Dallas, Texas-based Mr. Cooper Group has entered into an agreement to acquire struggling Home Point Capital for $324 million in cash, the companies announced on Wednesday. The transaction will ultimately result in the seller shutting down operations.
Rumors that Mr. Cooper was interested in Ann Arbor, Michigan-based Home Point spread prior to the latter selling its wholesale origination business to The Loan Store on April 7 and were amplified after. At that point, Home Point said it would manage its balance sheet and mortgage servicing rights (MSR) portfolio.
In total, Mr. Cooper is acquiring Home Point’s $84 billion servicing portfolio, which will contribute to Mr. Cooper’s return on equity with an estimated 10% increase to operating earnings in the first year. Mr Cooper also estimates a tangible book value increase of about $1 per share at closing.
Jay Bray, Mr. Cooper’s chairman and CEO, said in a statement that “Home Point has amassed an impressive servicing portfolio, consisting of conventional loans to borrowers with high FICO scores, low coupons, and strong equity cushions.”
Mr. Cooper had 4.1 million customers and $853 billion in unpaid principal balance (UPB) at the end of March. But the servicing portfolio is expected to grow, as the company has been active in acquiring MSRs.
Per the transaction, Mr. Cooper is acquiring all outstanding shares of Home Point and assuming $500 million in outstanding Home Point 5% senior notes due in February 2026.
“The senior notes we’re assuming from Home Point serve as a low-cost source of funding and contribute to an attractive rate of return on this transaction,” said Kurt Johnson, Mr. Cooper’s CFO.
The companies expect the deal to close in the third quarter of 2023, and after onboarding of Home Point customers, Mr. Cooper will shut down the seller operations. The deal is subject to customary closing conditions and regulatory approvals, the companies said.
Wachtell, Lipton, Rosen & Katz and Simpson Thacher & Bartlett LLP were the legal advisors to Mr. Cooper in the transaction. Meanwhile, Kirkland & Ellis was the legal advisor and Houlihan Lokey the financial advisor to Home Point.
Homepoint was the third largest wholesale lender in the country, following behind United Wholesale Mortgage (UWM) and Rocket Mortgage, according to Inside Mortgage Finance (IMF).
Amid high mortgage rates, low inventory and fierce competition, Homepoint’s overall origination came in at $27.7 billion in 2022, a 71.6% decline compared to 2021. Despite cost-cutting initiatives, Home Point Capital reported a non-GAAP adjusted net loss of $190 million last year, compared to a $300,000 loss in 2021.