First Federal Bank buys BNC National's mortgage business

First Federal Bank is buying certain assets and liabilities of BNC National Bank's mortgage division, including the Bismarck, North Dakota-based institution's consumer-direct technology platform.

The acquisition of BNC's mortgage assets will expand First Federal's origination footprint in the Midwest, as well as in Arizona. Terms of the transaction, which is expected to close in the second quarter, were not disclosed.

Currently, First Federal Bank originates loans out of its existing locations in Georgia, Wisconsin and Florida, but the acquisition will give the bank entry into Overland Park, Kansas; Moline Illinois; Bismarck, North Dakota and Phoenix, where BNC maintains offices, according to a press release published Wednesday.

Lake City, Florida-based First Federal, with assets totaling over $3.6 billion, expects to bring onboard "substantially all employees" of BNC National Bank's mortgage division. Additionally, the acquisition includes BNC's consumer-direct mortgage platform.

The platform will transition to the First Federal brand within a few months of the transaction closing date, the community bank said.

"Our mission is to provide solutions from a financially stable institution that is a great place to work and bank," First Federal President and CEO John Medina said. "This acquisition underscores our commitment to our customers and the residential mortgage sector."

BNC decided to sell its nationwide residential mortgage origination business "after extensive deliberations and concluding that this change in strategy is in the best long-term interest," said Chairman Michael Vekich. The market reacted positively to the sale, with shares of BNCCorp, the parent of BNC National Bank, increasing Thursday morning.

BNC National Bank joins a growing list of banks that have downsized or exited the mortgage space in recent months.

JP Morgan Chase, New York Community Bancorp, Citigroup, Renasant Bank and First Internet Bank all said they planned to either shrink their home finance operations or exit the space altogether. Meanwhile, Wells Fargo, still one of the largest mortgage providers in the nation, announced it would exit correspondent lending in early January.

Banks have scaled back their participation in Federal Housing Administration lending since the Great Financial Crisis, but continue to offer conventional products, although this also seems to be a strain for depository institutions.

Jamie Dimon, CEO of JPMorgan Chase, summarized in an annual report reasons banks are currently downsizing their mortgage operations, noting that costs and regulations associated with mortgages make it "increasingly difficult for banks to stay."

"The high costs of origination and servicing along with the complexity of regulations create a costly business with significant legal, reputational and operational challenges," he wrote. "In addition, given capital requirements and the lack of a healthy securitization market, it barely makes sense for banks to hold mortgages or mortgage-servicing rights. Many banks have already reduced much of this business."