Ellington Financial is approaching a deal to acquire a "small" servicer, with expectations of an agreement to come later this quarter. 

The investment manager and parent company of reverse lender Longbridge Financial teased the pending acquisition in a second-quarter earnings call, noting any newly purchased assets would not necessarily have a noticeable impact on its financials in the beginning. Instead, motivation for the deal is driven by Ellington's ambitions in subservicing. 

"It's a small servicer in the single-digit billions of servicing rights," said Ellington President and CEO Larry Penn during the call. "It does have some subservicing contracts, and it is diversified in the sense that it does service many different types of loans." 

Ellington executives said it had already redeployed substantial internal resources toward building a residential special servicing platform that can manage seriously delinquent liens. Penn added any acquisition announcement would likely arrive "sometime in September." 

"It's the type of project — let's just call it — where we're going to try to build it as much in our image as we can," he continued. "We have big plans, especially, to build out the special servicing aspects of the business. We think they already have some really good expertise in that area." 

The earnings breakdown

The company dropped the news at the same time it reported a profitable second quarter, finishing in the black thanks to the positive performance of both its investment portfolio division and Longbridge Financial.

Based in Old Greenwich, Connecticut, Ellington saw a net profit of $58 million in the April-to-June time period, with the bottom line declining 46% from $107.5 million three months earlier. The numbers included adjustments related to the net fair value of assets. 

Compared to the second quarter of 2025, profits accelerated 13.7% from $51 million.     

"These results reflected excellent securitization execution, continued outstanding results at Longbridge, solid contributions from our other partners and continued strong credit performance across our loan portfolios," Penn said.       

The portfolios, which include non-qualified and agency-eligible residential loans, securitized assets, forward mortgage servicing rights and commercial activity, helped lead Ellington's investment unit to net income of $72.9 million in the quarter, off from $77.6 million over the prior three months. The profit surged from $57.4 million in second-quarter 2025. 

"More and more mortgage loans are ultimately finding their way into the private-label market," said Co-Chief Investment Officer Mark Tecotzky. "We expect approximately $250 billion of new non-agency mortgage securitizations this year."

Larger volumes that brought with them improved liquidity across mortgage secondary markets attracted many new investors over the past year, he added. 

Longbridge sees boost in originations

Net income at Ellington's reverse lending business, which specializes in liens for senior homeowners, came in at $30.2 million, pulling back from $57.4 million quarter over quarter, but leaping from $10.7 million a year ago. Numbers factored in fair value market changes.

Longbridge profits came off of origination volumes in retail and wholesale channels that jumped 14.4% and 38.1%, respectively, to $589.7 million from $515.4 million in the first quarter and $427.1 million a year ago. 

The totals included originations of both government-insured Home Equity Conversion Mortgages and proprietary products. The lender's proprietary offerings made up 54% of second-quarter activity, compared to 46% for HECMs.

Longbridge's HMBS market share reached a high of 29% for the quarter, making it the second-largest issuer of HECM securities, according to Bloomberg.

Meanwhile, net profit related to HECM MSRs held on the lender's balance sheet landed at $5.8 million, while for proprietary loans, it finished at $2.2 million.

Is a servicer acquisition a sign of things to come?

The likely addition of a servicer this year may not be the last of merger-and-acquisition activity to come from Ellington, its executives said. The potential purchase of another residential originator operating alongside Longbridge or a commercial real estate business is "absolutely part of the playbook," according to Penn.

"We have a lot to offer, especially for these smaller origination companies, and I absolutely would love to see us continue to broaden our array of investments," he continued. 

Any future Ellington M&A would represent further consolidation in an industry that has seen its fair share of mergers over the past two years amid sluggish lending conditions. The current M&A wave, which includes deals between lenders, servicers and technology firms, has noticeably reshaped the mortgage landscape from earlier this decade. 

August alone has already seen announcements of three new industry deals, including an agreement involving lenders Envoy Mortgage and Mason-McDuffie Mortgage, better known as MasonMac.