The biggest and most surprising mortgage deals of 2023

December 28, 2023 8:00 AM

Four successful business men joining two puzzle pieces

From the roll ups of small- and mid- sized lenders through the mega transaction that finally combined the two largest names in mortgage technology, 2023 resulted in significant reshuffling in the corporate landscape.

While observers expected a high level of industry consolidation entering the year as high interest rates had a severe impact on originations, some of the names pushed out of business were surprising. That included companies that went public during the COVID-19 boom.

For quite a few of these lenders and vendors, how they conduct business is the difference between survival and becoming just another consolidation play, said Garth Graham, senior partner at Stratmor Group.

"We do a lot of (mergers and acquisitions) and all the consolidation action, the sellers are the unbalanced IMBs," Graham said. He noted these companies tend to have "all of their eggs in one basket," such as not owning any servicing rights which can give them fee income on a countercyclical basis.

They had to sell every loan for cash and are now a part of the 80% of the industry that is losing money.

"They don't have any real way to kind of fight their way through it other than hope until they capitulate and then they sell," Graham said.

But as tough as it has been for lenders in 2023, it has even been tougher for the vendors, Graham declared. Vendors typically get paid on the number of units processed, not on the dollar volume of mortgages produced.

"And the units are down so substantially, that [the vendors are] fighting for every dollar and [at the same time] every lender is fighting their own cost basis," Graham said.

As a result, Graham said lenders are asking, "Well, do I still really need this tech product? Or do I really need this tech service?" That is driving the dealmaking on the vendor side.

Here is a digest of some of the more notable transactions of 2023:

Mortgage tech leaders finally complete their deal

Any discussion of merger activity in 2023 needs to start with the finally completed Intercontinental Exchange purchase of Black Knight. But to get that deal accomplished and end an antitrust lawsuit, two other transactions had to happen.

Black Knight sold the business around its Empower loan origination system to Constellation Software; that company now operates as Dark Matter.

In a separate transaction, Constellation Software was also the purchaser of the Optimal Blue product and pricing engine, which is operating as a separate business entity.

FOA shifts gears to reverse

Finance of America at the end of last year moved away from forward mortgage production and instead focused on reverse mortgages through the purchase of No. 1 lender American Advisors Group.

In February, as part of a further paring down of its company, FOA's Incenter business sold its Agents National Title underwriting and Boston National Title agency operations to private mortgage insurer Essent Group.

But this wasn't the only divestiture in the title insurance segment during 2023. Troubled underwriter Doma in three separate deals, sold off its production offices as part of its latest business restructuring.

And Old Republic International, which has spent much of the past decade running a zombie mortgage insurance business that it on several occasions attempted to revive, finally sold that operation to Arch MI.

Homepoint winds down remaining businesses

But the saddest consolidation story might belong to Homepoint. Its saga ended in August when what remained of the Ann Arbor, Michigan-based company was acquired by Mr. Cooper.

That followed the sale of its sole remaining origination channel, wholesale, to The Loan Store.

Homepoint was started in 2015, and went public in 2021, among the other companies that took advantage of the good times. Over the years it made several acquisitions, including Stonegate Mortgage. At one point it had multiple business channels, including a warehouse lending unit, NattyMac.

But adverse business conditions that impacted the entire mortgage industry particularly affected Homepoint.

Better’s SPAC deal closes in August

Better.com is another firm whose merger transaction was a long-running saga. The company first announced it was going public through a merger with special purpose acquisition company Aurora Acquisition Corp. in May 2021.

But bad publicity generated by the mishandling by CEO Vishal Garg of its first round of layoffs that December created a cloud over the transaction.

After speculation the deal wouldn't be completed at all, the merger closed in August.

PacWest exits non-QM, Tessar starts new firm

PacWest Bancorp acquired Civic Financial Services at the start of February 2021. But an early 2023 management change at the bank resulted in a reevaluation of the lender's operations.

Then-Civic CEO William Tessar was forced out and shortly thereafter, PacWest elected to exit the non-qualified mortgage business.

In May, PacWest sold what remained of Civic to Roc360. However, employees were not a part of the transaction and quite a few ended up with Tessar at CV3, his new venture.

Prior to the Civic deal, in March, Roc360's parent company bought Finance of America's commercial mortgage business.

Homebridge sells retail offices

While Figure Technologies' attempt to purchase all of Homebridge Financial got canceled in the summer of 2022, the New Jersey-based lender then turned around and also divested a piece of its business in March.

That deal involved CMG Mortgage picking up the retail channel. Homebridge retained its two wholesale brands.

Ironically, CMG is a partner in Figure Technologies' private label home equity line of credit product offering, announced in July.

Guild keeps on buying

Then there is serial acquirer Guild Mortgage, which has completed multiple transactions over the past two years.

Among the pickups in the recent spree include last December's buy of Inlanta Mortgage. Legacy Mortgage was purchased in February. The following month, it was Cherry Creek Mortgage. In April, it added eight branches from Fairway Independent Mortgage.

Guild took a breather until the end of August, when it acquired First Centennial. And it teased further expansion in its third quarter earnings call.

Rithm prevails in takeover battle. Is an IPO next?

The most contentious deal of the year ended up being Rithm Capital's buy of Sculptor Capital Management.

When Rithm announced the transaction, it was seen as a precursor to a possible initial public offering involving the mortgage business. Sculptor was seen as bulking up Rithm's asset management operations, thus making a spin-out more financially viable.

But Sculptor founder Dan Och quickly took issue with the transaction and threatened to vote his shares against the company's management. In October, Och reversed position and decided to support the merger.