He believes other brokerages will soon be weighing the same choice he made
The mortgage market headwinds seem to be picking up speed as the summer comes to an end.
On Wednesday, the 10-year Treasury yield reached 4.818%, the highest it has been in nearly three years. The 10-year is most closely tied to the 30-year fixed mortgage rate.
According to the Mortgage Bankers Association in its weekly application data release, the 30-year rate reached 6.85% on average in the last week, causing applications to dip once again.
Broker shops across the industry are facing a fork in the road. Growth has slowed, margins are tighter, and staying independent increasingly means competing against platforms with far more scale and capital behind them.
That pressure was part of what led to one of the most talked-about deals in the mortgage industry this year, with NEXA Lending acquiring UMortgage.
Anthony Casa (pictured top), president and CEO of UMortgage, said the decision to sell his company to NEXA Lending came down to a growth ceiling he saw no way around on his own.
"For every scaling entrepreneur in business, you hit a point where if you can't grow past a certain point, it's really hard to be competitive," Casa told Mortgage Professional America. "You have to maintain so much infrastructure just for your business, and if you can't grow past that certain point, you can't be as competitive as you want to be from a pricing and compensation perspective."
The math behind the decision
When weighing his company's future path, Casa kept coming back to the math of scaling in the current market. He decided the best option to plow through the market headwinds was to reach out to NEXA Executive Partner Mike Kortas.
"Competing is everything, and knowing that we couldn't compete at the highest level is what made me start to have these conversations with Mike and the team," he said. "With their scale, we can compete at every level. We can pay our LOAs the most aggressive comp splits, and we can get the best pricing. It really was the minute we took the emotional piece off the table, and it was just about the numbers and the business that it became a really easy decision."
The math that helped Casa make his decision is the same math that many broker owners are facing in the current market. He believes that those broker owners need to step back and take a serious look at what the future looks like for them.
"You have to make a decision on what your goals are," he said. "The decision you have to make is whether you think you're going to close the gap over a long period of time, or whether partnering with another company can drive an even greater outcome than you could reach separately."
Broker owners who put off that evaluation are often hesitant to see the reality of current business conditions, Casa said.
"For so many brokers out there, they're hanging on to their broker shop, and they let ego get in the way of what is best for business and what's best for their team," he said.
UMortgage had other options on the table before settling on NEXA, according to Casa.
"We had a whole bunch of people reach out to us, but it became really clear that Mike, as an entrepreneur, is fully committed to his business," he said. "He is investing heavily in it. It was more about our attraction to a great entrepreneur that's executing on a vision that we believe in."
A tough market ahead
Casa said the timing of his own decision was shaped by where he sees the broader market heading over the next several months.
"Winter is coming. I think it's going to be a very tough six months," he said. "The rate market is totally cooked, and the buyer demand is really starting to hit a wall."
His decision came down to recognizing the company had hit a ceiling it could not invest its way past on its own.
"We weren't able to continue to invest in the areas that we needed to invest to stay on the cutting edge of things," he said. "We weren't capitalized at the level that we could go do the things that NEXA is doing when it comes to buying a servicing platform and really innovating at a high level."
He said that same urgency applies to any broker owner weighing whether to stay independent right now.
"It's one of those situations right now where you really have to be focused on playing the long game," he said. "Now is the time to really evaluate your long-term vision for your business."
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