AgentMortgageOriginationReal Estate

Compass is Guaranteed Rate’s latest dance partner

Residential brokerage follows its rival Realogy in forming joint venture with mortgage lender.

Guaranteed Rate has found another dance partner. And Compass is borrowing from the playbook of its most visible direct competitor.

Guaranteed Rate, the Chicago-based mortgage lender, and Compass, the New York City-headquartered residential real estate brokerage, “entered into a definitive agreement to form OriginPoint, a new mortgage origination company,” according to a press release Tuesday.

“OriginPoint will originate mortgages for clients of Compass’s real estate brokerage, as well as any other brokerage, making loans available to a broad consumer audience,” per the release.

The release does not say who may the lead the company or its official launch date. Messages left with both Guaranteed Rate and Compass on Tuesday were not returned. OriginPoint has a Chicago address, and it is actively looking for loan officers, according to OriginPoint’s website.

For Guaranteed Rate, a 21-year-old company still led by its founder Victor Ciardelli, the partnership makes sense, said housing industry observers Tuesday. But, these observers added, it raises eyebrows for Compass.

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“It’s not surprising,” said Bose George, managing director at Keefe, Bruyette, & Woods. “Guaranteed Rate has a similar JV with Realogy. It’s part of their business model.”

Guaranteed Rate and Realogy teamed up for a mortgage origination joint venture when the pair launched Guaranteed Rate Affinity in 2017. After a relatively slow start, Guaranteed Rate Affinity took off in 2020 – its equity earnings jumped to $126 million compared to $15 million a year earlier, according to Realogy’s public filings. Guaranteed Rate Affinity originated $13.4 billion in mortgages last year.

Realogy and Compass are the no. 1 and no. 2 brokerages in residential sales volume nationally – and bitter rivals. Not only do Realogy brands including Sotheby’s Realty and Coldwell Banker do battle with Compass, largely in wealthy, urban markets, but the firms are locked in years-long litigation over trade secret theft and agent recruitment.

In a statement Tuesday, Realogy did not take a swipe at its rival, stating in part, “We remain committed to providing our affiliated agents and franchise owners with innovative and seamless solutions for our clients.”

Another Guaranteed Rate joint venture partner was more combative. Thad Wong, co-CEO of @properties – Chicago’s no. 1 brokerage by sales volume, blasted Compass, “For another action that makes them look like a ridiculously traditional brokerage.”

Compass has called itself a tech company, Wong noted, and as recently as this May its CEO Robert Reffkin said that Compass’s goal was to modernize an archaic industry. But Compass “plugged into the exact same thing Realogy does and the exact same thing we have. They are pigeonholing themselves.”

Compass’s announcement is consistent with the company’s May earnings call. On that call – the brokerage’s first as a publicly-traded company – Reffkin said, “We have committed on a path towards a JV when balancing the quality of an outcome, the speed of an outcome and the potential size of an outcome.”

“JV is where we think there will be the most opportunity,” Reffkin added at the time.

The call revealed that Compass lost $212 million in the first quarter of 2020 with a revenue model based on getting an average of 15% of an agent’s sales commission. Compass stock traded at $13.45 a share on the New York Stock exchange Tuesday, good for a $5.3 billion market capitalization.

Guaranteed Rate, on the other hand, is among the few top-15 lenders that’s not publicly traded, despite having well-heeled institutional investors like Blackstone Group. Guaranteed Rate’s $73.9 billion in total 2020 originations represents strong year-to-year growth, but not extraordinary compared to other top mortgage lenders, many of whom had their best year ever in 2020.

Guaranteed Rate has made several key acquisitions over the last year to go toe-to-toe with the biggest lenders, including direct-to-consumer shop Owning and multichannel mortgage firm Stearns Lending, which gives it access to the wholesale channel.

The latest move probably doesn’t change the likelihood of Guaranteed Rate going public anytime soon.

“To some degree the IPO window for mortgage originators has closed at the moment,” George said.

But by having JVs with the top two real estate brokerages in the country, Guaranteed Rate is well positioned to increase its purchase business in the upcoming years. (That is, if they can convince agents to keep client financing in the joint-venture and not to use their own network of mortgage partners.)

They’ve also found something of a kindred spirit in Compass in terms of how they view their position in the market place.

Like Compass, Guaranteed Rate sees itself in the world of technology.

“They’re pitching themselves not as a mortgage company,” George noted, “But a tech company.”

OriginPoint can hit the ground running, though.

“There are no kinks to work out,” said George. “They’re already doing this and doing it very well with other companies.”

Senior Mortgage Reporter Georgia Kromrei contributed reporting.

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