HomeStreet Bank moves to sell off almost entire mortgage business

Lender’s mortgage business has struggled recently

After struggling to keep up with the mortgage business’ new reality of lower refinance originations due to higher mortgage interest rates, HomeStreet Bank announced Friday that it is plotting a mass exodus from the mortgage business.

Back in July, HomeStreet, a community bank and mortgage lender that operates bank branches and standalone home loan centers, said that it was laying off more than 125 mortgage staffers and closing down several offices.

At the time, the company said the move was due to the “persistent shortage of new and retail housing and increased interest rates, reducing demand for both purchase and refinanced mortgages.”

But it appears that move wasn’t enough to stop the bleeding.

HomeStreet announced Friday that it is planning to sell off its entire retail mortgage operation, which includes 72 home loan centers in five states, as well as nearly all of the mortgage servicing rights associated with loans originated in those retail outlets.

HomeStreet doesn’t have a buyer for its retail mortgage business yet, but it said it is looking for one.

According to the bank, it has retained Keefe, Bruyette & Woods to “seek buyers to acquire its stand-alone home loan centers and related mortgage origination personnel.”

According to HomeStreet’s website, the company has 72 home loan centers: 37 in Washington, 16 in California, six in Hawaii, five in Idaho, and eight in Oregon.

Additionally, the bank is using MountainView Transaction Advisory to find buyers for “the majority of its single-family mortgage servicing rights principally related to loans originated by those home loan centers and personnel.”

According to the company, it is not planning on exiting the mortgage business entirely though. If the sales are completed, HomeStreet said that it will maintain a “smaller mortgage operation” that will be part of its commercial and consumer banking business, with mortgages sourced through its bank branches, online banking services, and affinity relationships.

Mark Mason, chairman, president, and CEO of HomeStreet, said the decision to sell off its retail mortgage business was “difficult,” but said the bank feels it is necessary.

“The Board of Directors made the difficult decision to explore the potential sale of our mortgage banking business after extensive deliberations, ultimately concluding that this potential change would be in the best long-term interests of the company and its shareholders,” Mason said in a statement.

“We are considering a sale at this time after having taken substantial steps in the last two years to improve the profitability of our mortgage banking business while expecting a near term recovery in industry volume and profitability,” Mason continued.

“Unfortunately, it is still unclear when, and to what extent, industry conditions will improve. Single-family mortgage loans remain an important part of our asset diversification strategy and part of a broad array of products that we offer to our customers,” Mason concluded. “Assuming the sale of our mortgage banking business, we will continue to offer mortgages, but the scale of this business line will be substantially smaller, focused on our retail deposit network and regional markets, and positioned for ongoing profitability.”

According to the bank, it is making this move due to the “persistent challenges facing the mortgage banking industry.” The bank cites “the increasing interest rate environment,” which has reduced the demand for refinances, and higher home prices that have decreased the affordability of homes.

“Both factors continue to put downward pressure on mortgage origination volumes,” the company said. “In addition, historically low new and resale home inventories in many of HomeStreet’s primary markets continue to adversely impact the volume of available purchase mortgages.”

The bank also cites a “challenging regulatory environment,” which it claims is making it difficult to operate successfully.

“The challenging regulatory environment, including changes to loan underwriting and disclosure rules and increased data integrity requirements, have combined with higher loan officer compensation to significantly increase loan origination costs,” the bank said. “Non-bank lenders are regulated by different regulators with different approaches to compliance and regulatory oversight than bank mortgage lenders. This condition has resulted in uneven compliance interpretations, guidance, and enforcement risks between banks and non-bank lenders.”

The bank also cites the amount of capital banks are required to hold in order to service mortgages. “The regulatory capital required today for holding mortgage servicing assets is onerous, and in conjunction with declining hedge profitability as a result of a flattening yield curve, our return on invested capital in this line of business has been adversely impacted,” the bank said.

The company did not provide a timeline for the expected sale but did say that it will provide further updates when available.

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