HomeStreet Bank's move away from mortgages is nearly complete.
Earlier this year, HomeStreet, a community bank and mortgage lender that operates bank branches and stand-alone home loan centers, announced that it was planning to shift its business away from mortgages by selling off its retail mortgage origination business and a big chunk of its mortgage servicing rights.
According to HomeStreet, the company deemed the moves necessary due to the “persistent challenges facing the mortgage banking industry.”
The bank cited “the increasing interest rate environment,” which has reduced the demand for refinances (although it should be noted that interest rates have declined since HomeStreet’s initial announcement), and higher home prices that have decreased the affordability of homes, as factors dragging down its mortgage origination business.
Now, the bank has found buyers for its mortgage business: Homebridge Financial Services, New Residential Mortgage, and PennyMac.
According to HomeStreet, it is selling off a sizable piece of its mortgage origination business to Homebridge, while New Residential and PennyMac are buying up more than 70% of its MSR portfolio.
The agreement with Homebridge was actually announced earlier this year, when the companies announced they’d signed a “non-binding letter of intent” that would see Homebridge “potentially acquire the assets related to HomeStreet’s stand-alone home loan centers and to hire HomeStreet’s related mortgage personnel.”
At the time, the companies did not share specific details of the deal, but now, they have agreed to a definitive deal that will see Homebridge buy as many as 50 of HomeStreet’s stand-alone, satellite, and fulfillment offices related to its mortgage origination business.
Additionally, Homebridge will make offers of employment to a “significant portion” of HomeStreet’s “related personnel.”
According to a filing with the Securities and Exchange Commission, Homebridge is paying $5.9 million for the pieces of HomeStreet’s mortgage origination business. But the filing notes that the purchase price may be reduced by up to $2 million for “reimbursement by HomeStreet of certain transaction expenses incurred by Homebridge, as well as the assumption of certain home loan center and fulfillment office lease obligations.”
Additionally, if Homebridge reaches a “certain level” of mortgage originations in the 12 months after the completion of the sale, Homebridge will be required to pay an additional $1 million to HomeStreet.
Beyond selling off much of its retail origination business, HomeStreet is also selling off a sizable piece of its MSR portfolio.
According to HomeStreet, it is selling off $9.9 billion in mortgage servicing rights on loans guaranteed by Fannie Mae and Freddie Mac to New Residential.
And, the company is selling off the mortgage servicing rights on approximately $4.4 billion in unpaid principal balance on loans pooled in Ginnie Mae mortgage-backed securities to PennyMac.
The total purchase price for the MSR sales is approximately $183.1 million, of which approximately $166.2 million was paid to the bank on March 29, 2019, the bank said in its SEC filing.
According to the bank, the MSRs sold off represent approximately 71% of its total MSR portfolio.
HomeStreet said that as part of these deals, it expects to incur pre-tax charges of $5.4 million to $6.7 million for severance and related benefit costs, $11.1 million to $13.5 million of asset and technology related charges, and $3 million to $4 million of other charges.
The bank said that the total charges are currently estimated to be approximately between $19.5 million and $24.2 million.
The bank is not moving away from mortgages entirely though, as HomeStreet said that it plans to continue originating mortgages sourced through its bank branches, online banking services, and affinity relationships.
“The sale of the home loan center-based mortgage origination business and related servicing rights will significantly reduce the size and scope of HomeStreet’s single family mortgage operation,” said Mark Mason, HomeStreet chairman, president, and CEO.
“These transactions align with our long-term strategic goal of reducing our reliance on this cyclical and volatile earnings stream and increasing our reliance on the more stable earnings from our commercial and consumer banking business,” Mason added.
“We believe our network of office locations and origination personnel complements the existing Homebridge business well. We thank those employees that are part of the transaction for their hard work and contribution to our success of converting a troubled thrift into a leading West Coast, major market footprint, regional bank,” Mason continued.
“The sale of the servicing rights also provides the regulatory capital relief to not only support the continued growth of our commercial and consumer banking business, but also supports a share repurchase program underscoring our confidence in HomeStreet’s future performance and long-term value creation for our shareholders,” Mason concluded.