Mergers and acquisitions activity picked up significantly in 2018, a trend that is expected to continue into 2019 as the lending environment grows even more difficult.
As the lending market turns toward a down cycle, mergers and acquisitions are set to heat up, according to STRATMOR Group Senior Partner Jim Cameron.
“Lenders who are well-capitalized and well-run have an opportunity to be ‘consolidators,’ even while struggling lenders face the prospect of becoming reluctant – if not involuntary – ‘consolidatees,’” Cameron said in the company’s December 2018 Insights report.
There were a total of 11 deals announced in 2016, but that quickly sped up, rising to 28 transactions by November 2018, and more expected to come by the end of the year, according to the report.
“These are tough times in the mortgage business,” Cameron said. “There are too many lenders chasing too few borrowers, and because rates are not expected to decline any time soon, there won't be a refi rally to bail out lenders. We are experiencing an intense period of industry consolidation that will extend well into 2019.”
“One popular school of thought is that rapid consolidation will continue throughout Q1 and into Q2 2019 and that margins may normalize in the late spring and summer next year,” he said. “But we can't count on this. A lack of meaningful growth in the purchase market may delay the recovery period for the industry well beyond next summer.”
Cameron explained that today’s lending conditions are as challenging as they have been since the last recession, however, there are still strategies lenders can take to stay on top during this difficult season.
He explained some of these other options include optimizing cash from operations, raising equity capital and becoming a broker.
A recent analysis from HousingWire shows that one type of lender is doing fine, even excelling, as others continue to eliminate hundreds of mortgage jobs – mortgage brokers.
United Wholesale Mortgage recently announced it saw a 52% annual increase in volume in the third quarter. This increase was significant, especially when numbers from Inside Mortgage Finance show the majority of lenders saw either negative growth or growth less than 10% in 2018.