Mortgage rates are on a declining trend, but don’t be fooled – the industry’s efforts to rightsize from a pandemic boom will continue through 2023. Up to 30% of the 1,000 largest independent mortgage banks will disappear by the end of this year, either through sales, mergers, or failures amid still-high inflation and rising interest rates, according to projections by the M&A advisory firm Sterling Point Advisors. 

But American Pacific Mortgage (APM), a California-based retail lender of about 3,600 employees and 1,500 mortgage loan originators, is undeterred by the depressing outlook. Rather, APM sees it as an opportunity to expand geographically beyond its major California market to the Midwest and the Southeast. 

In 2022 alone, APM acquired 11 branches from Arizona-based Sunstreet Lending and Sunstreet, 25 branches from the Minnesota retail lender Lend Smart Mortgage and 51 branches from AmeriFirst Financial Inc. 

The lender also brought over 45 former retail branches from Finance of America Companies Inc. (FoA) months after it shut down its forward mortgage segment. However, Bill Lowman, CEO of APM, said the number of branches may have gone up from when it was first reported, as it includes secondary branches or additional license locations.

All in all, 900 employees joined the company, from the four deals APM completed last year, including 540 LOs, Lowman said in an interview with HousingWire.

That doesn’t mean APM survived 2022 unscathed, however.

“We did have a few layoffs throughout the year,” Lowman said, declining to mention specific numbers. 

The lender saw production drop about 42% in 2022 to $13.8 billion due to the interest rate environment and the refi business going away, much like every other lender, the executive said.

“The industry volume, I think, is going to end up being down about 50%. So from that regard, we feel like we outperformed the market,” Lowman said. 

When asked how the firm gets leads on potential deals, Lowman said it helps that other lenders know that APM is aggregating volume and interested in acquisition. 

Getting leads for potential deals

“They all come from different methods – whether it’s presented to us by a consulting firm like Stratmor [Group], whether someone reaches out to us because they know us, or whether it is through industry contacts,” Lowan noted.

Not every deal proposal goes through, however. 

APM passed on about six to eight M&A proposals in 2022 that didn’t pass the initial consideration phase — which compares the origination volume the deal would bring to APM against the cost of onboarding a large number of employees.

The lender is currently deeply rooted in California, which accounted for about 45% of its total origination volume in 2022. The goal for 2023 is to have that figure go below 40% in California while spreading out to other regions of the country instead. 

When branches are acquired, APM brings over the LOs and processors to the extent that they could remain profitable.

“We do a pro forma, we work with their branch manager and say, ‘Okay, you’re fine, come on over’ or ‘You may need to reduce your staff a little bit because you’re not profitable.’ We want all of our branches to be profitable,” Lowman said. 

After APM acquires the branches, it either takes over the leases of the physical office space or finds a smaller office space – which was the case for Finance of America and some of Amerifirst Financial branches. 

Branch managers and LOs from Sunstreet Mortgage were able to keep their existing 11 branches. APM also plans on taking over many of the retail leases that span over 24 branches, though it is still under negotiation. 

Branding as American Pacific Mortgage 

Acquired branches can still brand themselves as their existing names but become a division of APM. While Lend Smart, Sunstreet and AmeriFirst Financial continue to brand themselves under existing names, former Finance of America branches now present themselves as APM.

“They are a part of our company policies, procedures and culture. We are an ESOP. Our company is 49% owned by its employees as an employee stock ownership program, so they are a part of that. They are a part of everything that American Pacific Mortgage is,” Lowman said. 

Boosted by the M&A activity that took place in the second half of 2022, Lowman projects a 25% volume increase for APM’s production in 2023 — at a time when origination for the industry is expected to decline about 10 to 15% from 2022. 

The California lender is in conversations with “a lot of lenders,” Lowman said. He declined to mention further details. 

“The more the disruption, the more the opportunity. When it’s too tough for them, it’s just right for us. We went into this declining market prepared to take advantage of it,” Lowman said.