IPO / M&AMortgage

When priorities collide in M&A

Don't let merger integration eclipse mortgage originations

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Juggling competing priorities is a fact of life during a mortgage merger. Workloads multiply the moment a transaction is announced, and the pace doesn’t settle down until months after the deal closes and systems conversions are completed. Business goes on as usual — but there is a mountain of merger integration work to be done in tandem with the regular routine of loan prospecting, applications processing, approvals, closings and loan administration.

The good news is that even for the highly regulated mortgage industry, there is a path to a smooth merger – provided everyone agrees that smooth is a relative term. No two mortgage portfolios are alike, and no two mortgage teams are, either. Cultures differ between financial institutions, and pressures emerge from a variety of stakeholders, including borrowers, regulators, and investors. 

There are lots of variables and lots of ways for the journey to get bumpy. But there are also some tried-and-true approaches that can help your team navigate the six- to nine-month process of merger management.

Start by embracing the dual nature of companies undergoing a merger

There is no pause button on your business. The mortgage pipeline doesn’t shut off just because a transaction has been announced – and of course no one wants it to. So you must deal with business as usual: Homebuyers, sellers and real estate agents depend on mortgage lenders to get closings done, regardless of what else is going on. 

Inside the financial institution, client-facing team members need loan approvals and pricing guidance. Keeping the business robust and nurturing customer relationships is critical to long-term success.

Meanwhile, there are extra changes to reckon with. The merger process itself is like sipping water from a fire hose. Typically the acquiring bank or mortgage company dedicates a team that swoops into the acquired institution within a couple of days of the deal announcement. They will be in investigative mode, inquiring about everything from technology to customer files to staffing to procedures.

Decision makers on both sides of the transaction are suddenly swept up into two-by-two integration teams. Conference calls, scope meetings, and weekly deadlines become all-consuming. Everyone understands that the person who’s now being asked to fill out a stack of merger integration paperwork also has a pile of loan files on their desk, but that doesn’t make the extra work go away.

Amid this intense focus on competing priorities, there are other realities to face: Mergers trigger sharp interest from regulators, including federal and state banking supervisors and the Consumer Financial Protection Bureau. Their antennae are up during normal times, but a merger creates heightened focus. 

The merger integration phase is a time when communications and decisions are happening rapid-fire – and sometimes with less-than-normal rigor. A perfect storm for risk can form when complexity, regulatory scrutiny, and the conditions for staff burnout are at an all-time high.

Understand the human dynamics. One of the first, crucial steps in any merger integration strategy is to make sure that key personnel are confident and secure that they will have a role to play in the combined organization.

In most mergers, layoffs are inevitable because overlaps must be eliminated to achieve efficiencies. Retention bonuses can help to keep downsized employees in place and focused long enough to finish up important tasks. Some workers who won’t be employed in their former capacity may be open to retraining or relocation, and the sooner these options are presented, the better it will be for all concerned. 

When a work site is being eliminated, as is common in mortgage mergers, offering financial incentives to close out loans in the pipeline can reduce headaches down the road; the goal should be to transfer as few files as possible to a new closing team to avoid added risk of errors.

Burnout is also a very real risk to your team. Mergers consume long hours and virtually ensure that there won’t be enough players on the bench to do everything well. Mid-size banks are particularly exposed because critical decisions are mostly made by a small number of leaders, usually at the highest ranks.

In my experience as a veteran of numerous mortgage mergers, it is wise to alleviate some of the human pressure by seeking outside assistance, whether by engaging a consultant or by hiring temporary workers. 

Increase your volume of communication

Real estate agents, customers, and referral sources need special care during merger integration. It’s easy to take them for granted and not recognize their concerns: Is your organization still in business? Do they need to point a borrower somewhere else? The perception that the mortgage group has its head down in internal matters can be costly to these important relationships. 

The merger integration period is a time for re-recruiting not only your employees, but your customers and your referral sources. It’s vital that you don’t let them see any sign of slippage in quality. Double your contact frequency to avoid fallout in your pipeline and to keep your referral sources confident and engaged.

Communicating internally is just as important as communicating externally. As the bank begins to make decisions about the product set and organization going forward, let workers know.

Mergers merit town hall meetings weekly or even more frequently, rather than the typical monthly huddle. And candor counts. During a recent merger integration in which I led the acquired-bank team, I told a group of employees that I realized everyone in the room had anxiety about the merger. I let them know I didn’t have a lot of the answers, but I would work hard to get answers quickly. 

Acknowledging that a merger impacts employees, their families, and their ability to do their job is not just good business—it’s the decent thing to do. Holding too much too close to the vest can cause employees to jump ship quickly.  

Ratchet up recognition and encouragement, but be sensitive. It makes sense to have separate calls and communication efforts for the employees who will be retained and for those who will be dismissed.

Take care of external vendors

It takes a village of third-party providers to a make a mortgage, and that village includes title insurers, appraisers, closing attorneys, flood insurance providers, and property insurers. Some of those vendors will be happy because their pie just got bigger, and some will be worried about future business. 

During the months that the merger partners are still separate entities, the banks must encourage vendors to cooperate with one another. This is the time to increase the frequency of service-level agreement discussions – third parties can be given requirements that are measured every two weeks instead of quarterly, for example. 

With the right plan in place, it is possible to continue originating mortgages during the crunch time that is a merger integration. The odds of success increase with a plan that emphasizes enhanced communication and cooperation and anticipates the need for additional resources during this high-stakes process. Companies that make a wise investment of effort and financial resources up front are best positioned to reap the long-term benefits of mergers and secure the loyalties of the communities they serve.

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