The shift from a refinance boom to a purchase market will leave some mortgage lenders and loan officers with only two options: “Consolidate or exit the business,” according to Mary Ann McGarry, Guild Mortgage’s chief executive officer.
Meanwhile, McGarry said Guild is well positioned to acquire these assets but will be very patient in closing a deal.
“Think of 2020 and 2021. How much refinance business did we all do? Well, these cycles always happen. And, after a big refi boom, the market drops off,” McGarry said on Monday during the HousingWire Annual 2022 conference held in Scottsdale, Arizona.
“We have overcapacity right now, and everyone is fighting for the same loan. The market will reset,” she said. “So, companies are going to consolidate or exit the business. We’re going to end up getting back in the right balance for a purchase market.”
According to McGarry, “when there’s a dislocation in the market, there’s tons of opportunities – to pick up the talent, to get new programs, to find a niche.”
Guild, a purchase-focused lender with a distributed retail model, had $249 million in cash and $1.6 billion in unutilized loan funding capacity as of June 30, 2022, according to filings with the Securities and Exchange Commission. During the second-quarter earnings call with analysts, executives said cash position may support mergers and acquisitions.
In an interview with HousingWire following the session, McGarry said Guild would look for companies with a good reputation, which will strengthen Guild’s retail channel.
“We are going to be patient and thoughtful to take a good opportunity, aligning cultures and making sure the deal makes economic sense,” McGarry said. “But I don’t think we have to pay much of a premium to anyone.”
Regarding its financial position, the nonbank lender reported $58.3 million in net income from April to June, a 72% decrease from $208 million registered in the first quarter.
Virtually all mortgage lenders have posted significant decreases in profits in the second quarter from last quarter, owing to a sharp increase in mortgage rates and related challenges in the secondary market.
The Mortgage Bankers Association (MBA) reported that independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks had, on average, a net loss of $82 on each loan they originated in the second quarter.
“I guess that it’ll be worse in the third quarter. It’s not going to get better immediately,” McGarry said. “Owners that made a lot of money in 2020 and 2021 have been bleeding right now.” That will lead to opportunistic conditions, she added.
According to McGarry, Guild is still delivering profits, among other reasons, because the company started rightsizing at the end of 2021, and it’s constantly reviewing its structure.
“We don’t do a one-size-fits-all solution. We look at each market, work with the managers and leaders, and develop a business plan that fits their market.”