Mortgage rates are down, but don't be fooled – the industry's efforts to rid itself of a pandemic boom will continue through 2023. Up to 30% of the 1.000 largest independent mortgage lenders will also disappear by the end of this year through sales, mergers or failures with inflation still high and interest rates rising, according to forecasts by M&A advisory firm Sterling Point advisors.
But American Pacific Mortgage (APM), a California-based retail lender of about 3.600 employees and 1.500 mortgage loan originators, don't be deterred by the depressing outlook. Rather, APM sees this as an opportunity to expand geographically beyond its primary market of California into the Midwest and the Southeast.
In 2022 alone, APM acquired 11 branches from Arizona Sunstreet Loans and Sunstreet, 25 branches from Minnesota retail lender Intelligent Mortgage Lending and 51 branches from Amerifirst Financial Inc.
Lenders also picked up more than 45 former retail branches Finance of America Companies Inc. (FoA) months after it had closed its forward mortgage segment. However, Bill Lowman, CEO of APM, said the number of branches may have increased since the initial report because it includes secondary branches or additional licensed locations.
A total of 900 employees joined the company, out of the four deals APM closed last year, including 540 LOs, Lowman said in an interview with HousingWire.
However, this does not mean APM will make it through 2022 unscathed.
"We've had some layoffs throughout the year," Lowman said, without giving specific numbers.
The lender saw 2022 production decline by about 42% to $13.8 billion due to the interest rate environment and the elimination of the refi business, similar to any other lender, the executive said.
"I think the industry volume will end up going down by about 50. So in that regard, we feel like we've outperformed the market," Lowman said.
Asked how the company gets leads on potential deals, Lowman said it helps that other lenders know APM aggregates volume and is interested in acquisitions.
Get leads for potential deals
"They all come from different methods-whether they're presented to us by a consulting firm like Stratmor [Group]whether someone approaches us because they know us, or whether it's through industry contacts," Lowan noted.
However, not every deal proposal goes through.
APM forwarded about six to eight M&A proposals in 2022 that failed the initial review stage – which compares the origination volume the deal would bring to APM with the cost of onboarding a large number of employees.
The lender currently has strong roots in California, which accounted for about 45% of its total loan volume in 2022. The goal for 2023 is for that number to fall below 40% in California and instead expand to other regions of the country.
When branches are acquired, APM takes over LOs and processors to the extent that they could remain profitable.
"We do a pro forma analysis, we work with the store manager and say, 'Okay, you're doing well, come over' or 'You might have to reduce your staff a little bit because you're not profitable.' We want all our branches to be profitable," Lowman said.
After APM acquires the branches, it either takes over leasing the physical office space or finds smaller office space – which was the case with Finance of America and some Amerifirst Financial branches.
Sunstreet Mortgage branch managers and LOs were able to retain their existing 11 branches. APM also plans to acquire many of the retail leases, which span 24 stores, although this is still under negotiation.
Branding as American Pacific Mortgage
Acquired branches can continue to market themselves under their existing names, but become a division of APM. While Lend Smart, Sunstreet and AmeriFirst Financial continue to market themselves under existing names, former Finance of America branches now present themselves as APMs.
"They are part of our corporate policies, procedures and culture. We are an ESOP. Our company is 49% owned by its employees as an employee stock ownership plan, so they are a part of it. They are a part of everything American Pacific Mortgage is about," Lowman said.
Boosted by M&A activity that occurred in the second half of 2022, Lowman forecasts a 25% increase in volume for APM production in 2023 – at a time when procurement for the industry is expected to decline by about 10% to 15% from 2022.
The California lender is in talks with "a lot of lenders," Lowman said. He declined to provide further details.
"The greater the disruption, the greater the opportunity. If it's too hard for them, it's just right for us. We went into this declining market to take advantage of it," Lowman said.