M&A Activity Forecast to Increase as Mortgage Industry Contracts

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The mortgage industry saw a big jump in merger and acquisition (M&A) activity in 2018, as origination volume and profitability fell, and more is expected in 2019, a report from mortgage advisory firm STRATMOR Group shows.

In this current down cycle, mortgage lenders that are well-capitalized and well-run have an opportunity to be “consolidators,” while struggling lenders face the prospect of becoming reluctant – if not involuntary – “consolidatees,” says Jim Cameron, senior partner at STRATMOR Group, in the firm’s December Insights Report.

In 2016 there were 11 announced deals, while from January of this year through November, 28 transactions had been announced with more expected by year’s end, according to the report. 

“These are tough times in the mortgage business,” says Cameron. “There are too many lenders chasing too few borrowers, and because rates are not expected to decline any time soon, there won’t be a refi rally to bail out lenders.

“We are experiencing an intense period of industry consolidation that will extend well into 2019.,” he adds. “One popular school of thought is that rapid consolidation will continue throughout the first quarter and into the second quarter of 2019, and that margins may normalize in the late spring and summer next year.

“But we can’t count on this,” he continues. “A lack of meaningful growth in the purchase market may delay the recovery period for the industry well beyond next summer.”

While today’s market conditions are as challenging as they have been since the industry meltdown, Cameron says there are several possible tactics and strategies that lenders can pursue. He outlines the pros and cons of eight lender options, including optimizing cash from operations, raising equity capital and becoming a broker.

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