Gehrke says the deal signals the industry's growing focus on the back end of the mortgage, and more deals are likely coming
The bidding war between CrossCountry Mortgage and United Wholesale Mortgage (UWM) Holdings for Two Harbors Investment Corp. played out over months and drew attention for its drama.
That drama ended last week, when Two Harbors stockholders approved the CrossCountry merger on July 2, backing the $12-per-share all-cash deal after months of competing offers from UWM. The deal is expected to close in August.
For one industry analyst, it was the latest sign of a growing shift in the mortgage industry, where companies are emphasizing the back end of a mortgage transaction as much as the front end.
Bruce Gehrke (pictured top), senior director of wealth and lending intelligence at JD Power, said the competition for Two Harbors was about more than one portfolio.
"At the heart of it, it's another indication of how valuable servicing has become, or at least is being viewed currently," Gehrke told Mortgage Professional America. "And I think that's an important difference that we've seen. How much attention and investment they're putting toward improving the servicing experience, the journey customers have after they close. It's a different way to view the business than it had been traditionally."
What CrossCountry actually bought
CrossCountry is the nation's largest distributed retail mortgage lender, operating more than 1,000 branches across all 50 states. It has always serviced loans under its own brand, Gehrke said, but subcontracted the operational side.
"They subbed it out basically operationally, but they've always serviced for the majority under their own brand," Gehrke said. "So this really gives them the opportunity to control that better. And we know through our data what we see is that the switch and the transfer of servicing rights is just something that resonates poorly with borrowers. And it always has."
The RoundPoint Mortgage Servicing platform that comes with Two Harbors adds another layer of value, he said. UWM described its goal differently, scaling from 700,000 to 1.3 million clients, but Gehrke said the value of having an operating platform already in place is hard to underestimate.
"I don't think you can shortchange the value of having that in place," he said. "It's kind of a plug-and-play environment. You've got it, you're switching over. It really speaks to the value that the industry is putting on servicing these days."
Gehrke said the battle between CrossCountry and UWM for the servicing rights makes sense considering how hard they compete on the origination side as well.
"CrossCountry and UWM are really competitors," he said. "UWM makes their business in the distributed retail channel through that local broker. And that's where CrossCountry lives. So ultimately they're competing on the origination side. And it's interesting to see CrossCountry so determined to make this deal. It makes them a very formidable competitor."
Probably not the last move
The Two Harbors deal is unlikely to be the last move in this direction, Gehrke said. Mid-sized mortgage banking companies face increasing pressure from both ends, he said, with large players gaining scale advantages and small local operators still competing effectively on relationships.
“I think there’s more to happen there,” he said. “I think, looking at market share, you’re starting to see this spreading to both ends. I still think the small local guy competes really effectively, but what’s happening is there’s a potential for hollowing out that middle ground.”
He sees a world where larger companies will continue to look for market advantages by swallowing up small and mid-sized companies. It could leave mid-sized companies looking around to see large providers closing in from all sides.
"The big guys are going to get bigger, and they're going to get advantages from size," he said. "Where traditionally we've had a multitude of mid-sized mortgage banking companies out there, it's going to be harder to effectively do that. It's going to be harder to attract and keep loan officers, harder to source leads at a reasonable cost."
The question turns to what UWM will do in the aftermath of missing out on Two Harbors. Gehrke said not to worry about UWM, because their competitive nature will keep them on the lookout for other opportunities.
"UWM obviously is not going anywhere,” he said. “They're working on growing their own servicing operations. This would be a kind of a jumpstart for them, but they'll be there. You know that they're as competitive as anybody out there, or even more competitive. So there's more to come from them, I'm sure.”
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