While much of the mortgage industry’s collective energy will continue to be spent on navigating the ever-expanding and increasingly complex regulatory landscape, there are segments of the business that are focused on doing deals. As the industry resets, platforms, assets, and key management personnel are becoming the subject of transactions that are being structured to address both the challenges and opportunities that lie ahead. While it likely will take years for markets to normalize, industry business models are adapting and deals are being discussed, assessed, and with increased frequency, closed. These deals are launching new platforms, creating scale in existing platforms, and bolstering the bench strength of management teams that are committed to evolving.
In 2011, we saw an upward trend in deal activity and we expect that trend to continue. Ongoing active areas for transactions will be servicing, third-party service providers and financial technology companies, and small to mid-tier originators who have access to capital and seek growth or are in need of capital and are therefore targets for consolidation.
John J. Nelligan, Managing Director of Milestone Advisors, said: “Our belief is that we will witness an uptick in M&A activity in 2012 as several independent well-capitalized mortgage firms look to expand their geographic reach or pursue channel diversification and expansion. In terms of large cap banks weighing in on all the fun, we think it is far too early. However, ultimately the large cap banks will need to make acquisitions of residential mortgage companies to bolster their origination capabilities as an overabundance of liquidity will continue to drag on their earnings.”
Outside of M&A, Nelligan said, “all eyes are focused on MSRs. The economic return profile of MSRs in the current environment will clearly generate interest from the investor community. Untold hours will be spent trying to crack the code of combining investor capital with MSRs.”