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IPO / M&AMortgage

MBA: Acquisitions will heat up over next 2 years

Moving towards more consolidated market

Acquisitions are on the rise for lenders as they struggle to manage the increase in costs to originate a loan, according to Mike Fratantoni, Mortgage Bankers Association chief economist.

Industry sources say that RPM Mortgage, an independently owned and operated residential mortgage lender, is rumored to be buying American Financial Network, a mortgage banking firm serving the lending needs of real estate professionals, builders, and individual homebuyers.

But that’s not the only acquisition buzz right now. Industry sources also report that Finance of America, a national, full service mortgage banker, is finalizing two purchases of national lenders. Sources say they will announce the acquisition in the beginning of September.

Origination costs increased significantly in the past few years. In 2008 the average cost was around $4,500, however now, eight years later, that costs increased to $7,000 to $8,000 per loan, Fratantoni said.

The costs didn’t jump up, but was a gradual increase through the years, Fratantoni said. Most of the cost increase came from the need to hire more personnel such as risk management and compliance personnel.

“What we’re seeing is a lot of mergers and acquisitions so they can get to a scale where they can be profitable,” Fratantoni said.

That being said, low interest rates are helping lenders continue to bring in a profit since many homeowners are taking advantage of the low rates. Refinances are usually more profitable than purchases, since it is usually returning customers.

Mortgage rates didn’t move this week and continued to hover near all-time lows as the market remains cautious before gaining more information on the second quarter’s GDP growth, according to Freddie Mac.

That being said, Janet Yellen, Federal Reserve System chair of the board of governors hinted in her speech Friday that a rate hike in the near term is not off the books, and some speculate that it could come as soon as September.

That being said, as interest rates increase, the acquisition trend could continue going up as fewer homeowners refinance, and lenders consolidate.

"Consolidation will continue until profitability returns to more sustainable levels,” Fratantoni said.

The good news is it shouldn’t make the market less competitive, Fratantoni said. The most recent Home Mortgage Disclosure Act data, from 2014, shows that are still about 7,000 lenders. Data will more than likely show that this number came down in 2015 and will continue to decrease, but it is still an incredibly competitive market.

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