
In a recent analysis by HousingWire, the mortgage sector faced a whirlwind of 37 significant events in 2024, ranging from mergers and acquisitions to business exits and bankruptcy filings.
While experts predict that the volume of transactions in 2025 may hold steady, the landscape is expected to transform.
David Neylan’s Outlook
David Neylan, Guild Mortgage’s president and COO, anticipates a tough year for mortgage lenders in 2025.
However, he sees these challenges as an opportunity to strengthen Guild’s position in the market.
Although some analysts foresee a slight dip in interest rates, Neylan emphasizes that any forthcoming decreases are likely to be modest.
This prolongation of higher rates poses a significant threat to profitability, especially for companies that lack a robust scale to weather the storm.
Guild’s financial performance gives context to Neylan’s outlook.
In the third quarter of 2024, the company reported origination volumes hitting $6.9 billion.
Despite facing a total loss of $67 million due to market value fluctuations in its servicing portfolio, Guild still earned a profit from its origination segment.
This encouraging backdrop positions Guild for potential acquisitions in 2025 aimed at increasing market share and diversifying its services.
Even with a minor slowdown in transactions observed during the summer, Neylan suggests that the acquisition landscape remains promising.
Increased interest in mergers and acquisitions can be seen as firms adjust to prevailing market conditions shaped by sustained higher interest rates.
M&A Landscape in 2024
Earlier in 2024, Guild made a significant move by acquiring Academy Mortgage Corp., a transaction that added 20% to 25% to its origination volume, brought 1,000 new employees on board, and opened around 200 additional branches.
Despite being Guild’s largest deal in a year, the overall pace of mergers and acquisitions has decelerated compared to 2023, a year marked by numerous substantial acquisitions for Guild.
This slowdown in activity is mirrored across the mortgage sector.
HousingWire reported a total of 37 M&A events in 2024, significantly down from the 62 recorded in 2023.
Of these transactions, 76% were mergers and acquisitions, 22% involved business exits, and just 2% were bankruptcies.
It’s noteworthy that HousingWire’s findings may not capture the full spectrum of transactions, as many mortgage companies remain privately held.
Brett Ludden, managing partner at Sterling Point Advisors, commented on the disconnect between expectations and reality for 2024.
Many lenders remained financially strained despite hopes for recovery.
However, in the second quarter of 2024, independent mortgage banks did manage to bounce back, with 78% reporting profitability.
On the other hand, some smaller firms that might have felt pressured to sell found themselves with more capital and alternative strategies to maintain independence.
Sellers in this climate tended to be firms grappling with profitability, unlike the profitable companies that faced owners dissatisfied with their returns.
Future M&A Activities
Acquiring companies often aimed to diversify their product offerings or gain market share in key regions.
Mortgage servicers were particularly active in the M&A landscape, eager to expand their mortgage servicing rights (MSR) portfolios in anticipation of future opportunities stemming from rate declines.
This pursuit of scale was a driving force behind many transactions.
According to Michael Linger, senior vice president at Houlihan Lokey’s financial services group, some firms continue to hold onto MSRs acquired in previous years, but they might soon need to divest them as they look ahead to improved market conditions in 2025.
The outlook for 2025 appears less optimistic than some had hoped.
Anticipated changes in the Trump administration and ongoing actions from the Federal Reserve, which could lead to market volatility, suggest a slower path toward interest rate reductions amid persistent inflation concerns.
By the end of December, mortgage rates neared the 7% mark, leaving about 30% of independent mortgage banks still struggling to regain profitability by the third quarter of the year.
As for M&A activities in 2025, experts predict they will likely mirror those of the previous year.
Ludden noted that while there was a notable increase in refinance activity in September, most of it was concentrated among the top 20 servicers, highlighting persistent challenges for the majority of lenders.
As the M&A landscape evolves, Ludden observed that his end-of-2024 pipeline bears similarities to that of previous years but with notable differences.
While asset purchases have typically dominated the scene, there is a noticeable shift toward stock purchases.
This transition can complicate acquisition processes due to the complexities involved in ownership changes.
In 2025, M&A activities might attract companies outside the traditional mortgage sector.
Strategic partners are likely to pursue significant stakes in mortgage firms, leveraging their expertise to enhance operational efficiency and reduce costs.
Private equity firms are also anticipated to become increasingly active, focusing on growth opportunities within the industry.
Fuller emphasizes the growing interest in M&A or sales of specialized non-qualified mortgage origination platforms, driven by rising demand and favorable pricing for such products.
Buyers are expected to include private equity firms, life insurance companies, and other entities aiming to gain direct control over loan production to boost their operational capacities.
Overall, M&A professionals anticipate an uptick in valuations in 2025, fuelled by falling mortgage rates that could foster an increase in loan volumes and reduce pressure on future revenue stream discounts—crucial factors in determining company valuations.
Linger pointed out that previous stagnation in M&A activity stemmed from sellers not meeting their valuation expectations.
However, as the market rebounds, retail platforms could see improved premiums as buyers grow more willing to invest to secure key talent and expand their market presence.
Industry leaders are also recognizing rising interest in wholesale and consumer-direct channels alongside retail options.
Servicers, well-capitalized and eager to engage, offer valuable partnerships.
Dan Hanson, loanDepot’s executive director for partnerships and acquisitions, conveyed that the market may remain focused on purchases for at least the next year or two.
He underscored an important question for business leaders: will their operations enhance productivity and add value to the acquiring organization amid escalating costs and dwindling inventories?
Owners of both small and large independent mortgage banks face significant risks as margins tighten, prompting some to consider merging rather than tackling challenges in isolation.
The goal remains clear: aligning acquisition opportunities with mutual interests for shared success.
Source: Housingwire