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Kroll: M&A Deals Are Slow to Materialize

Although the time is ideal for mergers and acquisitions between mortgage lenders there was just one large deal and a handful of small deals.

The BB&T Corp.’s acquisition of SunTrust Banks Inc. creates the ninth largest mortgage lender in the U.S. with a 2.3 percent market share, according to the “Residential Mortgage Bank Update” from the Kroll Bond Rating Agency. For the combined entities, residential mortgages are expected to represent 27 percent of total loans and comprise 7 percent of fee income. SunTrust’s pre-merger market share was 1.4 percent.

Across the mortgage industry, deal activity has been slower than expected as acquirers are being selective, and sellers are reluctant to entertain deals at lower valuations. With production profits down and the average cost per loan over $8,000, banks are taking a serious look at the viability of mortgage lending as a product offering, in particular traditional retail. Some banks are simply exiting mortgage-lending activities but have decided to sell mortgage-related assets.

For example, TIAA Bank is transitioning out of retail branch home lending to focus on digital loan originations. Also, U.S. Bank will extend offers to experienced loan officers and assume leases on offices in key markets and took over 26 TIAA branches.

Provident Savings Bank, a privately held California thrift, closed its residential mortgage operation last month due to difficult market conditions.

HomeStreet Inc. has reached a non-binding letter of intent with Homebridge Financial Services,Inc., under which Homebridge would acquire HomeStreet’s home loan centers and hire its employees. The deal reflects HomeStreet’s acceptance of the fact that near-term recovery of origination volume and profitability might not happen. HomeStreet will continue to offer mortgages through the branch network and focus on increasing retail deposits.

Based on 2018 origination volumes, the transaction could make Homebridge to a top-20 mortgage lender in 2019.

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