HomeStreet Bank Seeks to (Mostly) Exit the Mortgage Business

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Citing that “it is still unclear when, and to what extent, industry conditions will improve,” as well as an overly burdensome regulatory environment, HomeStreet Bank is looking to sell most of its mortgage origination business.

The bank reports that it has retained Keefe, Bruyette & Woods to seek buyers to acquire its stand-alone home loan centers and related mortgage origination personnel.

Additionally, the company has retained MountainView Transaction Advisory to seek buyers for the majority of its single family mortgage servicing rights.

HomeStreet, however, will not exit the mortgage business entirely: Should it find a buyer, it will retain a smaller mortgage operation integrated with its commercial and consumer banking business.

Originations will be sourced through the branch network, online banking services, and affinity relationships, the bank reports in a release.

“The board of directors made the difficult decision to explore the potential sale of our mortgage banking business after extensive deliberations, ultimately concluding that this potential change would be in the best long-term interests of the Company and its shareholders,” says Mark K. Mason, chairman, president and CEO of HomeStreet Bank. “We are considering a sale at this time after having taken substantial steps in the last two years to improve the profitability of our mortgage banking business while expecting a near term recovery in industry volume and profitability.”

Mason adds that single-family mortgage loans “remain an important part of our asset diversification strategy and part of a broad array of products that we offer to our customers.”

In its release, HomeStreet points out several reasons why it is tough to be in the mortgage business right now:

“The increasing interest rate environment has reduced the demand for refinance mortgages, and higher home prices have decreased the affordability of home purchases,” the bank says in the release. “Both factors continue to put downward pressure on mortgage origination volumes. In addition, historically low new and resale home inventories in many of HomeStreet’s primary markets continue to adversely impact the volume of available purchase mortgages.”

The bank goes on to add that “the challenging regulatory environment, including changes to loan underwriting and disclosure rules and increased data integrity requirements, have combined with higher loan officer compensation to significantly increase loan origination costs.”

“Non-bank lenders are regulated by different regulators with different approaches to compliance and regulatory oversight than bank mortgage lenders. This condition has resulted in uneven compliance interpretations, guidance, and enforcement risks between banks and non-bank lenders,” the bank says in its announcement.

“Additionally, in September 2017, the banking regulators proposed a rule to simplify and reduce the capital burden for banks holding mortgage servicing assets. To date, a final rule has not been published, and given the recent proposal of a Community Bank Leverage Ratio which omits the previously expected capital relief for such assets, HomeStreet no longer expects the proposed rule to reduce the capital burden for banks holding mortgage servicing assets to be enacted or implemented. The regulatory capital required today for holding mortgage servicing assets is onerous, and in conjunction with declining hedge profitability as a result of a flattening yield curve, our return on invested capital in this line of business has been adversely impacted.”

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