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HomeStreet to Sell Loan Centers, MSA Holdings

Homestreet Inc. has retained Keefe, Bruyette & Woods to seek buyers to acquire its stand-alone home loan centers .

Also, the Company has retained MountainView Transaction Advisory LLC to seek buyers for the majority of its single-family mortgage servicing rights principally related to loans originated by those home loan centers and personnel.

These moves could “free up more than $100 million of capital, simplify operations, allow for meaningful cost reductions and lead to significantly higher returns on capital,” according to Blue Lion Capital.

Once the sales are completed, HomeStreet expects to retain a smaller mortgage operation integrated with the commercial and consumer banking business, with originations sourced through the branch network, online banking services and affinity relationships.

“The board made the difficult decision to explore the potential sale of our mortgage banking business after extensive deliberations, ultimately concluding that this potential change would be in the best long-term interests of the company and its shareholders,” said Mark K. Mason, chairman, president, and chief executive officer of HomeStreet. “We are considering a sale at this time after having taken substantial steps in the last two years to improve the profitability of our mortgage banking business while expecting a near term recovery in industry volume and profitability. Unfortunately, it is still unclear when, and to what extent, industry conditions will improve.

HomeStreet will continue to offer mortgages, but on a far smaller scale, and focused on the retail deposit network and regional markets and positioned for ongoing profitability.

HomeStreet made the decision to sell because increased interest rates reduced the demand for refinance mortgages, and higher home prices have decreased the affordability of home purchases. These factors continue to put downward pressure on mortgage origination volumes. In addition, historically low new and resale home inventories in many of HomeStreet’s primary markets continue to adversely impact the volume of available purchase mortgages.

Further, the challenging regulatory environment, including changes to loan underwriting and disclosure rules and increased data integrity requirements, have combined with higher loan officer compensation to increase loan-origination costs. Non-bank lenders are regulated by different regulators with different approaches to compliance and regulatory oversight than bank mortgage lenders. This condition has resulted in uneven compliance interpretations, guidance, and enforcement risks between banks and non-bank lenders.

In addition, in September 2017, the banking regulators proposed a rule to simplify and reduce the capital burden for banks holding mortgage-servicing assets.

A final rule, however, has not been published, and given the recent proposal of a community bank leverage ratio which omits the expected capital relief for such assets, HomeStreet no longer expects the proposed rule to reduce the capital burden for banks holding mortgage servicing assets to be enacted or implemented.

The regulatory capital required for holding mortgage servicing assets is onerous, and in conjunction with declining hedge profitability as a result of a flattening yield curve, the return on invested capital in this line of business has been adversely impacted.

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