Feb. 25: Thoughts on vendor & lender acquisitions; vendor news; CFPB’s registration proposal; Mahatma Gandhi tale
“All of my passwords are protected by amnesia.” Along those lines, sorry that the commentary is a little late this morning. I received an email that my Chase bank account had been hacked, and for me to reset my username and password and enter some personal information, which I dutifully did. And then it occurred to me that I don’t have a Chase bank account! Ah, live and learn; no one will expect me to use “Myrtle123” again for my password. While’s we’re on technology for simpletons like me, there are new emojis heading our way… heck, I can’t keep track of the existing ones. It would be impossible to be a residential lender without some modicum of technology, and deciphering which is the most cost-effective, customer-friendly, easiest and fastest to rollout is a discipline unto itself. Technology allows lenders to leverage the skills of their people to help borrowers, and there’s nothing wrong with that. Below is some recent vendor news of note.
Mortgage layoffs made the headlines this week. This time, once again, Wells Fargo was in the headlines, shrinking its mortgage origination footprint to better match the footprint of its bank branches. For smaller lenders, owners and management always wonder what they’re worth, and “Valuing a Lender” is the current STRATMOR blog. During 2022 we saw a number of deals occur with lenders, or with vendors. 2023 is expected to be no different. For example…
CoreLogic has acquired digital mortgage tech firm Roostify. Rajesh Bhat, Roostify’s co-founder & CEO, said the union will “accelerate the journey towards a truly data driven digital origination experience in one single platform.” Quotes included, “Together, the companies’ technologies will offer critical information about borrowers and properties at the beginning of the loan process…. CoreLogic is committed to driving innovation throughout the mortgage manufacturing process… We sit on an incredible amount of data, analytics and essential workflow solutions that when properly integrated to the loan lifecycle, can deliver a better mortgage experience for borrowers as well as lenders. The Roostify acquisition will unlock our ability to quickly execute on this mission.”
What might it mean? Here is The Basis Point’s strategy breakdown of CoreLogic buying Roostify, and what’s in it for lenders & consumers.
Taylor Stork, CMB, had a take on the news. “Wednesday night, the high-profile CEO of a certain start-up mortgage fintech announced their sale to a dominant industry provider of technology. Various industry leaders and acolytes quickly and publicly shared their applause and congratulations. The announcement portrayed a celebration of success. After 9 years of development and at least $65 Million from outside investors, they finally hit paydirt and sold to one of the big guys. Woo hoo!
“But wait a minute… What’s so successful about this? Prior to this announcement the company was bleeding money. They lost one of their top clients to a competitor. And the ‘undisclosed’ sale price is rumored to be nowhere near its latest funding round valuation and only a mere fraction of what their investors poured into it over the last 9 years. And what about all those RSUs? This feels more like a fire sale and bail out. So maybe the success is that they didn’t blow up?
“But there’s a bigger concern here: Industry consolidation. Consolidation leads to fewer choices, less competition, and sometimes monopolistic practices. We’ve already seen it play out in other sectors with notorious examples such as Microsoft/Netscape and we’ve seen it in our own space (examples abound: MERs, CoreLogic Flood, TWN, FICO.) And we’re watching the ICE/BK drama with the FTC play out in real time.
“At the end of the day, fewer vendors and counterparties results in fewer choices for IMBs. This reduces pricing competition which drives up cost across the board. IMBs often have ZERO bargaining power when VOE vendors choose to double their pricing or credit scoring companies QUINTOUPLE theirs – as we’ve all recently witnessed. Ultimately the pricing passes through to our borrowers and increases the cost of homeownership. When you follow the bouncing ball – you’ll notice that it often finds its way to the gutter.”
And a couple days ago Mutual of Omaha Mortgage announced the strategic acquisition of the assets of Keller Mortgage LLC, a member of the Keller Williams (KW) real estate franchise. Mutual of Omaha Mortgage, a subsidiary of Mutual of Omaha, will operate Keller Mortgage alongside its existing forward and reverse mortgage divisions, said Mutual of Omaha Mortgage President Terry Connealy. Both sides released the customary platitudes about the deal.
Sure enough, STRATMOR’s M&A practice is on fire as big lenders have become small lenders, or brokers, and culturally paired lenders are wondering, “Why have two accounting teams? Two capital markets groups? Two underwriting staffs?” And so on. (Anyone interested in learning more should talk to David Hrobon or Garth Graham.) Of course, as has been mentioned in this commentary, larger lenders are also adept at simply hiring production staff away from smaller, thinly capitalized lenders.
Many owners of lenders around the nation are earnestly interested in making a decision about what to do with their company before a decision is made for them. I have received this question from a number of owners of small lenders. ‘Rob, is it only the lenders who have servicing who have any value? Or can small lenders with decent market share like mine have interest from buyers?”
Garth Graham replied. “Great question, Rob, and one we field nearly every day. We are hearing from lenders who are inquiring about the M&A space, and often trying to find out what is going on and what they should do.
“The answer is that there continues to be good deals for potential sellers, and the reason is that there are a lot of buyers we work with who continue to want to grow market share in a down market. We closed three deals in the last 60 days, and all had upfront premiums with solid earn outs, with a good cultural fit for the parties. Often the premium being paid is driven by the ability for the seller to add the production without having to add all the corporate expense, so it can be painful decisions about the corporate depts (secondary, HR, Risk, technology etc.), but the end result is that the production is worth more to the buyer than it is to the seller due to the cost savings. And that shows up on premium offers. And the seller gets the balance sheet plus a share of that financial benefit. So, it can be a potential win-win. Of course, it has to be a deal that makes sense for the LOs, and production staff too, so that is why culture matters so much.” Thank you, Garth.
In valuing a company, a potential buyer will look at the audited net worth and the discounted cash flows, usually for the next three years of estimated earnings. (The devil’s in the details and assumptions!) The value to a potential buyer will depend on different factors, and three main variables often used in an analysis are loan volumes, margins, cost structure, & profitability, and the current policies, procedures, & business model. Of course, repurchase obligations are included, as well as existing or potential liabilities. Are there outstanding lawsuits? Is the buyer buying the entire company, or a percentage of ownership… a minority ownership has very little value. It is not a simple process, and making assumptions about the future is problematic. A thorough examination of these factors is where the value of a competent advisor shows itself.
The CFPB and its registration proposal
The CFPB, who already is monitoring HMDA data from every lender of size, recently issued two proposals that would require nonbanks to register with and submit information to the CFPB for publication in an online, publicly available database. The proposals represent an aggressive attempt by the CFPB to enhance its supervisory and enforcement authorities and carry significant potential implications for nonbanks that would be required to register. Ballard Spahr has a recording.
“Pursuant to its authorities under the Consumer Financial Protection Act of 2010 (CFPA), the Consumer Financial Protection Bureau (Bureau or CFPB) is proposing to require certain nonbank covered person entities (with exclusions for insured depository institutions, insured credit unions, related persons, States, certain other entities, and natural persons) that are under certain final public orders obtained or issued by a Federal, State, or local agency in connection with the offering or provision of a consumer financial product or service to report the existence of such orders to a Bureau registry. The Bureau is proposing to include all final public written orders and judgments (including consent and stipulated orders and judgments) obtained or issued by the Bureau or any government agency (Federal, State, or local) for violation of certain consumer protection laws.
“Pursuant to its authority under the CFPA, the Bureau is also proposing to require certain supervised nonbanks to submit annual written statements regarding compliance with each underlying order, signed by an attesting executive who has knowledge of the entity’s relevant systems and procedures for achieving compliance and control over the entity’s compliance efforts.”
Call them what you want: solution provider, outsource provider, vendor, third-party provider… they do a lot more than capitalize odd letters in their names. Let’s see who’s been doing what lately.
Realfinity.io is now offering its white-label platform – HomeDashboard – to lenders and LOs, allowing them to deliver property data and mortgage products throughout the entire real estate lifecycle. Homeowners and home buyers need insights into financial property data to manage their real estate and prospect properties to build lifelong wealth. The question isn’t whether your clients will get a platform to manage their home’s finances – the question is who will give it to them. HomeDashboard leads to higher deal certainty, repeat business and more referrals. Empower your clients to make data-driven decisions using your brand’s HomeDashboard. Let’s chat about what Realfinity can do for you! More at Realfinity.io, trusted by clients like Cross Country Mortgage and NFM Lending.
Insellerate, a leading provider of modern CRM and marketing automation solutions to the mortgage lending and real estate industries, is launching its new TPO solution. “This powerful solution provides dynamic account executive workflows, engaging marketing content, pipeline management, and more from an account executive’s mobile device. Insellerate TPO is fully integrated into leading LOS systems like ICE Technology’s Encompass® and MeridianLink to seamlessly allow account executives to work on their loan files from their mobile devices, send dynamic marketing content to stay engaged with their TPO brokers, and enhance communication across multiple channels. Insellerate TPO solution delivers industry-first workflows specific to wholesale account executives to streamline their processes and daily activities. The solution enhances pipeline management at the company and individual broker levels to quickly identify opportunities and trigger strategic marketing messages and notifications to keep each party informed throughout the process.” Schedule a tour of Insellerate TPO.
A leader in data intelligence and market insight tools, Mobility Market Intelligence (MMI) received a growth investment from WestView Capital Partners (WestView), a Boston-based private equity firm focused exclusively on middle market growth companies. Headquartered in Salt Lake City, Utah, MMI provides a comprehensive software suite that enables participants in the mortgage origination process to track and analyze production data effectively. Its platform combines highly accurate and real-time data with broad nationwide geographic coverage and an intelligent, user-friendly interface, allowing its users to access the most relevant information and draw actionable insights quickly. WestView’s investment not only recognizes the value that MMI adds to the mortgage and real estate industries, but it also signals that MMI is poised for continued success.
Fortuna Finance announced the official launch of its Home Sales Assurance (HSA) program that works with real estate agents to provide a guaranteed purchase offer on a client’s current property, which allows the client to make a non-contingent offer on their new home while deducting their mortgage debt from their DTI ratio when qualifying for a new loan.
Fortuna’s Guaranteed Backup Contract ensures the client’s current home is sold within 90 days, during which time the real estate agent can stage and sell their client’s home at the highest possible price. If the home does not sell after 90 days, Fortuna will buy and relist the home for sale with the current agent. When the home is sold, 90% of the proceeds go back to the original homeowner, as Fortuna only keeps enough to cover the costs of the transaction.
By helping consumers buy their current home before their new one has sold, Fortuna also helps home sellers finish last-minute projects on their current home so they can sell it at the highest possible price.
FundingShield, a leading provider of FinTech risk management and fraud prevention tools announced that its Consumer-Wire Account Verification Service (referred to as “CWAVs”) will be made available to Milestones.AI clients. This partnership comes on the back of increased concern of wire fraud from the National Association of Realtors, The Federal Bureau of Investigation (FBI) and other regulatory and insurance organizations where coverage is opaque and limited. Milestones is a customer-for-life experience platform for buying, selling, moving, and managing home ownership – provided to consumers by professionals in real estate, mortgage, insurance, and title. The integrated and open platform creates private personalized client portals where agents can stay connected, educate, and create value at every stage of the homeowner journey. For more information, view the Full Press Release.
(This tale is of questionable accuracy, uncorroborated, but it is an amusing story…)
The Wit of Gandhi: “He who stops to ponder and think will generally come out ahead.”
When Gandhi was studying law at University College, London, a Caucasian professor, whose last name was Peters, disliked him intensely and always displayed prejudice and animosity towards him. Also, because Gandhi never lowered his head when addressing him, as he expected, there were always arguments and confrontations.
One day, Mr. Peters was having lunch at the dining room of the University, and Gandhi came along with his tray and sat next to the professor. The professor said, “Mr. Gandhi, you do not understand. A pig and a bird do not sit together to eat.”
Gandhi looked at him as a parent would a rude child and calmly replied, “You do not worry professor. I’ll fly away,” and he went and sat at another table. Mr. Peters, reddened with rage, decided to take revenge on the next test paper, but Gandhi responded brilliantly to all questions.
Mr. Peters, unhappy and frustrated, asked him the following question. “Mr. Gandhi, if you were walking down the street and found a package, and within was a bag of wisdom and another bag with a lot of money, which one would you take?”
Without hesitating, Gandhi responded, “The one with the money, of course.”
Mr. Peters, smiling sarcastically, said, “I, in your place, would have taken wisdom, don’t you think?
Gandhi shrugged indifferently and responded, “Each one takes what he doesn’t have.”
Mr. Peters, by this time was beside himself and so great was his anger that he wrote on Gandhi’s exam sheet the word “idiot” and gave it to Gandhi. Gandhi took the exam sheet and sat down at his desk trying very hard to remain calm while he contemplated his next move.
A few minutes later, Gandhi got up, went to the professor and said to him in a dignified but sarcastically polite tone, “Mr. Peters, you signed the sheet, but you did not give me the grade.”
Wit always wins over anger.
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