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Mortgage

Why the mortgage industry is poised for record M&A activity

Stratmor Group expects 2022 to result in 50% more M&A transactions than 2018, which was a record year for lender consolidation

This is projected to be a record year for consolidation among mortgage lenders, largely due to the dramatic shift from a refinance boom to a purchase mortgage market. Total origination volume has also shrunk by about half compared to 2021.

By the end of 2022, roughly 50 merger or acquisition (M&A) transactions will be announced or closed, which is 50% more than 2018 — the record year for lender consolidation, according to Stratmor Group.  

“The increased M&A activity to-date has been fueled primarily by two factors: 1) pent-up demand for retirement by aged owners who achieved lifetime net worth objectives, and 2) the current industry challenges with more storm clouds on the horizon,” David Hrobon, principal at Stratmor wrote in its October Insights Report.

“The expectation of continued margin compression in 2023 and 2024 has resulted in the onset of industry consolidation,” Hrobon said. 

Independent Mortgage Banker (IMB) average performance is projected to break even at best, according to the Mortgage Bankers Association‘s (MBA) full-year financial forecast for 2022.

In the second quarter of 2022, nonbank mortgage lenders lost $82 per loan on average, and when combining both production and servicing operations, only 57% of companies in the MBA report had a profitable quarter.


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The average pre-tax production loss was 5 basis points (bps) in the second quarter of 2022, down from an average net production profit of 5 bps in the first quarter of 2022. Compared with the same period last year, it was a decline from a profit of 73 bps. For context, the average quarterly pre-tax production profit from the third quarter of 2008 to the second quarter of 2022 is 54 bps. 

A “well-aligned and matched (culture and business model) transaction” frequently results in transaction synergies that total 30 to 50 bps, Hrobon said. If a lender is operating at a 10 bps loss, it has an opportunity to merge with another firm and convert the bottom-line performance to a 20 to 40 bps profit, he said. 

Well-matched relationships can and should result in a “one plus one equals three” transaction, Hrobon explained, underscoring the importance of the timing of the sale, keeping the circle of trusted advisors small and the alignment of lenders’ culture. 

The rightsizing of the mortgage market forced consolidation among lenders, which faced intensified competition as gain-on-sale margins dropped. The handful of deals this year include the merger of Doorway Home Loans and Priority Mortgage, both mortgage lenders with more than 30 years of experience in residential direct lending. 

Doorway announced in June that it will operate under its name, while Priority’s loan originators and operations staff will become part of Doorway, going to market under its new moniker: “Priority Mortgage Team, Powered by Doorway Home Loans.”

Most recently, Guild Mortgage expressed interest in acquisitions.

“There are tons of opportunities to pick up the talent, to get new programs, to find a niche” when there’s a dislocation in the market, Mary Ann McGarry, CEO of the lender, said at HousingWire’s Annual 2022 conference this month.

McGarry said Guild would look for companies that will strengthen Guild’s retail channel, but will be very patient in closing a deal.

In the tech space, Intercontinental Exchange, Inc., a software and data company with a mini-empire, including ICE Mortgage Technology, in May announced it intends to acquire Black Knight in a $13.1 billion mega-deal.

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