Magazine article American Banker

Mortgage Banks Bracing for Consolidation

Magazine article American Banker

Mortgage Banks Bracing for Consolidation

Article excerpt

Byline: Kate Berry

Independent mortgage lenders are bracing for a wave of consolidation prompted by heavy compliance costs and a tepid housing recovery.

The Consumer Financial Protection Bureau's promise to increase scrutiny of independent lenders tops their list of worries because any fines would hit the top dogs directly in their wallets.

Many of these lenders are actively raising capital, searching for equity partners or considering whether to sell out to larger firms. As many as 20% to 25% of independent mortgage companies could change hands or simply shut down in the next 12 to 18 months, according to one estimate.

Bill Dallas, the CEO of Skyline Home Loans in Calabasas, Calif., said competitive and regulatory pressures have created a growing angst among independents.

"We do home loans but we spend more time doing things that don't matter and very little time doing things that were fun, which is why we got into the business in the first place -- to help people buy homes," he said.

Dallas, whose Ownit Mortgage Solutions Inc. was the first high-profile casualty of the financial crisis when its funding was cut off by Merrill Lynch in 2007, and other lenders fear they may not have enough stable backing to cope with the new challenges. Many of them are nearing retirement and worry their net worth could be drained by

a large CFPB fine, or the investments necessary to please tech-savvy consumers seeking a better loan-application experience.

"A lot of lenders are long in the tooth, and have all their capital invested in the business and they just want to get the heck out," said Dallas. "They aren't capitalized or structured to deal with the new regulatory platform. It's time for a new generation of lenders to take over."

CFPB officials have said examiners will be spending a lot of time looking at loan-officer compensation and fair lending violations in the next year. Several lenders cited the $20 million fine that the CFPB levied last year against RPM Mortgage and its CEO Rob Hirt for loan-officer compensation violations as a wake-up call.

Hirt said that because the loan-officer-compensation rules are unclear, and not all mortgage lenders have interpreted and executed the rules in the same manner, more enforcement actions will likely occur.

"This will fix or eliminate some bad actors, but it will also strain many great brokers and bankers who are responsibly serving their communities, and they will look to [or be forced to] sell," Hirt said in an email. RPM is among the larger nonbank lenders shopping for takeover targets, he said.

Rick Roque, a mortgage consultant who is managing director of retail originations at MiMutual, a unit of Michigan Mutual Mortgage in Southfield, Mich., estimates that $25 billion in annual home loan production will change hands or simply be eliminated in the next 12 to 18 months. …

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