The 2024 mortgage M&A playbook

HousingWire reported on 62 mergers, acquisitions, exits and bankruptcies in 2023. More is yet to come next year, analysts say

Guild Mortgage has an ambitious plan under the leadership of its new CEO, Terry Schmidt. The California-based retail lender has set a target of becoming a top-10 lender in the markets in which it has a presence, which would give it about a 2% market share. 

It won’t be easy. United Wholesale Mortgage, the top lender in the country by volume, had just under 8% total market share over the first nine months of 2023. By the same measure, Guild had just 1.1% nationally, per Inside Mortgage Finance (IMF) estimates.

The company hopes to reach its goal by growing organically with more loan officers under a dozen business development managers. It’s also looking for companies to acquire — and it’s among the most aggressive lenders out there. 

“Firstly, we’re growing our national footprint and we’ve been doing that for many years. We really feel like this [M&As] is an opportunity for us,” Schmidt said in an interview. “We’ve got a great capital base, so we have the opportunity to invest. When we’ve been in situations like this in the past, we’ve done the same thing where we want to continue to gain market share and, at the same time, add good sales and fulfillment talent to our franchise.” 

Publicly traded Guild acquired three lenders in 2023 – Legacy Mortgage in February, Cherry Creek Mortgage in March and First Centennial Mortgage in August. 

Some of their competitors are working off a similar playbook, acquiring top sales talent or mortgage servicing rights through M&A deals. Those who couldn’t find a dance partner shut down production channels or left the mortgage market behind entirely. There were also a few cases of bankruptcy.  

HousingWire tracked 62 mergers, acquisitions, exits and bankruptcies covered by the newsroom in 2023. M&A deals comprised 79% of the total, followed by 17.7% exits and 3.2% bankruptcies. One caveat: our reporting likely shows only a fraction of what happened in 2023 because not all deals are public, as most mortgage companies are privately owned. 

“This market consolidates very slowly. Except for the largest firms, virtually everybody is privately owned and sole proprietorships,” Warren Kornfeld, senior vice president of the financial institution’s group at Moody’s, said. “But given how hard this market has been and that scale is becoming more important with technology, smaller companies are under more pressure. We do expect a lot of those will say, ‘It’s time to sell,’ ‘It’s time to close up shop,’ and ‘I don’t want to support a losing operation.’ ‘I just really can’t compete.”   

As 2024 is not expected to be stellar, analysts foresee more M&A and exits next year. However, some analysts believe these transactions will not happen at the same pace as in previous years.

“I would imagine that there are some companies that have survived long enough, but I think it’s fewer and fewer, and you’ll see less either consolidation or exits in the space,” Joseph Kyle, a specialty finance equity research analyst at Jefferies, said.

“If you’ve made it this far, maybe you’re through the woods at this point. But maybe there are a couple of stragglers and weaker competitors that still end up having to shut down in 2024 because by no means is it going to be like a heroic year of origination. But I don’t think you’ll see to nearly the same extent that you saw in the second half of 2022 and earlier in 2023,” Kyle said.

HousingWire spoke to two lenders to understand their M&A strategies for 2024. What are the companies’ goals with these transactions? Who are the potential targets? 

Guild, the most active lender in terms of M&A deals on our list, wants to expand its retail business model nationwide to gain market share. Meanwhile, Planet Home Lending, the only lender among the top-14 to increase origination volumes from January to September, compared to the same period last year, said it wants to also grow its servicing business. 

Guild: growing the national footprint

Some companies engage in M&A to expand their sales force throughout the country without needing to change their business model. 

Guild’s Schmidt said she has had many of these conversations – meaning M&A talks. According to Schmidt, the number of executives offering their businesses has been steady and hasn’t slowed down all year of 2023. But just a few usually caught the lender’s attention.

“First of all, we like the retail footprint because everything we’ve done with our platform has been built around the retail footprint. The cultural fit has to be strong to make this work going forward. If we don’t have a strong market in that geography, we like to bring in talent that knows the area because we are ‘boots on the ground’ with retail branch offices,” Schmidt said.

Despite having licenses everywhere, except in New York, Guild is interested in acquiring businesses where the company has a small market share, like the Southern states and Midwest. Guild is not focused on the target’s size but on how they can use the company’s platform to grow. 

Sellers usually have an efficient sales force but can’t afford the back-office operations. Despite the refi boom years during the Covid-19 pandemic, some companies could not retain capital or excess cash on their balance sheet. Now under pressure in a shrinking market, they see their top loan officers transition to other competitors.

Ultimately, according to industry experts, the corporate administrative expenses, which represent 50 basis points or less of each loan during a booming market, double in relative costs when loans are scarce. That’s when M&As make sense.  

“If it’s a smaller organization that maybe can’t afford the back office any longer, maybe that’s [M&As] a value added to them,” Schmidt said.

From a buyer perspective, Schmidt added that “you have to be realistic” because it’s going to take “a bit of time to get these organizations up to speed on your platform,” which can be “as short as 90 days or longer than that.” 

According to Schmidt, Guild’s strategy is going to be very similar next year, including M&As.

“How much? That’s hard to tell. We feel like what we’ve done this year has added value to the organization. We still have the ability to continue to invest because of our capital,” Schmidt said. “As you know, this next year is still going to be problematic. There’s gonna be challenges. So, we still feel like it’s an opportunistic time.”

Planet Home Lending: Focusing on MSRs

Some M&A transactions are not motivated purely by the origination platform. Mortgage servicing rights (MSRs) are an attractive asset for some acquirers.

Take Planet Home Lending as an example. In April 2022, the company agreed to acquire assets from Homepoint’s delegated correspondent channel for $2.5 million in cash – later, Homepoint sold the wholesale business to The Loan Store and its parent company shut down, selling $84 billion in MSRs to Mr. Cooper. Planet’s transaction with Homepoint, however, doubled its client base in the correspondent space.

“The Homepoint acquisition worked really well for us. We had about 400 sellers on our own. Then, the net new sellers that came on with Homepoint was about 400 more. It was rare and unique to find something that fits so well for us,” John Bosley, the lender’s president of mortgage lending, said in an interview. “But acquisitions that are out there become less and less sort of attractive on that side. We’re not opposed to looking at them, but we just haven’t seen a lot that makes sense on the correspondent side.”

For Connecticut-based lender and servicer Planet, expanding its retail operation and servicing portfolio makes sense now. 

In June 2023, Planet acquired Illinois-based retail lender Platinum Home Mortgage Corporation, inheriting most of the seller’s origination staff and branches throughout the country. The deal expanded Planet’s footprint in the Midwest, Northwest and West Coast markets – after this deal, the company is looking for more opportunities in the South East.

However, the Platinum transaction added more than geographical expansion.

“Platinum was interesting and exciting to us because we had the opportunity to do two things: grow our retail channel and expand our MSR portfolio,” Bosley said. “When we looked at it from a retail acquisition perspective, it made a lot of sense because they weren’t in the geographies that we were in. Then, since we’re actively expanding our MSR portfolio, what came along with it was a nice side MSR book, so it kind of fit really well with us on that side,” Bosley added. 

Bosley said Planet is more focused on the government MSRs space but can also do conventional. He said the company has about $100 billion in owned and sub-serviced MSRs. Obviously, “the bigger the portfolio gets, the cheaper the cost of servicing gets,” which is why the company wants to expand its MSR holdings.

Regarding the market overall, Bosley said he expects the end of 2023 and early 2024 to have “a decent amount” of M&A activity, slowing down in the second quarter of 2024 when volume is higher cyclically. 

Remarkably, for Planet, he said, “I’m cautiously optimistic about our M&A activity.” That’s the best way to “move the needle faster,” Bosley said.

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