What does nesto's acquisition of CMLS Financial mean for the mortgage industry?

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What does nesto's acquisition of CMLS Financial mean for the mortgage industry?

A deal struck by nesto to purchase CMLS Financial marks a further step into the broker channel for the digital mortgage giant after its introduction to the space earlier this year.

The lender revealed last week it was completing a long-rumoured acquisition of the 50-year industry stalwart for an undisclosed fee, a move that arrives hot on the heels of the rollout of nesto products to select brokers through a partnership with the M3 network.

The deal promises to bring more than 1,000 employees and over $60 billion in mortgages under administration together, with investors including Diagram Ventures, National Bank’s corporate venture capital arm NAventures, BMO Capital Partners and Fonds de solidarité FTQ helping get the acquisition over the line.

Malik Yacoubi (pictured top), nesto’s chief executive officer, told Canadian Mortgage Professional the deal would expand its reach in the broker space and mark a first foray into the commercial lending sector.

“CMLS is a really well-established brand in the broker channel,” he said shortly after the acquisition was announced. “This is something that we like, as it brings strong origination from that channel – which is an important channel for Canadians.

“We were not in the commercial space, either – so adding the whole commercial multifamily expertise from CMLS really is making a great difference.”

Inside the ‘mortgage ecosystem of the future’

Yacoubi said discussions between the two companies, which had been progressing for nearly a year, revealed a “strong cultural fit” and highlighted similarities between CMLS’ Intellifi division and nesto’s Mortgage Cloud offering.

Capturing more market share and leveraging technology from both sides of the transaction were key opportunities nesto identified from the merger, Yacoubi said, with the company referencing its ambition to build the so-called “mortgage ecosystem of the future” looking ahead.

That means connecting and leveraging each of the different actors that are already part of the mortgage process, Yacoubi said, and helping fuse the powerful relationships that nesto and CMLS have already established.

“All this feeds into a really strong book on mortgage, and from a backend perspective there’s all the capital market actors that are funding these mortgages,” he said.

“So having the ability to connect all these distribution channels with strong servicing platforms and a strong investor base will just generate opportunities for everyone. It’s about enabling the data flow to surface opportunities for all parties involved.”

The company’s move into the broker channel was a long time coming – but for Yacoubi, it was one it had always planned to make because of the different value proposition offered by the space as a complement to its direct-to-consumer offerings.

“We were always looking forward to starting the work with brokers a few months ago, and now with CMLS,” he said. “It brings that to another scale.”

The purchase will see nesto, CMLS and Intellifi brands remain separate, with no current plans to merge as a single, unified brand, according to Yacoubi.

Are green shoots appearing for the housing and mortgage markets?

While the performance of Canada’s mortgage and housing markets in 2024 has remained sluggish amid continuing high interest rates and an affordability crisis in many urban centres, Yacoubi sounded an optimistic tone on future prospects as the industry gears up for the second half of the year.

The Bank of Canada’s interest rate cut at the beginning of June could act as a catalyst for an uptick in market activity between now and the end of 2024, he argued, with brighter prospects on the horizon despite the prolonged lull of recent times.

“We see the volume is picking up. We see a good trend right now,” he said. “And so [we’re] really positive about the market for the back half of the year. The [rate cut] is helping from a psychological perspective for Canadian consumers. We’re excited about what’s coming in, the fact that there are so many consumers coming up for renewal in the coming months and years.

“So for us, we just see that as an opportunity to bring more options to Canadians. We’re really positive about what’s about to come in the market.”