Today’s mortgage lenders are simply trying to keep the lights on current market. However, there are notable exceptions. Companies like Guild Mortgage, Union Home Mortgage and American Pacific Mortgage have emerged as powerful players who have been growing their businesses during a time of increasing interest rates and shrinking originations. This group of lenders either strategically acquires companies or hires strong retail teams. This is because these nonbanks will be well-positioned to grab the largest share of the market once it recovers. There’s a history precedent for this strategy. Some lenders, such as Freedom Mortgage, took advantage of the market to buy up businesses from lenders who were exiting the business after the Great Recession. Freedom Mortgage has risen to the top 10 national mortgage lenders. In the last few months, lenders such as Majestic Home Loan and Finance of America, Guaranteed Rate and Athas Capital Group have all closed down or reduced their business operations. “What we have now is an industry that’s falling off a steep cliff which is probably as steep a cliff as I’ve seen over the past 37 years,” said Cosgrove. UHM, a Ohio-based lender, announced its acquisition Kalamazoo-based Amerifirst in December. This was due to similar company cultures and UHM’s ability to expand its reach into markets like Florida, Michigan, Ohio. North Carolina, California, and California. He said, “We’re expanding [our coverage area], we’re stable organization and we’re doing this strategically by continuing to decrease the layers of our company as well as reducing our cost of closing loans.” He emphasized the importance of servicing in a time when originations are declining. Cosgrove stated that if you have a large servicing portfolio, it will be a boon for you to grow in that lane. “Quite frankly, there are not many market participants who are able to be at that level right now. Bill Lowman, CEO of APM, plans to expand the company’s reach. Since mid-2022, the lender has made at least two acquisitions and has actively recruited retail branches from defunct lenders. Lowman stated that this is a cyclical industry, and there are always ups and downs. The ones who can navigate these transitions are going to win market share. Lowman spoke on a Mortgage Pro’s 411 podcast. “We must not compare volume because it’s too far off. Instead, we should measure ourselves on market share. A few days before the show aired, the California-based lender had announced that it was buying Lend Smart Mortgage, LLC. The Minnesota-based lender has nearly 30 branches across the country, with its main presence in the Midwest. In July, APM acquired Arizona-based Sunstreet Mortgage.Concurrently, San Diego-based Guild Mortgage has made a splash by purchasing the assets of New Mexico-based Legacy Mortgage and Wisconsin-based Inlanta two months apart. According to company executives, this allows Guild to expand in both the Southwest and the Midwest. The terms of the deals were not disclosed. All three lenders said they are continuing to search for “new opportunities to expand.” Guild CEO Mary Ann McGarry stated that the company is always looking for a cultural match and a natural fit to ensure both companies reap the benefits of the acquisition. APM also put out a call to new talent interested in joining their ranks. According to David Hrobon (principal at STRATMOR Group), there were 42 mergers and acquisitions in 2022. “And still counting.” Hrobon predicts that 60 transactions will be completed in 2023, with most of them between nonbank lenders. Hrobon explained that although each deal is unique, there are common factors relative to nonbank buyer motivations such as larger IMBs often having “lower borrowing cost and better secondary market execution” than smaller peers. Market share growth is simply calculated by the product of acquisitions for most lenders. He stated that their primary motivation is to increase loan volume (scale), which will help them offset fixed expenses and return at an acceptable level of profitability. He added that they also have other motivations. “They often define specific geographic areas where they want to expand based upon factors such as wanting avoid current lending conflicts within the existing sales footprint, needing growth in areas with lower loan balances, avoiding environmental issues, or targeting areas that have a higher concentration government lending opportunities. “Investing in retail branch” During the pandemic, lenders were looking for bodies to process, underwrite and originate loans. However, today’s lenders are looking for highly-performing retail branches that can grow in areas with low average loan balances, avoid environmental issues, and have strong connections with their communities. Go Mortgage brought in close to 170 employees from FOA because “these branches were deeply rooted in their local communities. Michael Isaacs, CEO at GO Mortgage, stated that “they have relationships with local agents and most of their business is always been purchase business.” It’s a network that has many branches, all of which are integrated into local communities and have very little overhead. “GO Mortgage was able to expand its presence in the East Coast by adding these employees, particularly in Wisconsin, Pennsylvania and New Jersey, Maryland. Virginia, North Carolina, South Carolina, and Florida. APM purchased 40 of the West Coast offices that Go Mortgage had bought, while it capitalized on FOA branches on the East Coast. APM also purchased retail branches from Mesa-based AmeriFirst Financial in Arizona, which was closed down in December. Isaacs stated that lenders are looking for retail locations that do high-quality purchase business. Isaacs stated that it must be primarily referral business from agents or referral partners, and not leads. They must be able to offer rates that are competitive in an environment that is competitive and profitable. Isaacs believes that other companies may use looser criteria which may not be beneficial in the long-term. Isaacs stated that other mortgage companies have taken on groups and based their decisions on what the group did over the past 12 months. “In this environment it’s important to look at what the group is doing now.” “What happened six years ago doesn’t matter anymore in this environment.”