Although it did nothing to UWM's stock price yesterday, United Wholesale Mortgage and Two Harbors Investment Corp. (“TWO”), an MSR-focused REIT and one of the largest servicers of conventional mortgages in the country announced that they have entered into a definitive merger agreement pursuant to which UWM will acquire TWO in an all-stock transaction for $1.3 billion in equity value. What does it mean for the industry? The STRATMOR Group put some perspective on the UWM acquisition of Two Harbors.
“The industry reset we are witnessing is not over with just a few consolidations at the top. Rather, it’s just the tip of the iceberg. Amanda Gibson of STRATMOR Group (formerly Originations CFO at Mr. Cooper) advises lenders and brokers alike on strategy and M&A and has a unique vantage point to provide perspective on what we are seeing.
“First, it was Rocket acquiring Redfin and Mr. Cooper, building a consumer-first vertical integration, which resulted in an entity surpassing $2 trillion in servicing (more than double that of the #2 servicer’s size) and over $102 billion in originations through the third quarter (which places them at #2 behind UWM), along with access to over 50 million visitors each month to the real estate platform (the very top of the funnel that many covet).
“Then it was Bayview combining Lakeview’s Servicing with Guild’s end-to-end IMB platform (Servicing, Originations and proprietary tech), resulting in a Top 10 caliber of combined originations (at roughly $32B through the third quarter) and a Top 3 Servicer (at over $886 billion at end of the third quarter). But that was not it, not by a long shot. Once Rocket’s deal was announced, UWM announced publicly that they would be bringing their servicing in house, so the announcement that they purchased a servicer yesterday was not a surprise.
“UWM acquiring Two Harbors is the next in a series of actions that everyone else is racing to see if they can do themselves…albeit at a smaller scale because not everyone has the size, scale, and deep pockets as UWM, Rocket, or Bayview. With the announcement yesterday, UWM retains its #1 position in Origination volume (at $112B through the third quarter) but advances its servicing book from $216 billion (roughly a #18 ranking) to $422 billion, securing a #8 spot as of the end of the third quarter.
“It’s important to note that what we’re seeing is not just a servicing plus originations consolidation trend. People have been talking about that for years, and I’ve been lucky to work at a few “balanced business model” IMBs myself. This is different. It is a multi-dimensional restructuring of the mortgage value chain, specifically around technology-enabled scale, lifecycle monetization (including recapture), ancillary revenue streams, and capital efficiency. The end game is building an ecosystem that is resilient across cycles—and while firms are choosing different entry points, the direction is consistent and the domino effect is real. There is no single ‘right’ lifecycle model, but controlling more touchpoints, either directly or indirectly, is becoming table stakes.” Thank you, Amanda.
Most will say that UWM is buying the ability to do portfolio loans. Rocket bought Mr. Cooper after buying Redfin which had purchased Bay Equity. UWM just bought Two Harbors. Both in the last 90 days, both all-stock deals. While everyone's talking about MSR valuations and servicing income, nobody's talking about what happens in three months.
Specifically, credit trigger legislation is coming. Passed three months ago, when it takes effect, third-party credit trigger leads are dead. No more selling "someone just applied for a mortgage" data to the highest bidder. No more 47 phone calls within 10 minutes of pulling credit.
The intent of the legislation is that the only companies who will be able to market to a borrower are the originator and the servicer.
Now look at who just went on a servicing shopping spree. The two largest wholesale lenders in America. Both with massive AI-calling infrastructure and nine-figure advertising budgets. Both built to convert leads at scale. They're not just buying servicing income. They're buying the permission to call millions of borrowers when rates drop and everyone else is locked out.
Casey McGovern of Bay Equity fame wrote me, “The refi wave is coming at some point. Who is servicing a lender’s borrowers? And what is the lender’s plan to make sure their past borrowers don't leave the lender when it comes time to refi?”