Stearns invests in smaller mortgage bankers to build retail business

Stearns Lending is buying large equity stakes in smaller mortgage banking companies as it looks to grow its retail loan production business.

In the first of these transactions Stearns closed on its purchase of a 50.2% equity interest in Certainty Home Loans.

"Today's successful mortgage companies understand the power of economies of scale and combined resources," Stearns CEO David Schneider said in a press release. "Certainty Home Loans' strong retail, consumer-centric model, along with our wholesale, retail and strategic alliance sectors, allows us to provide our employees, customers and partners with industry-leading technology and resources that help the dream of homeownership become a reality. For Stearns Lending, the partnership helps accelerate the growth of Stearns' retail sales channel and broadens our geographic footprint."

Stearns is headquartered in Santa Ana, Calif.

The deal has been termed as a "shared equity partnership" by the two companies and is the first in Stearns' Preferred Partnership program. Plano, Texas-based Certainty Home Loans keeps its leadership, brand name and culture, but gets access to Stearns' technology and capital markets expertise.

From Certainty's perspective, access to technology was a big part of the transaction. The two firms use the same technology, but Stearns' capabilities and development was two years ahead of where Certainty was, a Certainty spokeswoman said.

Stearns did $6 billion in retail production last year and through the partnerships is looking to build that to $10 billion for 2019, the spokeswoman added.

Stearns has 10 joint ventures with real estate companies and homebuilders. It is a large wholesale originator, but in 2017 it sold its delegated correspondent lending business to Flagstar. It still purchases whole loans on a nondelegated underwriting basis.

Certainty was known as WR Starkey Mortgage until last October. "By leveraging Stearns' advanced technology platform to streamline and improve interactions with partners, customers and each other, this partnership allows Certainty Home Loans to accelerate growth plans," Jim Clapp, the company's president, said in a press release. Certainty's current ownership retained a 49.8% stake in the company.

Certainty originated $1.4 billion last year. It is licensed in 14 states and the District of Columbia.

In its second transaction, Stearns agreed to acquire an equity interest in Citywide Home Loans, which is headquartered in Salt Lake City. Citywide's current owners will retain "a significant share" of the company, a press release said.

Citywide CEO Teresa Whitehead and president and founder Steven Goorman will lead the company which will continue to operate under the same name after transaction closes. The deal is expected to be completed pending regulatory approval, on Nov. 1.

"We've seen very positive results with a similar structure in our joint venture business model, which currently operates under 10 different brands across the country, and expect to see the same results or better," Schneider said in the Citywide deal press release.

Citywide has 72 branches in 36 states and originated $3.2 billion in 2017.

Terms of the deal were not disclosed.