I came across another interesting article from Progress in Lending Association recently.  It’s well worth a read. Essentially, it touches on the insights of the well-respected Garth Graham (Senior Partner at advisory firm STRATMOR group) on what has become a record year for mergers and acquisitions in our industry.

We already know that historic interest rates and other factors have come together to make the origination volume of 2020 one of the best on record. That, in part, has led to multiple big deals such as the purchase of Ellie Mae, United Wholesale’s massive merger and a surge of IPOs and potential IPOs.

I’ll insert here that we’ve also seen an opening up of the industry, as well. In the past decade or so, it seemed only certain kinds of firms would buy other firms. Now, it’s almost the Wild West. It’s not just growing, mid-sized tech developers being purchased by much bigger developers or “all-in-one” providers (like a title insurer). Growing tech companies are buying similarly sized tech companies and even service providers, for example. Not to mention the increased interest of investors from outside the industry.

It seems only a couple of years ago, we were considering the possibility of industry consolidation as a previous refinance spike was coming to a close and we began to gear up for a purchase market. But how different the two M&A cycles were. When we think of market consolidation, we think of winners and losers; the large (or mid-sized with good backing!) eating the small and so forth. 

However, Graham points out that this M&A cycle is more of the large eating…well, the large. The sellers are negotiating from positions of strength. Additionally, he observes that we’ve seen greater interest in independent or non-bank mortgage lenders from “outside” equity investors.

It’s a great time to be an independent mortgage banker. Or a growing firm of any type that serves the mortgage industry. And that’s a headline that’s gotten lost in the shadow of things like COVID, the continuing GSE privatization drama and, obviously, the continued, jaw-dropping rise of refinance origination volume.

This is definitely something to keep an eye on when (whenever that is) refinance volume finally starts to stabilize or decline a bit. How will the IMBs react, and will we see a different kind of M&A surge?  Just something interesting to consider.

Ideas or suggestions for future topics? Have something you’d like to say to the readers of Deeper Thoughts? Please share with me at jpaolino@lssoftwaresolutions.com

MBA Forecast Gives Us Something to Think About.

An article in Mortgage Professional America (MPA) caught my eye recently. To be honest, it was the headline that really got me to thinking: “Are you prepared for the end of the re-fi boom?” (It’s actually mostly about converting product mix more toward Non-QM. Do read it. It’s very good.)

It’s an interesting concept. While it seems the latest refinance surge has gone on forever and seems like it could last that long as well, we all know it won’t. Whether it happens in January or in 2029, at some point, even this historic cycle will end. And while we don’t know how or exactly what will cause that, we know that, as an industry, we’ll probably have to shift gears quickly. In the article, the suggestion is to vary your lending product mix, a successful, tried-and-true approach.

But what about addressing margin compression?

I know, I know. This was the thorn in every lender’s foot no more than two or three years ago. Pressed up against it by regulation and enforcement gone wild, lenders were searching every which way for some way to keep their profit margin. I’d argue it’s a major reason the “eMortgage” craze that was once confined to the last session on the last day of every major conference suddenly came front and center. 

While technology likely helped many lenders improve their margins, we have to admit that a tidal wave of refi volume also does the trick nicely. The end of the refi boom doesn’t have to be apocalyptic, but no matter what the numbers are, it will mean having to win more purchase or niche business. Which means tougher margins. 

I know of several lenders who, in spite of the “all hands on deck” mentality needed to service an overflowing sales funnel, have kept an eye on addressing margin compression by continuing their investments in process improvement—especially in “back end” operations. After all, if your process has a glitch, overwhelming it with new orders will only bring those glitches into the light. But has the entire industry done that? Has operational efficiency continued to be some kind of priority, even as the pundits forecast more insanely high origination volume for the foreseeable future?

I guess we’ll find out at some point. 

Ideas or suggestions for future topics? Have something you’d like to say to the readers of Deeper Thoughts? Please share with me at jpaolino@lssoftwaresolutions.com.

Week of September 16th, 2020

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A different kind of Mortgage Conference?

https://www.lodestarss.com/deeper-thoughts/deeper_thought_20200821https://www.lodestarss.com/deeper-thoughts/conference-season-in-a-covid-19-world-may-20th-2020/

April Homebuyer Demand Outweighs Home Supply Amidst COVID Outbreak

https://nationalmortgageprofessional.com/news/74957/redfin-april-homebuyer-demand-outweighs-home-supply-amidst-covid-outbreak

Third-Party Data Now Critical For Mortgage Lenders’ Technology Initiatives

https://mortgageorb.com/third-party-data-now-critical-for-mortgage-lenders-technology-initiatives

Finding opportunity in a forced “pause”

https://www.housingwire.com/articles/pulse-finding-opportunity-in-a-forced-pause/

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