Connecticut-based mortgage servicer and lender Planet Home Lending has entered into an agreement to acquire assets from Homepoint‘s delegated correspondent channel for $2.5 million in cash, the companies announced on Friday. The move signals Homepoint’s exit from the correspondent channel to focus on wholesale.
Homepoint was the 11th biggest residential mortgage lender in the country last year, originating $96 billion in residential mortgages, up 55.2% year-over-year.
The Michigan-based lender ranked 13th in the correspondent channel in 2021, with $20.7 billion in volume. However, the gain-on-sale margins in the correspondent channel were just 31 basis points last year, compared to 234 bps in the wholesale channel.
The deal “enables us to further streamline our organizational focus and ensures that our delegated correspondent partners are matched up with another company that shares our principles of offering great service and competitive pricing,” said Willie Newman, Homepoint’s president and CEO.
Homepoint has taken some decisions to focus on growing its originations business and to reduce expenses. According to mortgage stock analysts, the company has a high cost structure given its lower scale, compared to its competitors, notably UWM. Homepoint’s management is working to lower the cost to originate a loan to $900 in 2022, from $1,700 in the first quarter of 2021.
In February, the company announced it is outsourcing the servicing business to ServiceMac, a First American company. Critically, the move reduces costs: Homepoint had over 300 employees in mortgage servicing operations, who were laid off but subsequently hired by ServiceMac. The decision to have ServiceMac be the subservicer follows Homepoint’s move in November to wind down its Ginnie Mae servicing business.
With production volumes flattening out and non-QM originations increasing, the need for originators to focus resources and cost on the front end of the business could lead to more subservicing opportunities.
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Founded in 2007, Planet Home Lending originated $28 billion in 2021, up 45% year-over-year, checking in as the 31st biggest lender in the U.S., according to Inside Mortgage Finance. In the correspondent channel, the lender is ranked 12th, with a volume of $22.8 billion in 2021.
“Acquisitions like this one bolster our balance sheet and create a growth path going forward,” Michael Dubeck, CEO and president at Planet Financial Group, the parent company of Planet Home Lending, said in a statement.
The deal will also contribute to Planet Home Lending’s servicing portfolio, now at $54 billion.
Home Point Financial Corporation, a subsidiary of Home Point Capital, is the entity selling the assets.
Besides the payment in cash, the deal for the delegated correspondent assets also includes an earnout payment based on Planet’s correspondent origination volume during the two-year period starting on the closing date of the transaction. The companies expect that the deal will close in the second quarter of 2022.
According to John Bosley, president of Lending at Planet Home Lending, the deal will give correspondent lenders access to niche products, as well as consistent pricing and fast turn times. “Working with a single long-term, strong partner reduces risk and allows lenders to gain execution and operational efficiencies,” he said.
The consensus from mortgage executives and analysts alike is that in the 2022 purchase market, lenders who can get closer to the borrower are better positioned to win. Following this logic, having a strong correspondent channel is an advantage, as this group is formed by local banks and credit unions where people go in their communities to get a new loan.