Longbridge Financial, a top 10 reverse mortgage lender based in Mahwah, New Jersey, announced late Wednesday that it would be acquired by mortgage investment firm Ellington Financial. The company, which already owns a stake in the lender, will acquire an additional 49.6% stake from Home Point Capital for $75 million, effectively giving Ellington substantially all of the equity in the reverse mortgage lender.
The deal is expected to close in the second quarter of 2022, according to an announcement released by Longbridge on Wednesday.
To better understand the implications of the acquisition, RMD sat down with Chris Mayer, CEO of Longbridge Financial, to discuss what this deal will mean for the company, its products and the broader reverse mortgage industry.
Why the deal happened and Ellington’s confidence in Longbridge
The deal has already been discussed in general terms between the Ellington and Longbridge teams, but more formal conversations about an acquisition only recently emerged, Mayer told RMD in an interview. As for changes that could be made internally, Mayer explains that Longbridge will retain its existing structure.
“I will remain CEO of the company,” Mayer said. “Longbridge operates as an independent entity from Ellington. While we are financially consolidated simply because we are large enough that they have to consolidate our finances, from an operational point of view, [we’ll remain independent] and are actually larger than Ellington in terms of number of employees.
This is largely because Ellington recognizes that its own forces can be supplemented by those of Longbridge, Mayer explains.
“Ellington is great at what they do, and Longbridge is great at what we do,” he said. “We both understand that we should focus on each of our strengths and then on the synergies that will really mean ‘one plus one is three’.”
Impacts on product development, partner brokers
Longbridge’s biggest source of growth recently has been its Platinum line of proprietary reverse mortgages, Mayer said. While this agreement may impact the development trajectory of proprietary products in the future, that is a conversation for a later date after the acquisition agreement has passed the necessary regulatory approvals and will ultimately be fencing.
Ellington is also a very active company on the mortgage market front, which could create partnership opportunities in the future, but that is not the intent of this deal, he says.
“We would expect to have some of those conversations, but that’s not the biggest focus of this transaction,” Mayer says. “[Ellington does] hold a significant interest in a term mortgage originator. Are there opportunities there? Yes, but our goal is not to cross-sell a whole bunch of products. We believe we are best served by focusing heavily on reverse mortgages.
It’s also a deal that will hopefully broaden the landscape for Longbridge’s existing brokerage and other TPO partners, Mayer said.
“We continue to view this as providing us with greater execution opportunities and to provide the type of service, products and quality of support that our brokers and PA partners, as well as our matching closed loan partners, are looking for,” says Mayer. “Across all of our wholesale channels, we think this is great news. Ellington wants the same thing we do, which is strong customer relationships – and more – that we can develop over time. over time, we have seen phenomenal growth in this area.
Longbridge is currently the second largest wholesale reverse mortgage lender in the country, with aspirations to expand even further, Mayer says.
“For our wholesale business, this is good news for these people. But frankly, people who are already working with us, like us, and nothing is going to change except there will be more opportunities for people who aren’t already working with us to start.
‘Yesterday, today and tomorrow‘
When asked what he would most like the reverse mortgage industry to know about this acquisition, Mayer describes an ongoing commitment to building the entire reverse mortgage industry for all people. involved, partners and others.
“Longbridge was there for them yesterday, Longbridge is here today and Longbridge will be here tomorrow,” Mayer said. “We have a permanent capital base supporting us, we have a dedicated long-term investor who has been here with us as a company since before Longbridge existed and who is heavily committed to the space. They don’t need someone to explain what a HECM or HMBS is or how to spell “reverse mortgage”. Ellington is a company deeply committed to this area, and so their involvement with Longbridge is truly with a dedicated player in the space who believes in it and expresses their confidence in our company and in the industry through this investment.
Ellington has invested in Longbridge since acquiring a stake in the company in 2014. Longbridge itself was originally launched in 2012 by a small group of former New York Life employees who announced their intention to obtain a license in the field of reverse mortgages earlier the same year.
From 2019 to 2021, Longbridge more than tripled its annual lending volume to $2.2 billion, growing its net income proportionally fivefold. Since November 2021, Longbridge has ranked as the third largest reverse mortgage lender in the industry and has overtaken a competitor to become the sixth largest lender industry-wide in calendar year 2021.
The acquisition builds on the trust Ellington has cultivated in the company over his time as a major investor, according to Laurence Penn, president and CEO of Ellington Financial.
“Longbridge has cemented its position as a thought leader in the reverse mortgage space, with a proven track record, strong operations and a commitment to highly ethical practices and top-notch service,” Penn said in a statement. “Important synergies exist between the businesses of Longbridge and Ellington Financial, and we are confident in our ability to work with Longbridge to develop new proprietary products and programs and significantly expand its platform in the years to come.”
Last summer, when Ellington Financial shared its second-quarter 2021 earnings with its shareholders, Penn had previously indicated that it believed Longbridge’s Mortgage Servicing Rights (MSR) to be its “largest tangible asset” and that the company may seek to acquire those of Longbridge in the indefinite future. time.
“I’m really getting ahead here, but I think in the future it’s possible we could acquire excess service rights, for example, from Longbridge,” Penn explained in August 2021.[T]here [are] no discussions about it yet, but I think it’s something that could be a really interesting asset class for Ellington Financial.