The Current State of Bank and Lender M&A; HUD Approval Process Pause

Various topics from the hallways of the MBA's Secondary conference...  How can the CFPB go from a handful of employees to over 1,400 in a few short years and still be efficient? Look at ex-Cole Taylor Mortgage president Willie Newman who just inked a new deal with Connecticut's Stone Point to start up a mortgage operation! (More on the Cole Taylor drama below.) Chase's correspondent group buying non-QM loans on a selected basis. New applicants for Ginnie approval have fallen off a cliff (numbers-wise) which should be of no surprise given the falling number of lenders and that most lenders who wanted approval got it or are in process. Through the legal morass that the industry is in we find that MERS continues to do business in every county of every state. And how everyone is searching for that mythical jumbo investor to match Wells Fargo's retail jumbo rates.

In the wholesale channel, First Century Bank, N. A. is expanding. This well-capitalized FDIC bank is looking to hire Account Executives throughout the Eastern US focusing on the Northeast, Mid-Atlantic, Mid-West and Southeast. Management is looking for experienced AEs to help continue to grow the business and work with a winning team. First Century Bank's management has a combined experience of 75+ years in the mortgage industry and dedication to superior customer service with an excellent system platform. Please send resumes to Richard Dybel, SVP, Production East, at, Richard.Dybel@myfirstcenturybank. com .

In the west, Mountain West Financial, a FNMA, FHLMC, GNMA approved seller/servicer, has an opening for SVP of Production. This person will be running production for Mountain West. MWF opened nearly a quarter of century ago, is a privately held corporation currently doing business in 5 states, has all agency approvals, 65% of its production is from its retail channel, and 75% of total production is currently purchase business. The role of this qualified Individual is to grow both Retail and Wholesale and manage all aspects of Production for both business channels. This includes recruiting, sales training, motivating, managing, and developing talent. MWF is dedicated to growing its footprint throughout the western states. The right person, which will be an addition to the team rather than a replacement, must be a good culture fit who is seeking a great opportunity to build a career from a strong platform. Contact Gary Martell for a confidential interview at garym@mwfinc. com.

And congratulations to industry vet Greg Lutin! The Money Source is pleased to announce that Greg has joined the Melville, NY national lender to lead the national expansion of its correspondent sales force. TMS services 100% of its production and is a direct Fannie Mae seller servicer and Ginnie Mae issuer, catering primarily to the delegated correspondent. "It was time for a change, and the boutique 'best in class' customer service, along with the competitive pricing and execution, is what I found to be most attractive. When you couple this with the fact that they have virtually no credit overlays and a wide range of products, it was obvious this was a company poised for growth. We will be looking for experienced correspondent AEs across the country to join our team," says Lutin. "We are very excited to have Greg on board. His reputation and track record speak for itself, and we are very pleased that he's part of our team", said Phillip Kukafka, head of Capital Markets. For those who are interested in correspondent positions, please send your resume and cover letter in confidence to Greg at greg.lutin@themoneysource. com.

Bank M&A continues. Glacier Bank ($7.9B, MT) will acquire First National Bank of the Rockies ($340mm, CO) for about $30.3mm in cash (53%) and stock (47%). Branch Purchase: First Farmers Bank and Trust Co. ($1.3B, IN) will acquire 9 branches from BMO Harris Bank with about $134mm in deposits for an unreported sum. ANB Bank ($2.1B, CO) will acquire Wyoming's Capital West Bank ($167mm). THE National Bank ($880mm, IL) will acquire Doral Healthcare Finance, a division of Doral Bank ($8.0B, PR) for an undisclosed sum. (Doral Healthcare Finance is an asset based lender focused exclusively on the healthcare industry.) In Pennsylvania Huntingdon Valley Bank ($165mm) will convert to a stock company and buy The Victory Bank ($142mm) for an undisclosed sum.

But the fun continues! In Iowa Southeast National Bank ($158mm) will acquire Buffalo Savings Bank ($33mm, IA) for an undisclosed sum. Up in Massachusetts North Brookfield Savings Bank ($212mm) will acquire FamilyFirst Bank ($51mm) for an undisclosed sum. In the fifth credit union/bank deal in two years, Five Star Credit Union ($260mm, AL) will acquire Flint River National Bank ($19mm, GA). The BHC for Northstar Bank of Colorado ($665mm, CO) and Northstar Bank of Texas ($1.1B, TX) will acquire Community Bank ($559mm, TX). Down in Florida Harbor Community Bank ($627mm) will acquire Highlands Independent Bank ($242mm). In Washington Sound Community Bank ($442mm) will acquire 3 branches from Columbia State Bank ($7.2B) for a 2.35% deposit premium. Sound will capture $30mm in deposits and $1mm in loans. But everything in banking is not champagne corks and catered events. Last Friday Illinois' AztecAmerica Bank was closed by state and Federal regulators, and depositors woke up to find Republic Bank of Chicago signs on the doors.

Consider a recent study by Invictus Consulting Group on banks and the 2014 M&A market. The New York firm ran its own stress tests on U.S. banks and determined that while banks have made notable strides since a 2012 analysis, shareholders of about 50% of the country's banks would be better off if their bank took on some sort of M&A activity. According to the report, there are 828 banks that must sell due to low capital levels and poor earnings power. There are another 573 banks that should consider selling due to lackluster asset portfolios. On the other side of this coin, the analysis found 815 banks need to be buyers because of their less-than-robust earnings power within their existing asset portfolios and yet another 1,110 banks should also buy. Finally, the analysis found 3,395 banks (about 50% of the community banks in the U.S.) were already well-positioned for the future without the need to buy or sell. Of note, 28 banks are flagged as outliers, with a combination of strong earnings and weak capital levels - making them promising acquisition targets.

If you're a bank or a mortgage company looking for an exit strategy, or you're looking to beef up through acquisition, there are many other factors to consider. So far this year, community bank M&A activity has been about historical levels. There is constant market chatter about whether banks under $1 billion in assets can ultimately survive given the increasingly burdensome regulatory environment, but that analysis is way too simple, per Pacific Coast Bankers' Bancshares. "Asset size is important at some level, but quality management, good customers, a good franchise and other factors are more critical. That is why we believe many more community banks than expected will do just fine in coming years, even if they are smaller than some made-up asset size trigger for M&A activity. Meanwhile, there's also an interesting challenge for banks approaching $10B in assets. According to Fitch Ratings, these banks may be hesitant to cross that threshold with small deals because of the higher costs and regulatory burdens banks of this size have to grapple with. Instead, Fitch sees greater potential for mergers-of-equals between banks in this category because if you are going to go over the line, you may as well do so with gusto and get immediate scale. Only time will tell."

Cole Taylor Mortgage was in the news a while back as "being on the block". Illinois' Taylor Capital (TAYC), which is in the process of selling itself to MB Financial (MBFI) in Chicago, recently scrapped plans to sell its mortgage business: Cole Taylor Mortgage. It would be incorrect to determine that Taylor's unwillingness, or inability, to sell its mortgage platform signals an end to mortgage M&A, industry experts say. Investors continue to pursue ways to expand their mortgage holdings, and banks remain interested in niche businesses. But there is still a big bid-ask spread between buyers and sellers, with most buyers saying that the tough environment will lead mortgage company sellers to lower their expectations. In this case, Taylor supposedly ultimately decided that "potential buyers didn't share our appreciation for the long-term value of the business," Mark Hoppe, the company's president and chief executive, said in a release.

Banks have posted plummeting mortgage banking income in recent quarters. Taylor is no exception; its mortgage banking revenue fell nearly 28% in the first quarter compared to a year earlier, to $23.1 million. Mortgage company sellers are likely to be privately held mortgage banks looking to leave the business or realign with partners with deeper pockets. Potential buyers could include investors that are looking at the business as a strategic move or existing mortgage lenders looking to add scale. Private equity firms could also be forming platforms to support doing non-qualified mortgage lending.

I'm no criminal. (And no, I don't think that whole "Candy Goblin" thing years ago with my kids and the Halloween candy counts as thievery.) But those interested in financial crimes may want to tune in on Thursday. "Please join BuckleySandler and invited experts for a discussion of the following topics: the risks and rewards of banking emerging e-commerce technologies, State and Federal licensing issues for emerging e-commerce companies, and regulatory expectations for financial institutions and emerging technology companies. This webinar will be of particular interest to in-house legal, compliance, and risk management personnel at banks and other financial services providers. Thursday, May 22 from 12-1PM EST, complimentary registration. Registration required. Please no outside law firms, government agency personnel, consulting firms, or media. After registering and being approved, you will receive a confirmation email containing instructions for joining the webinar."

Donna Beinfeld writes, "Remember that HUD shut down their approval process for lenders as of March 31, 2014?  It was supposed to be a switch from paper to online application processing for mortgagees.  Well, that has increased to May 27, 2014. So for 3 months (basically) no one has been able to become a HUD approved mortgagee. Please note:  Due to system updates, a transition period has begun which will last from March 31 to May 27, 2014. FHA is unable to accept, process, or approve any applications to become an FHA-approved lender during this transition period."

Dave Akre sent me a note saying that Five Oaks Investment Corp. has expanded its loan menu to include non-owner-occupied homes with balances of up to $1.5 million. The publicly traded REIT will buy the loans on a correspondent basis in 45 states and will allow for cash-out refis for loans with balances of up to $1 million. The maximum allowable loan-to-value ratio is 65 percent, but the company may eventually go to 70 percent. It is considered a non-QM loan, and consists of 7- and 10-year ARMs. An investor taking out a mortgage can have up to three loans with FOIC.

Is the housing market slowing down? Let's ask the SF Fed.

There is not much happening in the markets, what with no news. Monday, with most people in New York who actually hedge pipelines and sell MBS, prices on current coupon agency MBS were worse a few ticks and the 10-yr closed down .125 at a yield of 2.54%. And today is another day of no news - so let's hope for a quiet one.