardless of what combination of IMBs emerges in M&A next year, it is clear that the landscape of the industry is about to change in response to the new realities it faces.

Overall, given that 2023 volume is expected to decline by nearly 60% from its 2020 peak, we believe more meaningful capacity reductions will likely be required. Keef, Brouillette & Woods state. “…We also believe that there are limits to what companies can do. reduce the number of people Without sacrificing skill or compromising morale.

“We believe this creates challenges that may aid integration.”

Hale added that there are two main ways to ultimately get a mortgage: buying assets and buying stocks.

“The asset purchase allows us to leave behind the old business entity and all the risks associated with it. (the route that Hale is pursuing with his current client) requires conducting a thorough (and often costly) due diligence investigation because “the buyer bears all the guilt the seller committed from the beginning.” Essential, Hale said.

“…this business is very complicated in many ways,” added Hale. “It’s also simple in a way. If you can actually make more money than you spend, it helps a lot.”

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