Owners' Age, Not Rising Costs, Spurs Pickup in Mortgage Lender M&A
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While it's true that compliance is driving up costs across the industry, the growing age of mortgage company owners is a stronger factor in the number of lenders going up for sale.
That's the case for every deal right now that Stratmor Group is the advisor on, said Jeff Babcock, senior partner in charge of the mergers and acquisition practice. While factors such as the inability to gain retail origination scale and having the funds to invest in their compliance infrastructures are part of what is entering into the decision to sell, "in our experience, that's not what's bringing them to the table. It is the age factor," he said.
Stratmor's Originator Census found the average age of a loan officer is between 46 and 47, and it makes the assumption that the average age of a lender owner/operator is between seven to 10 years older than that.
Then there is timing: the originations business is in its second consecutive year of growth, Babcock pointed out. Last year, originations totaled $1.75 trillion, according to Freddie Mac. In August, the GSE projected 2016 to be the first time the industry reaches $2 trillion in annual volume since 2012.
So Stratmor is "experiencing more seller interest in 2016 year-to-date than we have at any time in the past four or five years," said Babcock. It represents sellers who originate between $500 million and $4 billion in retail volume.
Compliance, while a concern, is not a major reason for selling.
"They've been dealing with it long enough, many have had some of the big name law firms do mock audits to help them get ready. They're talking to their colleagues who have had experience with a CFPB exam and there's a general comfort level that they've got their arms around the compliance demands," Babcock said.
There are three categories of buyers for distributed retail originators: other independent mortgage bankers, bank-owned mortgage banking companies and private equity firms.
Even though more owners are marketing their companies, "it is a seller's market. There are many more buyers for a well-run distributed retail platform then there are sellers," he said.