Mr. Cooper will pay $324 million in cash for all outstanding shares of Home Point Capital, per an announcement Wednesday. Analysts say this amount is about half the book value of the soon-to-be defunct lender.
The deal gives the Dallas-based lender a notable $84 billion servicing portfolio, expected to contribute a 10% increase in Mr. Cooper's operating earnings in the first year.
Additionally, Mr. Cooper will assume close to $1.1 billion of conventional MSRs, roughly $600 million in tangible equity and $500 million in outstanding Home Point 5% senior notes, which are due in February 2026. The transaction is expected to close in the third quarter, after which, Mr. Cooper will shut down the remaining Home Point operations.
"This acquisition is consistent with our strategy of growing our customer base, deploying our capital with a focus on attractive risk-adjusted returns, and maintaining a very strong balance sheet," said Jay Bray, CEO of Mr. Cooper, in a written statement Wednesday. "Home Point has amassed an impressive servicing portfolio, consisting of conventional loans to borrowers with high FICO scores, low coupons, and strong equity cushions."
The overall valuation being paid for Home Point "appears low" BTIG said in a report, though the financial services firm noted that the lender's "leverage and challenging growth outlook were factors which weighed on its valuation."
Meanwhile, the hit to Home Point's subservicer, ServiceMac, a subsidiary of First American Financial, could result in "some negative operating leverage" and the loss of escrow income, resulting in a net loss of $40 million, Keefe, Bruyette and Woods predicted in its report.
Some losses may be offset by de-boarding fees, which are usually implemented to protect subservicers. KBW forecasts that Home Point's servicing portfolio will be fully moved over sometime in 2024, so the full earnings impact on ServiceMac would not be felt until 2025.
Wachtell, Lipton, Rosen & Katz and Simpson Thacher & Bartlett LLP acted as legal advisors to Mr. Cooper during the transaction, while Kirkland & Ellis acted as legal advisor to Home Point and Houlihan Lokey acted as financial advisor to the Ann Arbor, Michigan- based company.
Home Point has been actively winding down operations since mid-2022.
In April, the mortgage company entered into an agreement to sell its origination channel to the Loan Store for an undisclosed amount. At the time, Home Point seemed to have plans to partially stay in the business, announcing that it would continue to manage its MSRs.
Prior, Home Point sold off a bulk of its Ginnie Mae MSRs and later its 50% stake in reverse originator Longbridge Financial to Ellington Financial for roughly $40 million.
