Who would want a mortgage company in the first place right? Well, plenty of banking groups, real estate firms, and global financial services companies are seriously looking to the opportunities relating to “mortgage market share.” If you control the mortgage, you have a good chance of controlling the equity line, checking & savings, insurance, auto lending, investments—you name it.

Even though it’s currently not a popular notion to get into the mortgage business, many respectable institutions are finding that it’s just too good of an opportunity to pass up. Remember one of Warren Buffet’s most famous one liners, “When people are getting greedy I get scared, and when people get scared I get greedy.” The recent move by Bank of America to acquire Countrywide Financial Corporation is just the beginning of a new era of mortgage banking and services consolidation. Even the CEO of Bank of America, Ken Lewis, said he actually “didn’t like the mortgage business”—but made an additional offer of $4 billion for Countrywide on top of the billions already infused.

Are they simply trying to avoid losing money already invested, as alluded to over on a Housing Wire post last week? Not likely folks. If Bank of America didn’t like the investment opportunity, they would likely join with all of the other massive mortgage servicers nationwide that threw in the towel, bowed their head in humility, and wrote off billions of dollars of loss due to bad mortgage investments—mainly poor capital markets and investment banking strategies (not necessarily all due to loans gone bad, which is an entirely different posting I plan on writing soon).

In reality, the merger between Countrywide and Bank of America is good news for the overall mortgage industry. It means that Bank of America has somewhat of an idea of how big the mortgage problem really is—i.e., there is a bottom. I would guess that the billions they have already thrown into Countrywide back when the liquidity markets first blew up, plus the new billions that they are offering for stock this month, suggests that they don’t really think that Countrywide’s problems are so bad that they will lose that investment.

Yes, I’ve said it a thousand times: there is no better lending technology on the planet than Countrywide’s platform (CLOUT & Platinum), amongst many other back-end banking fulfillment technologies that control the most efficient secondary markets’ system on the planet. Countrywide’s brand is imbedded into US consumers’ minds and rapidly spreading to be a global contributor to many economies moving towards a contemporary and western-style financial market. Is technology and brand enough for Bank of America to risk not only the billions already into the deal, but the possible unknowns still hanging out behind the scenes at Countrywide? I don’t think so. I think they have a pretty good idea of what the risks are and that owning this financial services giant, with an emphasis on mortgage lending, is simply something Bank of America could not pass up (and brilliant I might add) and could open the doors to new M&A deals to take place in the near future.  

There are many positives in the mortgage world that will surely (eventually) reward the companies that have survived the storm. Just to name a few: Major increases in refinance activity (especially if the MBS bond ratings start to improve thanks to new stability and interest in mortgage lending from recent and interesting M&A activity); market stability due to a quieting of the media (the “mortgage crisis” is now only on the news channels every 4 to 5 hours vs. every 5 minutes—talk about slowing the flow of gasoline being poured on the fire); recent home price reductions in many MSAs have given new hope to those that are watching the “affordability meter” (couple that with new record-low interest rates and an entirely new group of home buyers instantly can come into the marketplace).

As we witness major financial institutions and mortgage lending firms consolidate into one another a few very important notions come into play and/or questioned. When there are fewer companies providing mortgage products, what will the consumers experience be? If fewer mortgage bank Investors are buying loans from mortgage brokers and lenders, what price will they be willing to pay for the actual servicing of the loan? Both questions come with simple answers—service levels fall and prices for mortgage servicing falls. The later doesn’t necessarily hurt the mortgage broker or the mortgage lender. The mortgage broker will simply raise fees or rates to compensate – not pretty, but it is a reality. The mortgage lenders, however, will have an entirely new opportunity to build mortgage servicing portfolios. Why wouldn’t they? There is very little risk after 2008 and mid-2009 that rates will fall any further, and if anything, we are in for a decade of higher interest rates, which secures a mortgage servicing portfolio from running off.

But even more important, it is cheaper for a mortgage company to keep or buy the servicing on loans originated versus selling them into the secondary markets – (extremely large servicing companies like Citi, Chase, GMAC, Bank of America, SunTrust, Countrywide, Wells Fargo, et. al.). As these giants consolidate into each other and suck mid-sized companies into their gravity field, the companies that escape this or choose not to be acquired will have a new and exciting opportunity to gain mortgage servicing portfolios that will rapidly gain value.

There is a new era on the horizon that will consist of not only consolidation within the mortgage banking world, but also mid-sized companies will all of a sudden become a national household brand and even new ventures will gain popularity and enjoy an opportunity to bring new service levels to a consumer that is starving for the attention they deserve in the mortgage lending process. It’s not all bad, and there are many new and exciting changes and opportunities just around the corner.