Most mortgage lenders today are just trying to keep the lights on in the current market — but there are some notable exceptions.
Companies like Guild Mortgage, Union Home Mortgage, American Pacific Mortgage and Go Mortgage have emerged as power players who have been growing their business during a time of escalating interest rates and shrinking originations.
This group of lenders is either strategically acquiring companies or growing their ranks by way of hiring strong retail teams. The reason for doing this now is simple: once the market recovers, these nonbanks will be well positioned to grab the most business.
There's a historical precedent for this tactic. Following the Great Recession, some lenders — such as Freedom Mortgage — took advantage of the market by buying up business from lenders getting out of the business. As a result, Freedom has clawed its way to being one of the top 10 mortgage lenders in the nation.
This time around, the market downturn may be worse than post-2008, according to Bill Cosgrove, CEO of Union Home Mortgage. Lenders such as
"What we have today is an industry that is falling off a cliff [which] is probably as steep as a cliff I've seen in 37 years, " said Cosgrove.
But it also may position companies growing during this time for success when the market recovers.
It's all about market share
In December, Ohio-based UHM announced its acquisition of Kalamazoo, Michigan-based Amerifirst.
This made sense to UHM's CEO because of similar company cultures, but also because it allowed UHM to expand its footprint into markets such as Florida, Michigan, Ohio, North Carolina and California.
"We're expanding our [coverage area], we're a stable organization, and we're doing it strategically by continuing to reduce the layers of our company and reducing our cost of closing a loan," he said.
He noted the importance of servicing as a source of financial stability at a time of declining originations.
"If you're fortunate enough to have a sizable servicing portfolio for your size, then that is something that will allow you to grow in that lane and that's where we find ourselves in right now," Cosgrove said. "Quite frankly, there's not many market participants that are able to be in that lane right now."
APM's CEO Bill Lowman also plans to expand his company's reach. The lender has already made at least two acquisitions since mid-2022 and has also actively brought on board retail branches from defunct lenders.
"This is a cyclical business, there's always ups and downs… and how [companies] navigate those transitions are the ones that are going to gain market share," said Lowman, during a Mortgage Pro's 411 podcast in January. "We have to measure ourselves by not comparing volume right because it's going to be way off and instead measure ourselves on market share."
A few days before this show aired, the California-based lender announced that it was acquiring Lend Smart Mortgage, LLC. The Minnesota-based lender has close to 30 branches nationwide with its presence mainly stretching across the Midwest. In July, APM acquired Arizona-based Sunstreet Mortgage.
Concurrently, San Diego-based Guild Mortgage has made a splash by purchasing the assets of New Mexico-based Legacy Mortgage and Wisconsin-based Inlanta two months apart. Doing so allows Guild to expand in the Southwest and in the Midwest, according to the company's executives. Terms of both deals were not disclosed.
All three lenders say they are continuing to look for "new opportunities to grow."
Mary Ann McGarry, CEO of Guild, noted that the company is "continually seeking a good cultural match and a natural fit so that both companies benefit [from the acquisition.]"
Meanwhile, APM put out a call for new talent interested in joining its ranks. "Independent mortgage bankers seeking a similar divisional opportunity can contact Lowman for more information," APM's press release said.
With the market becoming more volatile, the mortgage industry has been rife with merger and acquisition activity.
According to David Hrobon, principal at consulting firm STRATMOR Group, there were 42 merger and acquisition transactions during 2022 "and still counting." He predicts that close to 60 transactions will come to fruition in 2023, most of which are between nonbank lenders.
Hrobon explains that "each deal is unique but there are some generalities relative to the nonbank buyer motivations" such as larger IMB's frequently having "lower borrowing costs and better secondary market execution than their smaller peers."
"For most [lenders], market share growth is simply calculated by product of the acquisition. Their primary motivation is to add loan volume (scale) that will help them offset their fixed expenses and return to an acceptable level of profitability," he said.
In addition to that, he said, "they frequently define specific geographic regions where they want to expand based on factors such as wanting to avoid current lending conflicts within their existing sales footprint, needing to grow in areas with lower average loan balances, avoiding growth in areas that are prone to environmental issues; or, targeting areas that traditionally have a higher concentration of government lending opportunities."
Investing in retail branches
During the pandemic, lenders were on the hunt for bodies to fill processing, underwriting and origination vacancies, but the hunt today is for high-performing retail branches that have deep connections within their communities and can bring in a steady stream of origination business.
After Finance of America announced it was backing out of its forward mortgage origination business, companies like Ohio-based Go Mortgage and California-based American Pacific Mortgage jumped at the opportunity to scoop up FOA's branches.
Go Mortgage, which brought on board
"They have relationships with local agents, and most of their business has always been purchase business," said Michael Isaacs, CEO of GO Mortgage. "It's a network of branches that were integrated in local communities with very little fixed overhead."
Adding these employees allowed GO Mortgage to expand its presence on the East Coast, specifically in Wisconsin, Pennsylvania, New Jersey, Maryland, Virginia, North Carolina, South Carolina and Florida.
And while Go Mortgage capitalized on FOA's East Coast branches, APM
A few months later, APM also acquired retail branches from Mesa, Arizona-based
Acquiring lenders look for retail locations that do mostly high quality purchase business Isaacs said.
"It has to be mostly referral business from agents and referral partners and not from leads," Isaacs said. "They have to be used to offering rates with margins that are competitive in this environment that are competitive and can be profitable."
Others may use a looser criteria that, in Isaacs opinion, may not serve them well in the long-term.
"We've seen other mortgage companies take on groups, and they based their decision on what this group did over the course of the last 12 months and in this environment it's important that you're looking at what this group is doing now," Isaacs said. "What happened six months ago doesn't matter in this environment."
