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GUILD DOUBLES DOESNT FOLD, IT DOWN
California-based independent mortgage lender continues to grow through acquisitions
BY DAVID KRECHEVSKY, MANAGING EDITOR, NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
In some ways, the same holds true in the mortgage industry as it adjusts to the housing market downturn. While some mortgage lenders have folded — Finance of America, Majestic Home Loans, and Sprout Mortgage, among others, in the past several months — others have chosen to double down… by growing.
Take Guild Mortgage Co. The San Diego-based independent mortgage lender acquired three independent mortgage lenders in the last few months. Guild acquired Wisconsinbased Inlanta Mortgage Inc. in December; New Mexico-based Legacy Mortgage in February; and Coloradobased Cherry Creek Mortgage in March. This is not a new strategy for Guild, which was founded in 1960 but is now a wholly owned subsidiary of Guild Holdings Co. after going public in 2020. Over the past nine years, Guild has acquired six other mortgageindustry companies. (See list.)
In a letter posted to the company’s website a few years ago, CEO Mary Ann McGarry explained Guild’s growth strategy.
“Through targeted acquisitions and loan officer recruitment, we have grown our annual origination volume from $1.4 billion for the year ended Dec. 31, 2007, to almost $28 billion for the 12 months ended June 30, 2020,” the letter stated, “and our servicing portfolio from $2.5 billion of unpaid principal balance (UPB) as of Dec. 31, 2007, to $52.8 billion as of June 30, 2020 (in each case, excluding any subserviced loans). And, throughout this period of growth, we have remained focused on profitability.”
Some of the figures in the letter require updating. According to an annual report filed with the Securities and Exchange Commission for the fiscal year ended Dec. 31, 2021, Guild originated $34.3 billion for all of FY2020, and $35.7 billion for FY2021. For FY2022, Guild originated $19.1 billion.
In her letter, McGarry added, “[W]e believe our growth story is far from complete, and that we have the potential to expand our geographic footprint from the 31 states where we currently have retail operations to include all 50 states over the long term.”
In the time since that letter was posted, Guild has grown its footprint to 49 states and the District of Columbia, primarily through acquisitions.
Guild’s growth strategy is praised by corporate analysts. In an analysis of the fourth quarter of 2022 and a preview of 2023, analysts at JPMorgan said that, given the downturn in the housing market, “we believe cost reductions cannot keep up with this level of market compression, driving further losses and consolidation in 2023. Longer term, we believe this will be the foundation for a return to profitability in 2024.”
AN M&A BOOM
For Guild, the analysts said that, “While our outlook for the mortgage sector is increasingly cautious, we believe [Guild] will outperform peers in the sector.“ They added that Guild’s “track record of successful acquisitions/integration may also create an opportunity for market share gains as the mortgage industry consolidates.”
Garth Graham of STRATMOR Group, a data-driven mortgage advisor and consultant that provides strategies for independent and bank-owned mortgage lenders, also respects Guild’s growth-by-acquisition strategy and agrees the industry is ripe for mergers and acquisitions.
Graham, a senior partner, manages M&A strategies for STRATMOR. In October 2022, his company published a report on M&As in the mortgage industry, estimating there would be 50 such transactions by the end of the year — 50% more than in 2018, “the next-highest year of lender consolidations in the past three decades,” the report noted.
While 2022 was a strong year for M&A, Graham said in February, there will be “probably 60 transactions in 2023. So, that means, in the span of two years that’s roughly 100 companies that will be involved in some level of merger and acquisition activity.”
Now well into 2023, Graham said he believes the momentum for M&As remains strong. With mortgage rates remaining near 7% and home affordability falling, refinancing mortgages has fallen off a cliff, leaving lenders to fight over the shrinking pool of purchase mortgages that remain.
“There were 13 million mortgages done in 2021,” Graham said. “That’s a really big number for our industry. Last year, there were 5 million. This year, there might be [4.5 million]. So the drop on a unit basis is 60%