Freedom Mortgage sells RoundPoint to Two Harbors after 2 years

Freedom Mortgage has moved on from RoundPoint Mortgage Servicing Corp. barely two years after it closed on the acquisition.

Matrix Financial Services, a subsidiary of real estate investment trust Two Harbors Investment, agreed to purchase RoundPoint at a $10.5 million premium to the servicer's tangible net book value.

Matrix already agreed to use RoundPoint as its subservicer prior to the closing date, which was given as sometime in 2023. Loan transfers to the RoundPoint platform are expected to begin in the fourth quarter of 2022.

Currently, Mr. Cooper, Flagstar and Doevenmuhle subservice Two Harbor's approximately $230 billion mortgage servicing rights portfolio, according to BTIG analyst Eric Hagen.

Mr. Cooper could see some impact on its stock price, said Hagen, who estimated that the Two Harbors MSRs was approximately 15% to 20% of its subservicing. It opened $0.18 per share lower at $44.33 on Aug. 4.

"The acquisition of Roundpoint could create value for Two Harbors from the standpoint it centralizes the subservicing effort while reducing counterparty risk, in our view," Hagen wrote in his note. "With that said, we're hesitant to be buyers of the common [stock] here."

RoundPoint will be selling its small retail originations business prior to the deal's close, Hagen added.

"The transaction recognizes the strategic value of our experienced team, robust platform, and dedication to serving our customers well," RoundPoint CEO Patrick McEnerney said in a press release.

Freedom agreed to acquire RoundPoint in May 2019, but the deal didn't close until August 2020, after RoundPoint sued to enforce specific performance of the merger agreement. RoundPoint currently services $19 billion and subservices between $30 billion and $35 billion according to Inside Mortgage Finance data cited by Hagen.

RoundPoint filed a WARN notice with New York State on July 29 stating it was closing a Melville, New York office effective Oct. 27 and permanently dismissing 71 employees.

"Our acquisition of RoundPoint marks an evolution in our MSR strategy which will deliver long-term financial and strategic benefits to Two Harbors," stated Bill Greenberg, Two Harbors' president, CEO and chief investment officer. "The operational efficiencies and revenue opportunities it presents will add value for shareholders while deepening our involvement in the industry."

Two Harbors will gain approximately $20 million in incremental annual pretax earnings by bringing servicing in-house with RoundPoint, due to additional revenues and cost savings from vertically integrating self-servicing capabilities.

It will also give Two Harbors' greater control over its MSR portfolio and create opportunities to expand upon and leverage RoundPoint's existing platform and capabilities.

In May 2017, Two Harbors announced a change in its business strategy, spinning out its commercial real estate lending business to a new REIT, Granite Point Mortgage Trust. That left Two Harbors owning a portfolio of agency and nonagency residential mortgage-backed securities, MSRs and other mortgage credit assets.

Cadwalader, Wickersham & Taft was legal advisor to Two Harbors, while Hunton Andrews Kurth served the same function for Freedom and RoundPoint.

— Additional reporting by Andrew Martinez