The broker impact of another major mortgage acquisition
The trend of the big players in the mortgage space getting bigger continued on Wednesday, thanks to a major acquisition by Pennymac.
Pennymac announced it was acquiring Cenlar’s subservicing contracts and mortgage servicing operations for $172.5 million in cash and up to $85 million of contingent consideration payable over the next three years.
The deal still awaits Congressional approval, but the move will bring up to $740 billion in unpaid principal balance of two million mortgage loans. It will give Pennymac a total portfolio of $1 trillion in unpaid principal balance.
Bruce Gehrke (pictured top), senior director of wealth and lending intelligence at JD Power, said the move makes a ton of sense for the mortgage giant.
“I think it's a smart, strong move by Pennymac,” Gehrke told Mortgage Professional America. “If you look at their position in the market, they're a large servicer without Cenlar. They have this very large third-party operation that feeds that servicing portfolio. They have a growing direct-to-consumer platform. They've invested quite a bit of money in technology and building out that platform.”
Impact on mortgage brokers
It has been a stretch where wholesale lenders have gotten bigger. Rocket bought Redfin and Mr. Cooper to continue to build a beginning-to-end mortgage path for customers. UWM announced it would be bringing servicing in-house, then announced its acquisition of Two Harbors in a $1.3 billion all-stock merger in December.
Now it’s Pennymac making the move. Gehrke said not only are these companies expanding their portfolios, but they’re ramping up their technologies to handle the additional business.
“I think you're seeing this across the industry from servicers who have invested successfully in technology,” Gehrke said. “I think that took some time to really impact operations and impact customers in our research. If that's effective and working for you, it only makes sense to add scale. Economies of scale are the heart of servicing. I think strategically it’s a strong move from them.”
For mortgage brokers who work with one or more of those large companies, it could set them up for additional benefits, streamlined loan processes, and support throughout the mortgage. For smaller lenders and brokerages, it might feel like the walls around them are getting larger.
“I think it continues what we've been seeing from a competitive standpoint,” Gehrke said. “Lender-servicers are flexing their muscles and getting bigger and bigger pieces of the pie. It shines a light on the competitive environment that smaller folks, independent lenders, and mortgage brokers are competing against bigger and bigger players that are building an advantage at scale.
“I think that really requires an intense focus on execution from them, and being the best that they can be at what they do. They need to really leverage that local advantage, because that's what the big players don't have. That's what they don't bring to the table. It really highlights that's where the competition is going to be fought as we go forward.”
Trigger lead ban effect
Another factor in industry consolidation is the ban on trigger leads, which is set to go into effect in early March. With companies scooping up servicers, Gehrke said this could allow these companies to expand the list of customers they are legally allowed to reach out to.
“If you think about the other shoe that's about to drop next month, you have the new law around trigger leads coming into play,” Gehrke said. “The servicers are carved out of that, and prior lenders are carved out. They're still going to see those trigger leads. But if you're not, and you built a strategy around pursuing those types of leads, you're going to be out in the cold, and it makes it a little bit tougher.”
Gehrke notes there are two important points to keep in mind regarding these trigger leads. UWM and Rocket have both stated that they were going to continue giving leads back to their brokers, rather than taking them away. Second, there could be contractual issues in some of these subserviced loans that might keep a company like Pennymac from using them in a legal trigger lead.
“It'll be interesting to see how the whole trigger lead ban impacts things going forward,” he said. “Pennymac has a big wholesale business as well, and they have to look at competitive challenges with those two big players who dominate third party. If you're going to continue to do that wholesale business, I think you want to be in the position to be able to match some of the things that they're offering.”
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